Rite Aid Corp (RAD) 2009 Q4 法說會逐字稿

Good morning. I will be your conference operator for today. At this time I would like to welcome everyone to the Rite Aid fourth quarter fiscal 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (Operator Instructions) Thank you.

Mr. Vitrano, you may begin your conference.

Thank you and good morning everyone. We welcome you to our fourth quarter and year-end conference call. On the call with me today are Mary Sammons, our Chairman and CEO; and John Standley, our President and Chief Operating Officer.

As you probably seen this morning we also released our March sales and shortly we will be announcing plans to close our Atlanta distribution center as part of our distribution center network consolidation program. So we have a lot to talk about today. Mary will give an overview of our fourth quarter and year-end results and I will discuss the key financial highlights and guidance for fiscal 2010. John will then provide some more detail on the quarter as well as fiscal 2010 plan as well as talk about our March sales. Mary will finish with comments on our overall outlook for the current Fiscal Year and then we'll open it up for questions.

As we mentioned in our release, we are providing slides related to the material we will be discussing today on our website at www.RiteAid.com under the investor information tab for conference calls. We will not be referring to them directly in our remarks but hope you will find them helpful as they summarize some of the key points made on the call.

Before we start I'd like to remind you that today's conference call includes certain forward-looking statements. These forward-looking statements are made in the context of certain risks and uncertainty that can cause actual results to differ. Also we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure along with the reconciliation to the related GAAP measurements are described in our press release. I would also encourage you to reference our SEC filings for more details. With these remarks I'd now like to turn it over to Mary.

Thanks, Frank. Good morning everyone and thank you for joining us on our call today. As Frank said we have a lot of news today, so let me begin with our fourth quarter and year-end results. As you can see from our release, non-cash impairment charges and the writedown of a deferred tax asset had a negative -- significant negative impact on our net loss. Excluding those non-cash charges, we had a net loss of $0.14 in the fourth quarter and a net loss of $0.79 for the year. Adjusted EBITDA was $261.4 million for the quarter and $965.1 million for the year within our revised yearly guidance. We finished fiscal 2009 with solid progress on our initiatives to improve our financial position, especially in the fourth quarter. We reduced operating costs as a percent of sales and trimmed working capital through significant inventory reductions. By generating positive cash flow from operations and conserving capital by reducing capital expenditures, we significantly improved our liquidity so that at the end of the quarter, we had more than $700 million of availability on our revolving credit facility and also maintained access to our accounts receivable financing. With the completion of the Brooks Eckerd integration and the strengthening of our management team, we have been able to significantly improve our business in the second half of the year.

As we continue to look for every opportunity to improve efficiency in our Company, it's important to note that many of the initiatives we have in place are not just to help us manage through the current economic storm. We are also changing the way we operate for the long term so that when customer spending picks up again we will see the impact on the bottom line. We expect these initiatives to deliver greater benefits in fiscal 2010 as we focus on improving cash flows and reducing our debt.

John will give you an update on where we are with these key initiatives and also talk about some of the programs we have to grow profitable sales. He and his team have done a terrific job of putting together a comprehensive plan that recognizes the need for us to give even more value to our customers as we create more value for ourselves. In this uncertain economy, we are focused more than ever on meeting the needs of this value driven customer which is evident from the additions we've made to our private brand offerings and the rise in our generic dispense rate to almost 70%. Our pre-Rx savings card which we launched nationally six months ago has helped make prescriptions for more affordable for more than 1.7 million patients.

Before I turn it over to Frank to provide financial highlights I want to take a minute to address the non-cash charge we reported today for goodwill impairment. Accounting rules dictated that in the fourth quarter we impair all of our goodwill, which is largely related to the Brooks Eckerd acquisition. While the impairment had a significant impact on our net loss, it has no impact on our business operations, credit facilities, liquidity or existing debt covenants. Just as importantly, it also has no impact on our continued belief in the long term benefit of the acquisition to our Company. We have already seen significant cost savings synergies in areas like purchasing, advertising, and administration. And as you can see from our release today on the closing of the Atlanta distribution center, we will soon reap additional benefits from our planned warehouse consolidation.

While the stores have not yet met original sales expectations, their pharmacy trends continue to improve in the quarter and also in March. And we have seen significant progress in generic dispense rate, private brand sales, and shrink control. And my recent round table with pharmacy managers and technicians in one of our newer markets impressed me with the dedication and committment our newer associates are bringing to our Company and the many good ideas they have for improving their business even more. Now, I'll turn it over to Frank for our financial highlights. Frank?

Thanks, Mary and good morning everyone again. I would like to say that I remain as excited about the opportunity here at Rite Aid as when I joined back in September, maybe even a little more so. Although there are certain accounting adjustments which are impacting the quarterly numbers, I believe we have made solid progress both in reducing our SG&A and improving our working capital position. As John will discuss in more detail, these were the first two areas we identified back in September as significant opportunities and where we were going to attack first. As the result indicate, we made very good progress in lowering our SG&A and improving our liquidity. A third priority was the renewal of our AR securitization program. During the quarter we refinanced our accounts receivable securitization facility in what I think everyone would agree was a very difficult credit market.

On the call this morning, I plan to walk through our fourth quarter and full year financial results, provide an update on the capital expenditure program, discuss our liquidity position as well as provide some thoughts on our September 2010 credit facility refinancing. Finally I will discuss our fiscal 2010 guidance.

This morning, we reported revenues for the quarter of $6.7 billion compared to $6.8 billion for the fourth quarter last year. The decrease in total sales was primarily driven by a reduction in total store count. In the quarter we closed 19 stores and quarter-over-quarter we had 158 net fewer stores. The year-over-year reduction in store count reflects combining acquired stores in close proximity to other stores and stores close due to under performance both of which improves earnings. Same-store sales decreased 10 basis points reflecting the weak front end holiday season and soft sales in February due to lower cough, cold and flu business than the prior year. Front end same-store sales were down 200 basis points and pharmacy sales were higher by 80 basis points during the quarter. Pharmacy sales include an approximate 301 basis point negative impact from new generic drugs and pharmacy script count decreased 90 basis points negatively impacted by the Brooks Eckerd stores. Script growth in core Rite Aid continues to be positive.

Excluding the acquired Brooks Eckerd stores, same-store sales for the 13 week, fourth quarter increased 80 basis points over the prior year with front end decreasing 1.9% and pharmacy growing by 2.4%. At the Brooks Eckerd stores, same-store sales decreased 1.9% during the quarter while front end decreased 2.1 and pharmacy decreased 1.9. Adjusted EBITDA came in at $261.4 million or 3.9% of revenues for the fourth quarter compared to last years fourth quarter of $276.3 million or 4.1%. The decline in sales and lower FIFO gross margin were partially offset by lower SG&A dollars. SG&A dollars adjusted for non-EBITDA expenses were $28.2 million lower and 1 basis point lower as a percent of sales. This improvement reflects the various cost saving initiatives which John will talk about including store labor management, field controllable expenses, and indirect procurement savings.

Net loss for the quarter was $2.3 billion or $2.67 per diluted share compared to last years fourth quarter net loss of $952.2 million or $1.20 per diluted share. The increase in net loss was driven by significant non-cash charges including a goodwill impairment charge of $1.8 billion or $2.10, a non-cash income tax charge of $280.7 million or $0.33 per share and a non-cash charge of $85.8 million or $0.10 per diluted share for store impairment. Last year's fourth quarter included a non-cash charge of $894 million or $1.12 per share to record a valuation allowance against deferred tax assets.

The goodwill charge of $1.8 billion was required under FAS 142 which requires the Company to test if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its net asset carrying amount. We tested for goodwill impairment in the third quarter and concluded that it was not impaired as our market capitalization adjusted for a control premium was higher than our net asset carrying balance. We disclosed in our third quarter 10-Q that we would likely have an impairment if our stock price did not improve over time.

Based upon the fourth quarter share stock price which was below our net asset carrying costs for the entire quarter, we concluded the goodwill was impaired. Under the accounting rules, we are writing off the entire amount of goodwill on our books including approximately $1.2 billion of goodwill added when we purchased Brooks Eckerd. The income tax expense of $289.4 million in the quarter relates to a writedown of our remaining deferred tax assets through the establishment of an additional tax valuation allowance. In our circumstance, the accounting rules do not permit us to assume future use of the $1.8 billion net deferred tax asset which includes our net operating loss carry forwards, and accordingly requires us to establish a full reserve. This charge does not impact our ability to use our NOLs, it just precludes us from recording them on the books.

The store impairment charge of $85.8 million relates primarily to the writedown of store level assets to their net realizable value based upon a five year discounted cash flow analysis. There were 269 stores included in this writedown. The three non-cash charges, the goodwill, the store impairment and tax asset writedown totaled $2.2 billion or $2.53 per share. Additionally the Company experienced product cost increases which resulted in additional non-cash inventory valuation LIFO charge as compared to last years third quarter, -- I'm sorry, last years fourth quarter. The LIFO charge was $94.6 million or $0.11 per share this year as compared to a LIFO credit in last year's fourth quarter of $25 million or $0.03 per share. Excluding the LIFO charge and the three other non-cash charges, net loss would have been $22.3 million or $0.03 per share in the quarter. Interest expense was $114 million or $13 million lower than the prior year due to a drop in LIBOR rates.

Were virtually no integration expenses in the quarter as compared to $37.7 million in last year's quarter. The Brooks Eckerd integration was completed in September. Gross margin dollars in the quarter were $165 million lower than last years fourth quarter or 1.97%. This includes the $94.6 million LIFO charge as compared to a LIFO credit last year. On a FIFO basis, gross margin dollars decreased $44.8 million or 19 basis points. Three quarters of that decrease in dollars was driven by lower sales with the balance resulting from lower promotional funding on the front end due to lower purchases and lower reimbursement, Rx reimbursement rates, partially offset by lower front end and Rx shrink and $20 million in lower distribution center costs as well as higher generic penetration. Product handling and distribution center expenses as a percent of sales improved 29 basis points due to operational efficiency improvements.

Selling, general and administrative expenses for the quarter were lower by $74.4 million or 65 basis points as a percent of sales as compared to last year. SG&A expense not reflected in adjusted EBITDA were lower by $46.2 million primarily driven by the $38 million in lower integration cost and an Rx anti-trust settlement partially offset by higher depreciation and amortization as well as severance cost related to workforce reduction which occurred during the quarter. Adjusted EBITDA SG&A which excludes the previously mentioned items and is calculated in the earnings supplemental information slide on our website were lower by $28.2 million or 1 basis point as a percent of sales. This reduction in dollars reflects the aggressive cost saving initiatives that have been implemented over the past six months.

The SG&A improvement was driven by better labor controls for about $37 million lower. We had lower advertising costs about $11 million and lower field controllable costs including supplies and maintenance costs partially offset by $10 million of higher Union health and welfare contributions primarily due to a pension holiday last year, higher occupancy cost as a result of the sale lease back transaction that was completed earlier in the year which was about $4.2 million higher, and then we incurred $4.1 million in higher accounts receivable securitization cost as a result of the new facility. These three items unfavorably impacted our year-over-year quarterly comparison by $18 million.

On a sequential quarter-over-quarter basis, we reduced our adjusted EBITDA SG&A from being 88 basis points unfavorable in the second quarter to 25 basis points unfavorable in the third quarter to a 1 basis point negative -- positive expense leverage in the fourth quarter. Overall we are very pleased with the progress made and expect continued improvements in the coming quarters.

As I mentioned in my opening remarks, we made significant improvement in our working capital initiative that began six months ago. Total FIFO inventory was reduced by $244 million over the prior year's fourth quarter with the lion's share coming from front end inventory. During the quarter, we had 158 fewer stores which accounted for a third of the reduction. A significant piece of the reduction was the result of our work.

As you can see from the results on the cash flow statement for the quarter, net cash provided by operating activities was $324.8 million as compared to $309.4 million in last year's fourth quarter. Inventory generated cash of $378 million as compared to $255 million last year. This is a direct result of the working capital initiative. Other assets and liabilities used cash of $177.3 million which include pre-paid rent paid in February for March, an increase in accrued expenses of $53 million and payments for closed stores of about $26 million.

Accounts payable with a use of cash of $88 million in the quarter, our days payable outstanding in the quarter was 23 days. This compares to 25 days in the third quarter. The decline from the third quarter to the fourth quarter reflects the historical seasonal shift. The inventory reduction initiative also influences our DPO as our purchases and payables were lower as we didn't replace all the inventory that was sold. It should be noted that the Company received one-time extended payment terms for certain front end items in fiscal 2008 to facilitate resetting the Brooks Eckerd stores. This abnormally increased our DPOs during fiscal 2008. Our DPOs at the end of this year is in line with days payable outstanding in fiscal 2006 and fiscal 2007. Our vendor partners continue to be very supportive.

Net cash used in investing activities for the quarter was $53.8 million versus $158 million last year. This reflects our proactive plan put in place six months ago to reduce capital expenditures. During our fourth quarter we opened six net new stores, relocated 10 stores and closed 19 stores. Our cash capital expenditures were $64.4 million which includes $3.1 million spent on completing the integration related remodels, $5 million to acquire script files as compared to $12.1 million script files purchased last year. On a year-to-date basis we opened 33 net new stores, relocated 56, acquired 9, and closed 200 stores. Our cash capital expenditures were $541 million which included $135 million spent on integration related activities and $80 million to acquire script files.

For the 52 week fiscal year ended February 28, 2009, Rite Aid had revenues of $26.3 billion as compared to revenues of $24.3 billion. Revenues increased 8.1% primarily driven by an additional quarter of sales for the acquired Brooks Eckerd stores. Same-store sales for the year which include 39 weeks of the acquired stores increased 80 basis points over the prior 52 week comp period. This increase consisted of a 90 basis point front end same-store sale increase and a 70 basis point increase in pharmacy same-store sales. The number of prescriptions filled in same-stores decreased 96 basis points negatively impacted primarily by the acquired stores. Prescription revenues accounted for 67.2% of total sales and third party prescription revenues were 96.3% of pharmacy sales. Net loss for fiscal '09 was $2.9 billion or $3.49 per diluted share compared to last years net loss of $1.1 billion or $1.54 per diluted share. Excluding significant non-cash charges, net loss for the year was $640 million or $0.79 per diluted share.

The significant non-cash charge include the non-cash charge related to goodwill of $1.8 billion, non-cash income tax charge of $307.7 million for recording the additional valuation allowance against deferred tax asset, and a non-cash charge of $157 million related to store impairment. These items accounted for $2.2 billion or $2.70 per diluted share of net loss. The LIFO charge was $185 million for the year or $0.22 per diluted share. Adjusted EBITDA of $965 million were 3.7% of revenues for the year compared to $962.8 million or 4% of revenues last year.

Now let's discuss liquidity. Which is an area that we've made significant progress. At the end of the fourth quarter we had $838 million of borrowings outstanding under our $1.75 billion senior secured credit facility, a reduction of $308 million of revolver borrowing from the third quarter. We had $188 million of outstanding letters of credit and $540 million drawn under our first and second lien accounts receivable securitization facilities.

At the end of the fourth quarter, we had $724 million of availability under our senior secured credit facility and today, we have $762 million available under that facility. Given our $240 million inventory reduction target for fiscal 2010, and its resulting impact on our borrowing base calculation, it's possible our maximum availability will be impacted. Our liquidity position remains a top priority for the Company and we plan in fiscal 2010 to reduce debt. During the fourth quarter, the Company successfully completed a $225 million AR second lien refinancing which further strengthened our liquidity position.

Although we still have 18 months before our September 2010 credit facility renewal, we are talking with our bank partners to explore refinancing options. Given the current credit market conditions, it's premature to predict the final outcome but we feel confident that through our various initiatives to reduce debt by improving working capital and our performance, coupled with a term loan or high yield offering, we will be able to fully satisfy our future liquidity requirements albeit at a higher rate which is not factored into our guidance.

Now, turning to our fiscal '10 guidance. We developed our plan based on our current sales trend and a weaker economy. The Company expects total sales to be between $26.3 billion and $26.7 billion and expects adjusted EBITDA to be in a range of $1.025 billion and $1.125 billion for fiscal 2010, same-store sales expected to improve 50 basis points to 250 basis points over fiscal '09. Net loss for fiscal 2010 is expected to be between $210 million and $435 million or a loss per diluted share of $0.23 (sic) (see press release) and $0.53. Our 2010 initiatives are not capital intensive and we have reduced our capital expenditure plan to $250 million. We plan to open 20 new stores and relocate 55 stores. We are not planning to complete any sale lease back transactions. We expect to be free cash flow positive for the year which will reduce our debt. The guidance does include a provision to close a total of 117 stores of which 67 stores will be closed in the first quarter as well as closure of our Atlanta, Georgia, distribution center which we announced this morning. That completes my portion of the presentation and I'd now like to turn it over to John.

Thank you, Frank. Nicely done. Quite a bit to go through there. I know there's a lot of noise in the fourth quarter results with the goodwill write-off and other charges, but the operating performance is actually pretty good and shows significant improvement in the key areas that we said were our focus last quarter. As Frank mentioned, adjusted EBITDA for the quarter was $261.4 million versus $276.3 million last year. As Frank class mentioned, last year's number includes a $10 million benefit from a Union health and welfare contribution suspension and this year numbers absorbs $4.1 million of incremental accounts receivable securitization fees and $4.2 million of rent from a sale lease back of Brooks Eckerd stores that occurred in the first half of this year. Also remember that last year's results included $38 million of acquisition related labor, advertising and other expenses below EBITDA which have been completely eliminated this year.

Helping us achieve our solid EBITDA performance in a difficult sales environment was a significant improvement in our SG&A expenses. In fact, our fourth quarter SG&A expenses declined from the prior year as a percent of sales and in dollars. On an EBITDA adjusted basis, SG&A as a percent of sales was just slightly below last year compared to just two quarters ago when it was increasing year-over-year by almost 90 basis points as a percent of sales. Contributing to our dramatic improvement in SG&A was a truly outstanding performance in labor control by our operations team which is particularly impressive given that several of our key initiatives designed to improve store productivity won't be rolled out until the second quarter of fiscal 2010. I should also mention that the labor improvement was in both front end and pharmacy and as the result of dramatic improvement in adherence to our labor standards and use of our labor scheduling tool.

Another big contributor to our improved SG&A was a significant reduction in our advertising expense resulting from reduced page counts and a tighter distribution of ads around our stores. Part of the page count reduction was reduced ad format that we tested in 566 stores during the quarter. Store supplies and other store expenses also improved in the quarter. In total, including the stores, administrative offices and distribution centers, we have reduced headcount by about 6500 people or 6% since August. Partially offsetting these and other improvements was an increase in Union benefit costs in part due to a health and welfare holiday as we mentioned earlier that occurred in the prior year, a $4.1 million increase in accounts receivable securitization fees, and rent in the current year from the sale lease back of the Brooks Eckerd stores that occurred in the first half of fiscal 2009.

Now also on the cost side but reflected in gross profit was a large reduction in warehouse and transportation expenses. Our product distribution costs declined over $20 million or 25 basis points as a percent to sales in the quarter. This improvement is due to more efficient transportation routing, biweekly deliveries, in 44 and 440 low volume stores, biweekly delivery on certain central pick items across the entire chain, a reduction in administrative headcount in our distributions facilities, lower fuel costs and lower product handling costs resulting from a significant reduction in inventory.

On that front, FIFO inventory declined $243 million from the fourth quarter last year. The inventory reduction resulted from the removal of 2600 low volume SKUs, lower back room inventory, a reduction in store safety stock in certain stores and categories, and a smaller amount of promotional inventory and lower volume stores. In addition to helping us reduce store and distribution labor, our lower inventory investment contributed to the improvement in our liquidity in the quarter. Despite our improvement in distribution cost, FIFO gross margin declined slightly or 19 basis points in the quarter. Front end margin benefited from a reduction in promotional markdowns, a 180 basis point increase in private brand penetration to 14.4%, and better shrink offset by lower scan credits and vendor funding resulting from lower inventory purchases and reduced promotional spending in the quarter.

Pharmacy margin also declined slightly in the quarter due to continued pressure on reimbursement rates, mostly offset by generic, increased generic penetration. As Mary mentioned, generic penetration increased 300 basis points to almost 70% in the quarter. As Frank mentioned, total comps for the quarter were down 10 basis points. fourth quarter front end same-store sales decreased 2% over the prior year with core Rite Aid decreasing 1.9% and the acquired Brooks Eckerd stores declining 2.1%. Front end sales were strong in vitamins, GNC, general merchandise, and some consumable categories but weak in seasonal categories, cough, cold and flu and related categories, and photo with most other categories near the total results. Front end sales may have been impacted somewhat by a reduced page count and promotional spend which was due in part because we didn't repeat several Brooks Eckerd integration ads from the prior year. But from an overall profitability perspective, I think we came out ahead here.

Fourth quarter pharmacy same-store sales increased 82 basis points over the prior year with core Rite Aid increasing 2.4% and the acquired Brooks Eckerd stores decreasing 1.9% and as Frank mentioned, total script count declined about 90 basis points in the quarter. A weak cough, cold and flu season was a significant negative factor impacting script count in the quarter. Script count grew in the core Rite Aid stores but declined in the Brooks Eckerd stores although the decline in the Brooks Eckerd stores was at a lower rate than the third quarter and we showed sequential improvement in every quarter this year. Script count in the quarter was helped by the continued growth of our Rx savings card and courtesy refill programs. Over 1.7 million unique customers have used our Rx savings card and 1.6 million customers have enrolled in our courtesy refill program.

March pharmacy same-store sales increased 2% with core Rite Aid increasing 3 points, March pharmacy same-store sales increased 2% with core Rite Aid increasing 3.7% and the Brooks Eckerd stores declining 0.9%. March front end sales which declined 6.3% were significantly impacted by the shift in Easter with a decline in Easter related categories impacting front end comp sales about 400 basis points. I think the Easter impact may be larger than that but I don't know how to quantify the impact of the lost seasonal baskets on the rest of the categories in the store. Core Rite Aid sales declined 6% and the Brooks Eckerd stores declined 7.3%. Front end sales were strong in vitamins, GNC, and electronics and some consumable categories but weak in seasonal categories and photo with most other categories near the Easter adjusted results.

Looking forward to fiscal 2010, I'm very excited about the significant opportunities before us. We have a great opportunity to grow profitable sales in both front end and pharmacy, reduce our costs, increase our cash flow, and improve our capital structure. Ultimately I think we can create a lot of value for all of our stakeholders but we have a lot of work to do.

As you would expect of a retailer with 4900 stores we have a diverse customer base, and as I talked about on the last call we also have a very diverse store base in terms of operating performance. Our opportunity is to meet the needs of our diverse customers and tailor our initiatives to address the varying level of operating performance in our store base. Our segmentation approach will enable us to do this, which we believe is the key to unlocking Rite Aid's value. With this in mind, we have a number of initiatives under way, many of which I just discussed, which have had a significant impact on fourth quarter results particularly in SG&A.

Segmentation initiatives for 2010 include a new low volume store operating model including changes to store labor, delivery frequency, ad format and merchandising, and a new metro store operating model also including changes to store labor, ad format and merchandising. Operating efficiency improvements for our higher volume stores that will help them maximize their EBITDA margin and a field structure reorganization designed to meet the different levels of supervision required for different types of stores. In terms of the status of the segmentation initiatives, several of the key components of the low volume operating model were tested in the fourth quarter including the new ad format and the change in delivery frequency. While we still have a few bugs to work out I'm pleased with the results of these tests and am encouraged we are going to be able to improve the cash flow contribution from our lower volume stores as we get these initiatives rolled out over the next couple of quarters. Our new model for the metro markets was originally tested in Philadelphia. We made some significant improvements to the program, and we're in the process of implementing this program in another metro market right now.

During the fourth quarter we reorganized the field structure to place more direct supervision closer to our higher volume and hard to operate stores while eliminating some higher level field supervision to make this change cost neutral. Initiatives that support segmentation but impact all stores include SKU optimization, our new strategic pricing application, promotional and seasonal demand forecasting, building our private brands, consolidating our distribution network and our Rx loyalty program.

SKU optimization has been completed for three categories and is in the process of being rolled out in new planograms right now. We plan to use the same model for all new ones planograms starting in the third quarter. The strategic pricing application tool was completed in the fourth quarter and is being rolled out in a test market right now. I think this tool will really help us improve our pricing and show the consumer a better value without sacrificing a substantial amount of margin.

We are working on ways to improve our promotional and seasonal forecasting. Seasonal selection in quantities have been modified to reduce product distributions to low volume and metro stores which typically don't sell a lot of seasonal products and increased distributions to higher volume suburban stores that do sell more. We are also working on improving our promotional forecasting which we think is a significant sales and customer service opportunity and we will have more about that in future quarters.

As I mentioned, private brand sales are growing strongly for us and we have a great opportunity to continue to grow them this year. In Fiscal 2010, we'll add 250 new items, execute a package redesign for substantial number of items and provide aggressive promotional support. We expect private brand penetration to grow another 100 basis points during fiscal 2010. We have an excellent opportunity to continue to make our distribution network more efficient as we reduce our inventory. As I'm sure you saw this morning, we announced we will be closing our Atlanta distribution center which will save us $3.6 million annually. We also announced during the fourth quarter that we are closing our Bohemian distribution center on Long Island which will save us $1.3 million annually.

I'm very excited about our Rx loyalty program that we will be launching in the second half of this fiscal year in certain test markets. I think this program will help us build loyal customers in both the pharmacy and the front end with the lead to improve sales and profitability. We'll have more to say about that as our launch draws near. In addition to the Rx loyalty program, other sales building initiatives include regional targeted marketing efforts, a grassroots script count growth program, a new floor adds, ad format supporting health and wellness positioning and improving our value positioning.

We have two regional marketing efforts under way right now in areas we have identified with good potential for a return on the incremental investment. Our grassroots script count program, which evolved from last year's successful, Make it Personal program engages store associates to gross scripts in their stores using a variety of tools we provide them including transfer coupons. Associates that achieve the script count growth target in their store will receive a special bonus. Our new ad format which will be launched in the second quarter will be much easier for consumers to shop, will show a better value presentation to the consumer and will support our new health and wellness positioning. We have a number of other things under way to improve our value positioning including pricing, private brand, and our new ad format that I've already mentioned and some additional merchandising changes that we are working on.

In addition to these initiatives, we have a number of other operating initiatives focus on reducing shrink, reducing indirect procurement expenses and reducing our administrative costs, which includes a wage freeze for all salaried non-store associates. In terms of quantification, the initiatives identified above should provide us cost savings and sales growth that have an EBITDA impact of $300 million in fiscal 2010, which will be partially offset by cost increases. Many of these initiatives will also provide significant benefit in fiscal 2011 as well. In addition to EBITDA improvement, these initiatives should help us take another $240 million of inventory out of the system next year.

Ultimately, the operational improvements we are making should make our stores run better, which will significantly improve the shopping experience for our customers and make our stores a better place for associates to work. I think you can see now why we are so excited about the future. I'll now turn the call back to Mary.

Let me just jump in here. I just want to clarify something with regards to the guidance, the EPS range is $0.26 to $0.53, I think I misspoke, I apologize for that. And also, in fiscal '10 going forward, our adjusted EBITDA is going to exclude both interest expense as well as securitization cost, okay? Securitization cost in fiscal '09 was approximately $26 million and that's outlined on Chart 10 of the press release package. Mary?

Thanks, Frank. And thanks, John. As you can see from John's remarks and our fourth quarter results, we're working diligently to improve our business overall and as I said at the start of the call, improvement for the long term. While we expect that retail spending may pick up somewhat as the year progresses, we've taken the conservative view that the recession and unemployment will continue to negatively impact us throughout fiscal 2010 and are planning accordingly. We will continue to look for additional ways to grow profitable sales by increasing the value of our offerings, building customer loyalty, and as John described, unlocking the value of our diverse store base. At the same time, we will continue to aggressively pursue reducing costs by operating more efficiently and taking unnecessary expense out of the business. As John said we believe we have a lot more opportunity in those areas. All of these initiatives are designed to improve cash flows so that in fiscal 2010, we are in a position to start reducing our debt.

We are also committed to growing associate and customer satisfaction and recognize how important our associates are in creating the customer experience. We owe much of our success in improving results in the back half of the year to our associates efforts and their success in raising their level of service to their customers and I want to thank all of them for their committment. Now, Operator, we would be happy to take questions.

(Operator Instructions) Your first question is from the line of John Heinbockel with Goldman Sachs.

A couple of things. When you look at the capital budget for this coming fiscal year, what are you guys planning in terms of file buys? Numbers and then maybe what might the amount look like?

John, right now, we've scaled down our plans for fiscal '10. Last year we spent about $80 million and right now we're planning to spend about $10 million.

Now would you think there's more of an opportunity to buy good files given the economy, Medicaid cuts, et cetera such that that $10 million could end up being a lot higher or would that make the overall capital spend of 250 higher where you'd pull out from other areas?

I think, John, we would pull out from other areas because I think it's really important for us to stay focused on keeping overall expenses from the levels we've built into our plan. Now business improves also at a faster clip and we see faster traction on a lot of the initiatives that John talked about it certainly could open up more dollars but we believe we should be very prudent in all of our spend this year.

You would rather spend more than $10 million, correct, on file buys if you could?

Well, I'd like to spend more than $10 million but I'm pretty focused on getting our debt down here, John. That's really the story here so there's a trade off, there's obviously a trade off, there's a high return on a file buy and there's also at this point, it's pretty important to increase liquidity and get this debt down so that's the trade off.

Do you have to spend on the new and relocated stores or can you push those out?

Well, I think and honestly that's where I think it comes from, right now we've worked very diligently to quite honestly shrink the pipeline as far as we can, realistically, it's very possible additional stores could fall out over time and that could create some flexibility for us on the file buy side but right now that's our plan.

And a follow-up to that, where do you see the Medicaid reimbursement environment right now? Obviously some states have been in the news but you would think it's going to get tougher as we go through this year into 2010.

I think the Medicaid reimbursement rate environment has been pretty tough and we've seen it in the fourth quarter. It's still an issue like it was in the fourth quarter and the first quarter and I think it's going to continue to be all year. Things we have going for us again is generic penetration and I think that's one thing that a lot of the Medicaids can do is work on their mix and improve their generic penetration. That will help them.

And I think as the whole healthcare reform begins to unfold, I think you're going to see more emphasis put on helping the states be able to do what they need to do with these Medicaid programs too and I think John's point on continuing to push on increasing generics will help the states with their spend.

All right and then finally, if you look at some of the cuts you've made so cutting back labor and advertising and inventory, is there any sense that that has contributed to some real -- a step down particularly in front end comp, not so much pharmacy but is the front end weakness just all macro do you think?

I think it's a little of both John. I think when we went into this we said we try and be cautious and have as low impact on the store with all the things we're going to do and I think we tried to test things and be cautious but clearly when you make the changes that we're making there can be some changes on the top line and realistically, there probably has been some but I think the things that we're doing get better every day, as the stores get used to executing it and get used to the changes things bounce back a little bit and you steadily get better.

Because your comment on Easter impact would suggest that the March front end trend is kind of similar to the prior months.

Yes, it went back and forth about whether to really say anything about that. The thing I cautioned about in my comments and I'll caution you too right now is there are certain very specific Easter categories, I can see Easter candy, I can see some greeting cards, I can see certain things but clearly those baskets had impact all across the store, so that's probably the low end of what the impact is. Having said that, we'll see how the next month shakes out.

And I think until you really get through April, you really can't separate it out and you can already see strengthening in front end as you move past last year's Easter and begin to hit this year.

Okay, thanks.

Thanks, John.

Your next question comes from the line of Meredith Adler with Barclays Capital.

Thanks. I'd like to first talk a little bit about some of the pharmacy programs you're talking about. What are the economics of some of these coupon programs that you have and I assume you've tested the programs where you give incentives to employees to drive script volume. What is the cost effectiveness of that and how effective are they generally?

Yes, I guess the biggest one we did was last year we did a program called, Make it Personal where we basically incentivized stores and that program was really stores were incentivized based on the number of coupons that got used that's basically how it worked. We saw a tremendous amount of traction from that program. We got a large number of scripts in. We've tracked the performance of those scripts over time to see how they behave, did we retain those people and actually had a very good pay back when you kind of stirred it all together. We modified that program. We have one going right now in the first quarter which I refer to as the grassroots program because it's not just transfer coupons. There's a number of other things we've asked associates to focus on including the courtesy refill program and other things and what we're finding is that it has a very good pay back on it. In terms of just transfer coupons by themselves when you use a $25 transfer coupon you need at least a couple of refills to get the economics of that to really work and when we stir it all together and look at it on a whole big pool of transfers related to those coupons we are getting an adequate amount of retention to pay for those things so it seems like they are working.

And then a question about distribution. All you really commented on today was closing Atlanta and Bohemia. Bohemia I believe was an overfill facility. Is Atlanta a full line distribution center and without mentioning specific areas, is there more opportunity to reduce your distribution network?

Yes, Atlanta was a full line distribution facility and I think we're going to have additional opportunities to make this network more efficient. Are we going to take out additional whole warehouses I'm not sure I know that yet but we have a number of satellite facilities and that's probably the next step in this thing is to try and work down more satellite facilities.

And then my final question would be in terms of addressing inventory at the stores and the back rooms, can you talk at all about the specific initiatives that get you to lower inventory at the stores and how much of it is a function of the volume the store is doing and how much of it is just generally becoming more efficient in applying better tools?

Well, part of it is the skew optimization process that we're going through. I mean we're really trying to look at the number and mix of skews inside the store, and so that's a fairly big effort that takes some inventory out so that's a portion of our target for next fiscal year. We also have a back room inventory project and I didn't mention that we're very excited about. We used it at another Company and it worked really really well. We're testing it here in a few stores right now and we're seeing very good results from it and the concept there is really to make that back room inventory more productive. A lot of times inventory gets hung up or lost in a back room particularly when you use totes like we do to transport inventory and you can't necessarily see what's in the back room.

The back room inventory system creating an inventory accounting methodology for the back room that allows the stores to be able to stand on the sales floor and look and see effectively if that item is in the back room and know right where it is which tote so it makes it much more efficient to work inventory out of the back room and we think we're going to get a bunch of inventory associated with the back rooms from that. In addition to that we're looking at safety stock and the stores as I mentioned kind of the min/max levels that goes to your point about lower volume stores and higher volume stores and how much safety stock you really need, does it need to be the same across all stores which it doesn't and so there's just a number of different ways to get at this inventory investment. I tell you the skew optimization project is probably about half of what we're looking for next year and the other half of it is probably, what's that? And also, we're looking at the way we're handling promotional inventory in the lower volume stores, so there's probably two or three big chunks here, skew is one, promo is one, and the back room and the store level is probably the third.

And then just a final tied into that, do you need to add technology to accomplish those inventory goals and are you getting support from vendors, is this something that they think is good?

Most vendors really support it and I'll tell you one of the things that Rite Aid has struggled with historically with the vendors is a large number of returns because we've had large returns expense in part due to our volume per store and so as we get our inventory investment more efficient it's going to take pressure off of returns expense so I think the vendors very much support that. Obviously vendors should get their skews reduced, aren't thrilled about that but overall I think it's going to be very positive to our vendor relationships and take some pressure off of discussions about returns expense. As we look at technology we have the fundamental technology in place to execute what we need to do. The areas where we're working really deal with kind of I'd almost call it ad hoc modeling. They aren't store systems changes. They are analytical tools that we're using behind the scenes. We've been building a tool on the skew optimization. We've also been working on a tool for our promotional forecasting and so those are two kind of behind the tool scenes, and we've made a tool that's already kind of done, we're testing for the stores in terms of the back room inventory so those are the technology changes but it's not like we got to rollout a new perpetual inventory system or anything like that.

Meredith, I'd add too that with all of the points John made in his comments earlier, this whole view of looking at the store base in segments is a real key to this and I've brought up the promotional piece but it's really everything, you need the same kind of assortment and I think in the past you tended to put too much into those stores and as we follow that issue as well as operate them better you're going to end up with really taking a lot of inventory out of the pipeline.

Okay, I guess I'm sorry I'll ask one more question.

Sure.

Based on your early tests for these programs, do you believe that the pace of store closures can slow meaningfully in out years, that you will have the stores and you'll be getting them running in a way that's cash flow positive?

That's our objective. I mean I always like to leave a lot of flexibility on these things because things can twist or turn along the way and we still have some work to do to I think get to a final conclusion on this but I think we have a real opportunity to get a better model for these lower volume stores that could definitely have a huge impact on our profitability and could make a large number of them much more sustainable than they are today so I think that will definitely have an impact on future closures as we get these thing to work.

Great. Thank you very much.

You're very welcome. Thank you, Meredith.

Your next question comes from the line of Edward Kelly with Credit Suisse.

Yes, hi, good morning.

Good morning.

John, you touched on this a bit earlier but you clearly believe that there is a good opportunity out there on the cost side and on the working capital side. You've mentioned that they have had maybe some impact anyway on sales, but given tat it seems like most of this opportunity is still ahead of you, what's the risk that the impact on sales actually gets larger from here, not smaller?

I think, I tell you what's changed in my thinking a little bit about this along the way. When I initially started and what we outlined on the last call was really a lot about SG&A and that's what we really attacked aggressively here in the last three to six months but as I get more and month into this thing, I get more and more excited about the sales opportunity on this thing, Ed, I think there's a lot of potential on the sales side and I'll tell you something, a lot of the things we're doing on the SG&A side I believe are going to make our stores easier to run for store management and for store associates. We're doing a lot of things to empower the stores, we're trying to simplify things, we're trying to make it easier to run a lower volume store. As we do that I think ultimately our store conditions are going to get a lot better because it's going to be flat out easier to execute in one of these stores and I think that's what's going to drive the long term sales growth of this Company. So I think the answer is on this thing there may be a small amount or some amount of short-term pain that we have last quarter, that could continue to nibble at us a little bit as we go through this, we're going to try and minimize that to the best ability we can but getting these things right leads to the long term growth of this Company and that's what we need to do. That will get us there in the long run as we get these store conditions improved and I know Brian and Ken and everybody else are really working hand in hand here to improve these stores and I think we'll end up in a great place.

And I'd also add too with the higher percent of revenues coming out of pharmacy and you look at the trends on pharmacy in the core stores and the continuing improving trends on the pharmacy side for Brooks Eckerd and what John described as initiatives around pharmacy, loyalty and loyalty offerings, I think that's also going to be a real plus too as we get more pharmacy customers in getting them to be front end customers in our stores.

Okay, great and then could you provide a little bit more color on the skew rationalization? I don't know if you can tell us sort of what percentage of the skews you're looking to sort of cut out, how are you making these decisions and are there categories that are more effective than others?

Yes. I guess first of all in terms of how we're doing it what we've been working on and what we tested in three quarters, three categories was a transferable demand model which the concept basically is to we have a lot of data here around all of the items in the categories and what we try and do is do some analysis that gives us some sense as you change the category, take items in or out whether that demand will transfer or whether that demand is lost, right? And you do that by kind of trying to understand what's important to the consumer about a category. Is it flavor? Is it size? Is it attribute? What is it that's driving the key decision in that category by consumer in terms of what they purchase so that's the transferable demand concept. That's what we were testing in those three categories that we're rolling out right now. We'll see how they behave as we get them out so that's how we're going about it.

In terms of categories, generally speaking categories with more SKUs will have a better opportunity for this thing to work. If it's a fairly narrow category with not a lot of SKUs in it the transferable demand concept just won't go there so that's really where you go. You can visually just see quite honestly or probably over skewed when you go into a store and that's where you're going to find most of the value in this thing. I don't know if I answered all the parts of that question. What else was it? In terms of the potential in it, I think we're targeting something in the 5% to 10% of our SKUs to kind of get at that number.

Okay. And is this as simple as just saying you don't need five flavors of a certain product or is it deeper than that saying, maybe we don't need to carry the top four brands in a certain category and maybe we should be relying on just the top two?

And again right there it's going to depend on the decision tree that you think drives the consumer. You're going to go to some categories and say that flavors are very very important, it might be hair color and we need to have all of the different flavors in hair color, because a customer comes in as if they want to be a blonde versus a brunette they are obviously going to leave if we don't have what they need, right? So in this particular instance we need flavors. We might go to another category where we carry three national brands that all have the exact same attributes and say you know what? Brand name maybe isn't relevant here. It's the attributes whether it's dandruff control or some attribute the consumer focused on, so now I don't need to have three national brands al with that attribute, I can take a national brand out or two and have the attributes but I don't need all of the different brands to get there. Does that make any sense?

Absolutely.

Okay.

Last question for you, you talked about private label penetration increasing I think you said maybe another 100 basis points or so.

Yes.

Is that adding product or is that giving it better facings? Is that done on pricing? How do you accomplish that initiative?

I think we mentioned it. There's a couple of key things we're working on. First of all we did say we're going to add probably 250 additional items in this fiscal year. We are working on our package design which we think is important just from an appearance and then we are looking at the merchandising of it and we're supporting private label right now pretty well with promotion and we're going to continue to do that.

Okay. Great. Thank you.

You're very welcome.

Your next question comes from the line of Mark Wiltamuth with Morgan Stanley.

Hi, good morning.

Good morning.

I'm focused on getting over the September 2010 revolver refinancing. Just if you could just outline a little more detail on how big you think that final refinancing number is going to need to be? It looks like right now your balance on the revolver is about $920 million and if you hit your working capital reduction targets, it looks like something around 680 million or $700 million left to go, just how big a free cash flow number do you think you can hit 2010 if you hit your adjusted EBITDA goals?

Right now, Mark, as we kind of model this thing out, our ability to generate free cash flow is in a range of 200 million to $250 million, okay, which is really derived by the reduction in the CapEx program, the working capital initiatives, the improvement in our performance and the strategy here is to use that to reduce what our overall borrowing requirements are going to be on a go forward basis.

Okay, and then I guess the remaining parts are just the size of the debt deal and then that just leaves you with the remaining amount to refinance. Do you have any sense from the banks on how big a number they're comfortable with refinancing?

We're continuing to have those discussions. I mean, sitting here today our revolver availability, our revolver facility in total is $1.750 billion. It's not going to be $1.750 billion just given the marketplace today, but it's going to be something less than that. We've heard different rages so I won't necessarily comment in terms of what it might be, but it clearly will be less which is why whatever gap there would be between the $1.750 billion and whatever the revolver balance can be, we would fill by reducing our debt to $250 million as well as doing some other supplement piece of paper either a term loan or a high yield piece of paper.

And we have additional secured debt capacity.

And we have additional secured debt.

We have a number of different tools to work with.

So your overall confidence level on getting this done without asset sales, give us some sense of that?

We're confident that we're going to be able to get this thing done.

Okay, thank you very much.

Okay.

Your next question comes from the line of Robert Willoughby with Banc of America Securities.

Hi. Can you break out what portion of the inventory on the balance sheet actually is pharmaceuticals and have you ever explored opportunities or are you exploring opportunities to move to distribution relationships more on a consignment basis?

Well, the split on inventory, about 60% of our inventory is front end and 40% is pharmacy.

Great. Thank you.

I don't think we're headed in that direction and the issue there is you give up buying power and allowances and discounts and things so it's not a great answer, quite honestly and I don't think it's somewhere where we need to go.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Carla Casella with JPMorgan.

Hi. I have one housekeeping question, annual rent? And then I have got a few other follow-up questions.

Why don't you ask that question and we'll try to get that number.

Okay, rent expense, and then what percentage of your total sales pharmacy today is Medicare? You may have said that, I think I missed it.

Medicare is probably about 19% of sales.

Okay and you haven't made any changes like what we've heard from some of your competitors where you aren't servicing certain markets because of reimbursement rates or are you thinking of considering doing the same?

Are you talking about Medicaid?

I was talking about in Washington State there was a--.

Yes, that's Medicaid.

Okay.

And I think over the years, issues have come up in other states relative to punitive Medicaid reimbursement rate proposals and whatnot and we've taken different actions depending on what that rate is and right now, this is sort of in a state of flux, even in the State of Washington and there has been some litigation that's already taken place in and they are sort of putting that on a halt to what is happening there at least on a temporary basis but we'll monitor that and we'll make decisions based on what it does to specific given stores. We have a pretty good Medicaid business there in that state and some stores do a larger percentage of Medicaid sales than other stores and it really is a by a store decision.

And then Medicaid what percentage is that of yours, total pharmacy?

It's about 9% of our total.

Okay, great. And then your low volume stores, you had talked about you're promoting less at some of those stores and we may see some sales weakness. What about on the script side or gross margin dollars? Are you seeing in the markets where you started that the gross margin dollars are up even though the sales are down?

Pretty much, yes. There's clearly a trade off there and the way in terms of the low volume stores, I think we just talked about inventory impact and overall promotionally we spent a little less, actually a lot less in the fourth quarter than we did in the prior year so that's kind of more specific about the sales comments. As far as the low volume stores go, what we change there in the 566 stores, we ran a test ad that was a reduced page count ad, initially when we tried that test that did get the sales going sideways a little bit but as we worked our way through we made some improvements to the ad and got it down a little bit. We really saw the sales in those stores actually perform as well as the overall chain so they actually did fine once we kind of got it worked out and got it going the right way, so I think overall, we're going to be able to get this stuff to work without having a huge sales impact here and I think it's going to help the margins and I think it's going to get some cost out of this thing.

And on the script side are those stores low volume just in general or do they have a different mix between front end and pharmacy?

They are generally low volume overall. Those stores that we're addressing there, we've kind of diced up the store base. We have some stores, it's kind of interesting, we do have some stores that are high volume stores that are a little bit underproducing in the front end and vice versa and that's kind of a different group of stores where there we're more focused on the cross-marketing opportunity between the front end and the pharmacy and we're pretty excited about that too because we think there's a great chance to grow sales in those stores. So we're attacking that group of stores a different way but generally speaking when we talk about lower volume stores, they are low both in the front end and pharmacy.

And is the script count coming up at all from your efforts?

The script count is probably behaving pretty close to the total chain in those stores, but it hasn't really impacted the pharmacy per se.

Okay. And then the store closures you talked about for next year, are any of those full markets where you maybe able to sell some of the markets or scripts?

No.

Okay.

And Carla, to go back to your initial question, it's net rent would be just under $1 billion.

Okay. And then the $20 million of DC savings in the fourth quarter is that a good run rate to go forward until we hit the closures of Bohemian Atlanta or was that, do you think that was particularly strong savings this quarter because of lower fuel costs, et cetera?

I think we're going to continue to see good savings. The only thing we have to be careful about is the sales volume in the fourth quarter is a little bit higher so the percent may fluctuate a little bit but the savings we got we think will go forward into fiscal 2010.

Okay, that's great. And then just one last question. The impairment you took does that affect any of your bank lines or borrowing ability?

No.

No, it doesn't.

Okay. Great. Thanks.

And we'll take one more question.

Thank you, sir, your final question comes from the line of Emily Shanks with Barclays Capital.

Good morning. Thanks so much for squeezing me in. I just wanted to make sure, Frank, I heard your comments about fiscal year 2010 inventory reduction you said $240 million; correct?

Yes. That's correct.

And then if I could, you also in one of the questions referenced your ability to incur debt. Is it still around the 812 number that it was at the end of third quarter or what is your debt incurrence capability at the end of fourth quarter?

In terms of second lien?

First and second and then maybe if you could tell me second.

Yes. The comparable number would be 870, Emily.

Okay. And I can just assume that that incorporates the additional incremental availability under the revolver and then the rest of it can be done in second?

That's exactly right.

Okay, great. And then sorry just two more questions. Around the sale lease back market, I know that you said that you don't plan on utilizing it for this fiscal year. If you could just comment to us if it's, I know in the past call you actually described it as frozen, if that is the case? And then if you could just update us on what the unencumbered real estate left over is right now in terms of stores, DCs and headquarters, please?

Yes, in terms of owned stores there's about 225, 230 owned facilities that would be unencumbered .

I think it's seven DCs we own.

And in terms of sale lease back market, it's just generally been pretty soft out there so we don't see it's very prudent to plan to have any in our plans.

Okay. Great. And then just my final one. We appreciate the slide deck that you provided particularly the CapEx details. If you could just give us a little color around the significant year-over-year reduction on the back stage infrastructure and maintenance line item, can you just talk to us about how you're thinking about that, what your comfort level is with dialing maintenance CapEx to those levels and then as you look close 2010 will there be a period that you actually need to basically ramp up or do catch up CapEx at all? And how should we think about that?

Emily, the driver in back stage infrastructure and maintenance between '09 and '10, that's largely the reduction in the file buys. So that's really what changed it. And in terms of our plans going forward, we would clearly look to increase our CapEx spending going forward but as we kind of look at the priorities for fiscal 10, it's really to reduce our overall debt here and a lot of the initiatives that John and Mary have talked about are really not capital intensive initiatives. So really, as we kind of look at this thing, there were new stores that we were committed to and most of what we have in the CapEx program is really in new stores we were committed to and some maintenance CapEx.

And I think as the CapEx recovers, it will probably be blended a little bit more towards the existing store base, right? And a little less on growth until we do that effective catch up.

Okay. Do you think, can you give us maybe a sense of how, well, okay. That's it. I'll end there. Thank you.

Okay.

Thanks Emily.

Just again, thanks everybody for being on the call. We appreciate your interest in our Company.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.