Sally Beauty Holdings Inc (SBH) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the fiscal 2009 second-quarter earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given to you at that time. (Operator Instructions). As a reminder, today's conference call is being recorded. I would now like to turn the call over to over to Karen Fugate. Please go ahead.

Thank you, Cynthia. Before we begin, I would like to remind you that certain comments or matters such as forecasted financial information, contracts or business and trend information made during this call may contain forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. Many of these forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "anticipate," "estimate," "assume," "continue," "project," "plan," "believe" and similar words or phrases. These matters are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in the Sally Beauty holdings SEC filings, including its 2008 annual report on Form 10-K. The Company does not undertake any obligation to publicly update or revise its forward-looking statements. The Company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.

With me on the call today are Gary Winterhalter, President and Chief Executive Officer; and Mark Flaherty, Senior Vice President and Chief Financial Officer. Now I would like to turn the call over to Gary.

Thank you, Karen, and good morning, everyone. Thank you for joining us for our fiscal 2009 second-quarter call. I will begin today's discussion with a high-level review of our financial results and business initiatives. Mark will then take you through the results in more detail.

For the 2009 second-quarter, Sally Beauty Holdings had solid financial results, which reflect strong operational performance and further demonstrates the recession-resistant nature of our business. Despite the tough calendar comps of losing a day in February and the Easter holiday shifting to April, same-store sales grew 2.1% and we nearly doubled GAAP net earnings.

We ended the quarter with a strong liquidity position of $105 million of cash and no outstanding borrowings on our ABL facility. From a working capital perspective, inventory has declined by almost $60 million year to date.

Consolidated net sales for the second quarter were $642 million, a slight decline of 0.3%. Unfavorable foreign currency exchange of $26.2 million, or 4.1% of sales, was a significant driver behind the results. A sales decline in the franchise business also dampened growth.

The cost reduction initiatives we implemented during the first quarter contributed to operating margin improvement of 110 basis points over our 2008 second quarter. Consolidated operating margin reached 11.3% compared to 10.2% in the prior-year quarter. As you may recall, these cost saving measures include a temporary hiring freeze, deferred merit increases for upper management, and variable expense reductions related to payroll and benefits.

SG&A benefits were down by 1.2% year-over-year and as a percent of sales were 34%, a 40-basis-point improvement over the second quarter of 2008.

Net store count was 3,807, an increase of 4.5% or 163 stores over last year's second quarter. We remain on course for organic store growth of 3% to 5% for the year.

Now turning to segment performance, starting with Sally Beauty Supply. The Sally business grew net sales by 1.5% over the 2008 second quarter. Sales growth was significantly impacted by unfavorable foreign currency exchange.

Same-store sales as reported on a constant currency basis grew 2%. Although sales growth was more favorable in Sally North America, the Sally Beauty performance was a drag on overall growth.

We mentioned last quarter several business improvement initiatives we launched in the UK. And although we still have work to do, we are pleased with the progress made to date. The assisted replenishment program continues to outperform our expectations, and is now approximately two-thirds complete. We remain on track for a June or July completion, and are optimistic that the performance in Sally UK will progressively improve over the next several quarters.

In March, we continued our customer acquisition campaign in support of our CRM program at Sally US. Based on the success of the mailings in a 400-store area during October, December and February, we doubled the stores involved to a total of 800. Each of these mailings include 2.2 million perspective customers and approximately 500,000 of our top beauty club customers. We have two additional mailings scheduled for the second half of this year.

During the second quarter, our BSG segment grew same-store sales by 2.3%. Net sales in BSG were $229 million, a decline of 3.4% over the prior year's quarter. Sales growth was impacted by unfavorable foreign currency exchange and lower sales in our franchise business. BSG's gross profit margin was slightly down by 30 basis points from last year due to foreign currency transaction adjustments, as well as an unfavorable sales mix in the BSG franchise business.

Operating margin for BSG improved by 130 basis points over the year-ago quarter to reach 8.9%. This margin expansion is primarily the result of cost reduction efforts and the anniversary of $2.6 million of warehouse optimization expense and DSC retention costs. The BSG segment ended the second quarter with 934 stores, including 163 franchise locations for a year-over-year increase of 3.2% or 29 stores.

To summarize the quarter, we executed well, and once again demonstrated the recession-resistant nature of our business. Having said that, we remain cautiously optimistic heading into the second half of our fiscal year as the business environment remains challenged. We plan to continue our efforts to contain costs and maintain a solid financial position and capital structure while making prudent investments.

Now, Mark will provide more financial detail for the second quarter.

Thanks, Gary. Consolidated net sales for the 2009 second quarter were $641.5 million, a slight decline of 30 basis points from the 2008 second quarter. Consolidated gross profit was $302.1 million or 47.1% of sales, a year-over-year improvement of 70 basis points. This improvement is driven by the continued margin expansion in our Sally North American business.

Second quarter consolidated SG&A expenses were $218.4 million or 34% of sales, a 40-basis-point decrease from the 34.4% in the year-ago quarter. SG&A expenses decreased $2.7 million, principally due to cost control efforts across the business and a decline in unallocated corporate overhead expense of $1.8 million.

Partially offsetting this decline is an increase in rent and occupancy related costs from incremental stores and higher advertising and administrative costs in the Sally segment.

Consolidated operating earnings in the second quarter improved $6.7 million to $72.2 million, with operating margin improvement of 110 basis points to 11.3%. These results reflect the cost reduction efforts across the business and improved gross margins in the Sally segment.

Interest expense net of interest income for the 2009 second-quarter was $32 million, and includes a $2.2 million non-cash credit related to our interest rate swap transactions. Interest expense declined approximately $15.7 million over last year's quarter due to the change in the fair value of our interest rate swaps and lower rates on both our ABL facility and senior term loans.

Adjusted EBITDA for the second quarter was $85.3 million, an 8% increase compared to $79 million in the prior-year quarter. The fiscal 2009 second-quarter provision for income tax was $15.7 million, an effective rate of 38.9%. The increase in the tax rate for the quarter and the year to date was primarily due to lower international earnings compared to the prior year. We now expect full year effective tax rate to be approximately 38.7% versus the previous projection of 36.5%.

Adjusted net earnings grew 30.1% to $23.3 million, resulting in adjusted net earnings per share of $0.13. GAAP net earnings per share was approximately $0.13 or $24.6 million, up 98.4%.

Turning to the business segments, starting with Sally Beauty, net sales in the fiscal 2009 second quarter were $410 million, an increase of 1.5% over the year-ago quarter. We estimate the impact of unfavorable foreign currency exchange to be approximately $19.3 million or 4.7% of sales. Gross profit for the quarter was $214.8 million, a 3.6% increase over the year-ago quarter and margin improvement of 100 basis points. This margin improvement was primarily the result of the shift in product and customer mix, recent marketing efforts and low-cost sourcing initiatives.

The Sally segment reported second-quarter operating earnings of $70.4 million, up $2.5 million over the 2008 second quarter. Segment operating margins were 17.1% of sales versus 16.7% of sales in the year-ago quarter. The Sally segment operating earnings improved primarily due to growth of same-store sales and gross margin improvement, which offset the weakness in our UK business.

Looking at the BSG business, during the 2009 second quarter, BSG's net sales were $229.2 million, a decrease of 3.4% over the 2008 second quarter. This sales decline was largely attributable to the unfavorable foreign currency exchange impact of $6.9 million or 3% of sales, and lower sales in the franchise business.

BSG's gross margins were 38.1% of sales, a decrease of 30 basis points over the year-ago quarter. The gross margin decline was due to foreign currency transactions as well as unfavorable sales mix in the franchise business. Segment operating margins increased 130 basis points to 8.9% of sales due to lower selling and administrative costs. Included in the fiscal 2008 second quarter is $1.7 million in warehouse optimization expense and approximately $1 million in DSC retention incentive costs that did not recur in the fiscal 2009 second-quarter.

Turning to our consolidated balance sheet, cash and cash equivalents ended the quarter at $104.7 million. Overall, working capital declined $22 million from the fiscal 2008 year-end to $390 million due to improved inventory and payables management.

Inventories as of March 31, 2009 were $538.8 million, a decrease of $59.4 million from the fiscal 2008 year end. Capital expenditures in the fiscal 2009 second-quarter were $8.4 million. As a reminder, capital expenditures for the year are expected to be in the range of 35 to $40 million.

We ended the quarter with approximately $319 million of borrowing capacity on our ABL facility. On March 2, 2009, we paid down the $75 million that we borrowed under our ABL facility in September 2008. As of March 31 we have no outstanding borrowings against our ABL.

Now I will turn it back over to Gary.

Thank you, Mark. In summary, we had solid financial performance and strengthened the balance sheet during our second quarter. We continue to believe our business is recession resistant, and I certainly believe we have demonstrated that with our results.

However, given that the business environment remains difficult, we are cautiously optimistic as we head into the second half of the fiscal year. We plan to continue our focus on delivering solid financial results and a capital structure that provides ample liquidity to reduce debt and invest in long-term growth.

We will now turn it back to the operator to take your questions.

(Operator Instructions). Grant Jordan, Wachovia.

Good morning. Thanks for taking the questions. First question -- I guess, Gary, last time I heard from you guys you definitely had a fairly cautious tone given the one fewer day in February, the Easter shift, as well as just kind of the general environment. Obviously, whenever you look at these numbers, they turn out to be pretty solid. Just give us your thoughts on what changed in the quarter. Did you see an increase in the pace throughout the quarter?

Well, Grant, I will tell you as you have heard from a lot of other retailers that February was actually a decent month, even though on our calendar we were short a day. But I think everybody's comps were unusually strong, and surprised people in February.

I would also tell you that we really did not see as large of an impact with Easter as we have over the years. And I think that is getting to be less of an impact each year. It's a very big holiday, and used to be a very heavy time for the African-American community to really buy product. And because of their hairstyles changing, and I think -- and the amount of African-American stores as a percentage to our total has gone down over the years, I think the impact is a less.

But we were pleasantly surprised that I think March was a little stronger than anticipated, given that Easter moved into mid-April. But we were pleased with it.

Great. You guys obviously took down inventory a good amount in the quarter compared to last year. Do you feel like you are in an appropriate inventory position given the demand you are seeing? Do you think we will see continued decline year over year as we go throughout the rest of the year?

Keep in mind as we said last year that this year would be a -- working capital would be a source of funds. And a lot of what you saw reduce in the first half of this fiscal year was simply the new brands that we brought in to BSG the year prior to that to replace a lot of the lost business that we had.

And when your pipeline those brands, they are not turning as they should for the first year or so. So that had a major impact on our inventory.

To answer the second half of your question, I expect our inventory to continue to trickle down from this point. We will continue to get inventory efficiencies throughout the year, and I expect next year for working capital to also be a slight source of funds, but nowhere near the degree that you have seen in the first half of this year.

Great. And then my last question -- maybe just comment on the M&A environment and if you're seeing anything in terms of potential acquisitions out there?

You know, we're always looking out there. Our industry, as I have said many, many times, and I think five times today already, is somewhat recession resistant. But what that also means is our competitors are not feeling the economic difficulties that most of the retail environment is. Having said that, they are not in a position where they are fire-saling their businesses.

So we continue to look. We continue to look for strategic situations that we could invest in for our long-term growth. And we will continue to do so.

Great, thank you very much.

Peter Grondin, [OCC] Capital.

Hi, guys. Nice quarter. As I've say -- before (inaudible) -- the less you do scripted, and the more you answer the questions, the better.

We try to keep cutting it down. Pretty soon, it's going to be, "good morning, guys, what are your questions?"

That's what you've got to do. So give us a little bit more insight into what's going on in the UK. You talked about things getting better -- that being said, in the press release, you sort of called out that things aren't perfect. Can you just drill down to that in a little more detail?

Yes, our management team over there, or the new management team that we put into place last fall, is doing an excellent job. As I mentioned in the script, we're two-thirds of the way through the AR rollout. That continues to really perform well for us.

I will make one comment here, as long as nobody expects me to make this comment going forward. And that is in March, our UK same-store sales were positive for the first time in many months. So it's been a gradual improvement, as I told you last quarter, and I expect that gradual improvement to continue for several more quarters.

Okay. I guess that's it. Thanks. I'll take the other questions off-line.

Erika Maschmeyer, Robert W. Baird

Good morning. Great quarter. Just a follow-up on UK little bit. Could you give us any numbers -- like maybe the comps excluding the UK business, or where operating margins are in the UK right now?

We really don't break that out, Erika. As I just said on Pete's question, we did see positive comps there for the first time certainly this fiscal year.

And it continues to improve. A lot of it is driven by the replenishment system we're putting in, but a lot of it is also driven by doing a much better job in marketing and -- what we have also done in the UK is determined which of our stores are truly trade stores, and which of them are -- truly should be following up more along the lines of Sally US having a large retail opportunity.

And we are trying to split that so that we focus our marketing on the trade stores only on the professional, and it is already 90% of those stores' business, and that we focus from a product selection and a marketing standpoint on the stores that are located more on high streets, and should have retail potential on the retail business.

So that's coming along very nicely. And in spite of an absolutely horrible economy over there, some of the things that we have been able to do -- and replenishment has been a significant one of those things, but also the marketing and the management that we have in place there now. I was there, gosh, about 60 days ago, and I have never seen enthusiasm and attitude in that business like I saw on that trip.

Great. So then trends improved from levels in Q1?

Oh, absolutely. Absolutely.

Great. And have you determined that there is any need to rationalize any redundancy in your UK portfolio?

Yes. We've been doing that since the acquisition we made a little over two years ago. And we continue to do that. We have a few other things we're doing this year regarding that. And that will probably take care of the majority of it.

We still have somewhere around six or eight stores that are what we consider overlap that we need to eliminate and consolidate the business. So the work goes on. It is taking longer than we hoped that it would. Like I said, the acquisition was two years ago in February. But it's coming together well, and I am excited about a much improved 2010 for our UK business.

Great. And then quickly, I know that your gross margin for BSG has been helped historically through greater growth in sales through stores versus consultants. What was behind the unfavorable mix in the franchise business?

The unfavorable mix there is the brands that we sell. As you might recall, over the last two years, we have taken in a lot of new brands to that franchise business. And the new brands unfortunately don't have quite as good of margins as the two brands that were basically the whole business up until two years ago.

So long-term, it was the right thing to do to spread our bet, so to speak. But it is having a little bit of an impact on our margin. Now offsetting that, we are actually in the completing stages of consolidating a lot of that business and the back-office and the distribution, which will not help our gross profit margins, but it will help our operating margins.

Great, thank you so much.

Jill Caruthers, Johnson Rice

If you could talk about the success you are having at the Sally Beauty with the CRM rollout, additional circulars --maybe what you are focusing on there. Are you focusing more on lower price point -- you know, your private label offerings? And what is that customer coming in to shop for? What do they focus on?

Well, as we've said before, the purpose of that program was to go out and identify consumers that from a demographic and psychographic profile, look like our best Beauty Club card customers. And when we get that, when we get that profile and we get that customer defined, we go after them, assuming that if they have the same profile, the same attributes, and the same habits as our best Beauty Club card customers, there is a much more likely chance that they will become a customer.

So as far as what we mail to them, we are not a price-driven business. So what we send them are suggestions on how they can take care of their hair, skin, and nails with professional products; introduce them to Sally -- they obviously are not Sally customers at that point; and then make them an offer to come in. We have an aggressive one-time coupon type offer to get them in. And then we make a major attempt to get them into the Beauty Club when they do come in, which makes follow-up and tracking what they do obviously much easier.

And it has been -- our marketing team on the Sally side has just done an unbelievable job with this whole program. And as I mentioned, we are doubling the amount of stores that have been included in this program. And I am hoping that next year, next fiscal year, we will continue to roll this out into new areas involving more stores. And obviously, the ultimate goal is to have this program operating for all of our Sally US stores.

All right. And I know traffic was up last quarter. Does it continue to track positively? And what about ticket?

Yes. Traffic is tracking positively. On the Sally side, as I've mentioned before, our average sale continues to increase but at a slower pace than it has historically. On the BSG side, our traffic count is up even greater. But what we are seeing there is customers coming in more frequently but buying less.

Okay, so pretty much similar to kind of the previous quarters we have seen?

Yes.

Okay. And then last question, your SG&A dollars were down year-over-year. I know you took a warehouse hit last year in the second quarter. If you could talk about maybe some additional cost cuts you saw in the quarter, as well as kind of expectations for the second half?

What we did see is that certainly -- we talked in the first quarter about some of our cost cutting measures as far as the hiring freeze and also the merit increase delays and things like that. Those were certainly factored in here.

But also as part of some of the cost cutting measures in terms of consolidating the franchise business on the BSG side. We've rationalized the back office in Austin to Denton. There is some savings in SG&A there. They're continuing to look at their business both historical service side. And it's an ongoing effort. So to give you a complete quantified metric to it for the quarter or the year -- it's a bit of a fluid number. But it certainly -- it has had a positive benefit on the results.

Is it safe to assume that you think that SG&A dollars will be down in the second half, year over year, or --?

Dollars, or --?

Dollars, yes.

Probably not, because we have anniversaried a lot of the two items Mark was just talking about. And we continue to open new stores. So I would hope that the percentage to sales could be down year over year, but the absolute dollars are not likely to be down.

Thank you.

Colleen Burns, Oppenheimer.

You talked a little bit about the decent comps you saw in February and then the UK being positive in March. Did you see kind of more consistent US performance in March or in April?

As I mentioned a few minutes ago, we were very pleased that Easter was basically not a factor this year in March. We were very pleased with our comps in March.

Okay. And then are your exclusive brands still outperforming the rest of the store?

Yes.

They are. And then just lastly on the CRM, just to confirm, the last mailing that went out -- that went out to 800 stores, right? Or -- no, the last one just went out to 400?

Yes.

Okay. And then the additional rollouts this year are just going to stay to that 800-store target?

We're going to take a look at it. There is a possibility that we could add another 400 to it -- for the first mailing to that additional 400 would be in August. But we have not made that decision yet.

Okay. And then just lastly on the franchise business. Have you seen any improvement there sequentially from the first quarter?

Yes, we have. I think as I said last quarter I expected to show more of an improvement in Q3 and Q4 as we continue to get some synergies out of consolidating that business. But I also think that the sales outlook there is improving.

Keep in mind that we sell to our franchisees, and this is a difficult economy. So they are feeling the pressure of that, it limits what they can purchase from us. So what they are selling and the health of that business is not necessarily always reflected in what we sell to them. In other words, I believe there, and I know that they are reducing their inventories at this particular time as well.

Okay, that makes sense. Thanks. That's it for me.

Karru Martinson, Deutsche Bank.

Good morning. Just a follow-up on the exclusive or private labels. What is the trailing 12-month penetration rate there?

It is not quite 42 -- trailing 12 months.

And then is it a reasonable assumption that we have been kind of higher here in recent months?

Yes.

And I think you guys have a good problem in the sense that you have a lot of cash on the balance sheet and M&A environment is not all that great since you are recession resistant. So the question becomes -- what do you do with all of that cash and the cash that you generate?

Our strategy remains the same as we have talked before. We believe that we have got the capital structure to -- certainly, it is appropriate, given that we can generate the free cash flow that we need to execute our long-term strategy, which is to continue to grow organically through opening new stores, which helps to lever the Company over time. And we are certainly going to look at acquisitions that make sense based on our investment criteria, and then certainly, and thirdly, is that if none of those exist, then certainly, we will retire debt.

And based on the basket today, as you are probably keenly aware of, that in our term loan agreements as well as our indenture agreements, we have restricted baskets. And we certainly -- we have -- they grow based on the improvement of our business. And today that restricted basket is sitting at about $128 million.

There's also a general basket there for various items that's approximately $49 million. So there is about $177 million worth of baskets with which, if we were to from time to time repurchase debt or retire debt, we would have the wherewithal to do so.

Okay. And just as you guys go and grow your store base this year, are you seeing a shift in terms of lease rates or new opportunities as others struggle?

As we changed our guidance, so to speak, last fall from 4 to 5% organic growth to 3% to 5%, we did that more from the standpoint of wanting to kind of stay loose and look for real opportunities and not be pressured to hit a 4% to 5% number if we couldn't find the right deals.

We are finding some good lease rates. We are doing -- our real estate department is doing an excellent job reaching out and renewing leases early, and also renewing the leases that are coming due at very favorable rates.

Just lastly -- I know we are a ways this is a little bit in our past. But in terms of the relationship with L'Oreal, how does that stand right now? And any update on new brands that are coming your way?

Nothing to report this quarter. Our relationship hasn't changed really in the last couple of years. We do a lot of business with them in a lot of countries around the world. And the Sally division does a lot of business with them here in the US. And we continue to do business with them in our nonexclusive store agreement in BSG. And you may be aware they had a significant management change of just about everybody there earlier this calendar year. But our relationship hasn't really changed.

We continue to look for either small acquisitions or brands that would like to move into our distribution around the US. Nothing -- as I said, nothing new to report there this quarter. But that continues to happen on a fairly minor basis these days.

(Operator Instructions) Emily Shanks, Barclays Capital.

This is Jason Trujillo in for Emily. First, you had mentioned that customer mix positively impacted gross margins at Sally Beauty Supply. Can you give us some more color on what exactly you are seeing with regard to the customer mix change -- what is going on there exactly?

I'm not sure I got the first part of that question.

Oh, sorry. You mentioned that customer mix had positively impacted gross margins at Sally Beauty Supply. So I was wondering what you are seeing exactly with the change in customer mix, and if you could give us some more color around that?

Sure. If there is a softness in our business today, it is on the professional side, because the salon environment is a little stressed right now. And on the Sally side of our business, that percentage of our professional customers versus our retail has declined a bit as you would expect.

In other words, our retail business continues to grow faster than our professional and at a little faster rate this year. And the retail business at Sally is a much more profitable, much better gross margin business for us than the professional.

All right, thank you. And then secondly, can you tell us what you are seeing with the performance by region throughout the US at the Sally segment?

As I stated several times in the past, we continue to see a real tough environment in California, Florida, Arizona. Those are probably the ones that stand out as the toughest environments at the moment, and have been for probably the last eight to 12 months.

All right, great. And then just lastly, can you comment on any categories that you expect to be strong going into the rest of the year? Are there any new products that you have got in the pipeline that you think might be particularly strong here as we look into the second half of the year?

Productwise, our hair color category, particularly at Sally, is growing very nicely. And again, I do think we are getting some do-it-yourself, do-it-at-home customers there that are increasing that business.

Our electrical business remains good. The hair extension business is still a strong and growing business throughout the industry. And that is really about it. Everything else is just kind of hanging in there at low-single-digit growth rates for us.

All right. Thank you very much.

Mimi Knowles, Sidoti & Co.

Most of my questions have been answered. But I wanted to know, Gary, if it's too much to ask if you could comment on what kind of trends you are seeing in April so far?

It is too much to ask.

All right.

(laughter) Yes, we don't really want to comment on Q3 trends.

Okay. Can you say as much as whether or not they are deviating from what we have seen in the past?

I'd rather not comment on April.

Okay. How are you trending in the professional service side? Is that still weak; is it seeing any -- sorry, not professional service; professional furniture side. Any firming there, or still trending weekly?

I think the salon furniture business is week. We are somewhat offsetting that weakness because we just added furniture to our e-commerce site. We're getting a nice run there. And I think that's disguising some of the real weakness in the industry in furniture.

Obviously, there are probably more salons going out of business today then there are openings. So the salon furniture business is rough. But keep in mind, that is well less than -- gosh, I think 1% of our total overall business.

Sure. Okay, that is helpful. And then the final question I wanted to ask -- you mentioned some regional pockets of weakness. Could you add Texas to that list? Are you seeing any softening there?

Absolutely not. Texas remains very strong. I think the economy here in Texas is much better than Florida and California. And actually, Texas is one of our better states, and has been for, gosh, at least the last year.

That's everything I had. Thank you.

Thank you. And with that, I would like to turn it back over to Mr. Winterhalter.

Thank you, operator. Before we conclude, I would like to state again that we had a good quarter, and performed well in a difficult environment. As we head into the second half of the fiscal year, we plan to continue to execute on our strategy, maintain a solid financial position, and invest in long-term growth. As always, thank you for your interest in Sally Beauty holdings.

Thank you. And ladies and gentlemen, today's conference call will be available for replay after 12 PM until midnight, May 5. You may access AT&T Teleconference replay system by dialing 1-800-475-6701 and entering the access code of 998135. International participants may dial 320-365-3844. (Operator Instructions)

That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.