Operator: Good morning. My name is Angela, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Third Quarter FY '13 Operating Results 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.
Thank you. Mr. Richard Galanti, CFO, you may begin your conference.
Richard A. Galanti - EVP and CFO: Thank you, Angela. Good morning to everyone. This morning's press release reviews our third quarter operating results for the 12 weeks ended May 12.
As with every call, let me start by stating that the discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and that these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time-to-time in the Company's public statements and reports filed with the SEC.
To begin with our 12-week third quarter, for the quarter, earnings per share came in at $1.04 per share, up 18% from last year's third quarter earnings per share of $0.88. For the third quarter, total sales were up 8% and our reported comparable sales figure was up 5%. During the quarter, sales were impacted by both gasoline price deflation and by weakening foreign currencies relative to the U.S. dollar year-over-year, such that the 6% U.S. comp sales increase in Q3 excluding gas deflation would have been 7%. Our reported 4% international comp figure assuming flat year-over-year FX rates would have been plus 7% and total Company comps again reported for the quarter at 5% excluding both gas deflation and FX impact would have come in at 7% as well for the quarter
In terms of new openings, after opening 14 new locations during the first half of the fiscal year, we opened five additional Costcos in the third quarter, two in Japan in Kitakyushu and Hiroshima and one each in Chihuahua, Mexico, Wheaton, Maryland and Southampton U.K. All told, that puts our fiscal year 2013 openings through the third quarter at 19 new locations, and we now operate 627 Costco warehouses around the world. Between now and September 1, the end of our fiscal year, we expect to open an additional nine locations, three in the U.S., three in Japan and one each in the U.K., Taiwan and Australia. As such, that will most likely end the fiscal year with 28 new openings for the year and that's up notably from 16 net openings in fiscal '12.
Also this morning, I'll review with you our membership trends, our e-commerce activity and of course, additional discussion about margins and SG&A. For our third quarter, again sales were up 8% from $21.85 billion last year in the third quarter to $23.55 billion. Again, comps on a reported basis were plus 5. 5% reported comp sales results were a combination of a flat average transaction for the quarter. Of course that included the detriment for both the FX and gasoline which together represented about 1.5 percentage points and an average shopping frequency increased at about 5.5%. That compares to a fiscal year-to-date shopping frequency number of about 4.5%. So, pretty strong frequency there.
Cannibalization for the quarter was pretty similar to what it was the prior quarter that negatively impacted sales by approximately 60 basis points, and given our expansion, I don't anticipate much change in that. In terms of sales comparisons by geographic regions, all the U.S. regions were in the mid to high-single-digit comp increases with Texas and the Southeast being the strongest. Internationally, expressed in local currencies, Korea and Taiwan were on the weak end of that range, with Canada and Mexico being the strongest in terms of comp sales increases.
In terms of merchandise categories; in terms of sales by merchandise category for the quarter, for the third quarter; within food and sundries, mostly in the mid-single-digit range, with deli, beer and wine, and candy being the relative standouts; within hardlines, overall in the high-single-digit range. The departments with the strongest results were hardware, lawn and garden, and consumer electronics. Consumer electronics; sales were in the mid-to-high single-digit range for the quarter.
For softlines, up about 10%; small electrics, housewares, jewelry, and apparels were the standouts with media is expected continuing to be on the relatively weak side. And within fresh foods, where comp sales were in the high-single-digit range, deli and produce showed a little better results than the other areas.
Moving to the line items of the income statement, membership fees came in at $531 million, up 12% or $56 million from last year's $475 million; also representing about an 8 basis point increase year-over-year. In terms of membership, we continue to enjoy the strong renewal rates and I'll go through that in a minute. Continued increasing penetration of the executive membership; and of course, as I've mentioned for several quarters, now we're still benefiting from the $5 and $10 membership fee increases that began in November 2011 in the U.S. and Canada for new signups and in January of 2012 for renewals, due to deferred accounting treatment for membership fees. Of that $56 million increase during Q3, a little over half of it was due to that annual fee increase and how that rolls into the booked P&L over about just under a two-year period.
As previously mentioned, membership fee income will continue to benefit from this deferred accounting for that fee increase throughout the fourth quarter of 2013, and to a lesser extent into the first fiscal quarter of fiscal 2014 this fall. New membership signups in Q3 Companywide were very strong, up 19% year-over-year. That strong performance is mostly reflective of the very strong signups we’ve had in our Asia openings this past March in Japan.
In terms of number of members at Q3 end; at Q2 end we had 27.8 million Gold Star members. At Q3 end, 12 weeks later, that was 28.2 million. Primary business went from 6.5 million a quarter ago to 6.6 million. Add-ons remained at 3.5 million, and you add those numbers up. Q2 end we had 37.9 million member householders and 38.3 million at the end of the quarter. With the extra spouse card 69.1 million at Q2 end, and 69.9 million at Q3 end.
At May 12, the third quarter end, paid executive memberships were 13.3 million. The vast majority of that, of course, is in the U.S. and Canada. We also offer it now in the U.K. and Mexico. That 13.3 million by the way during the 12-week quarter represented an increase of just under 250,000, or about 21,000 additional paid executive members per week increase. Executive members are just over a third of our member base and a little over two-thirds of our sales. Within the quarter, the – I'm sorry – on a year-over-year basis, the percentage of members being executive members was up about 1 percentage point, which of course would translate into about a 2 basis point hit on margin as with reward.
In terms of renewal rates, they continued strong. Again, going back a quarter ago, business renewal rates were 93.9. At the end of the quarter, they remained at 93.9. Gold Star went from 88.8, tweaked up a little bit to 88.9. So, total in the U.S. and Canada – these are U.S. and Canada numbers, was 89.8 at the beginning of the quarter or at the end of last quarter and it tweaked up to 89.9 at the end of the third quarter.
Worldwide, at the end of the second quarter, we were – I mentioned last quarter, we were up at 86.5, and that tweaked down one tick to 86.4. Again, when you open new warehouses, you tend to start off with a lower renewal rate, particularly in countries where outside of the U.S. and Canada, and so, that's to be expected.
Going down the gross margin line, our gross margin in the third quarter was higher year-over-year by 12 basis points coming in at 10.67% in Q3 versus last year's 10.55%. As usual, I'll ask you to jot down a few numbers. The columns would be – we'll just do the third quarter here; two columns, reported and then without gas deflation, and the line items would be core merchandising. The second line would be the ancillary businesses. The third line item would be 2% reward. The fourth item would be LIFO. The fifth item would be other, and then the total, of course. So again, going the two columns, going across, the reported core merchandise margin was down 5 basis points, and without gas deflation, down 11.
Ancillary businesses were plus 6 and plus 5. 2% reward was minus 2 in both columns. LIFO was a credit. So, plus 6 in both columns; and other, which is a non-recurring loss of recovery, which benefited margin this quarter by 7 basis points. So plus 7 and plus 7. If you add the two columns up, the first column, of course, reported comes up to the plus 12 basis points that we reported, and without gas deflation, plus 5.
The core merchandise component again was a minus 5 on a reported basis and a minus 11 excluding the benefit of gas deflation. The four core categories, food and sundries, hardlines, softlines, and fresh foods, each showed lower year-over-year gross margin percent as we continue to invest in price, both in our domestic and our international operations. And, as I've stated before, this is Costco playing offense; it's driving sales, member shopping frequency, member sign-ups and renewals, and market share.
Ancillary business gross margins, as I mentioned, was up 6, or 5 basis points without gas deflation. Margins were stronger in the one-hour photo minilabs, the optical and the hearing aids, slightly lower in pharmacy, and gas was slightly positive.
The impact, as I mentioned earlier, on the executive membership increased penetration was minus 2 basis points, and as I mentioned, LIFO; the year-over-year is a 6 basis points swing, basically we recorded $8 million or 3 basis points pre-tax credit during this quarter. Lastly, other, as I mentioned, is the non-recurring legal settlement that we received in Q3.
Moving to reported SG&A, our SG&A percentages Q3-over-Q3 were lower or better by reported 3 basis points, coming in at 9.82% this year versus the 9.85%. And again, the two columns; reported and then without the gas deflation and five line items; core operations, central, RSUs, quarterly adjustments, and total.
In terms of core operations, the reported piece was plus 2 basis points. Without gas, it would have been plus 7 or – and then plus means lower or better, and so we had 7 basis points of positive there. Central was plus 2 and plus 2. RSUs was minus 1 and zero. Quarterly adjustments actually was zero, zero. Such that, total we reported a plus 3 or SG&A lower by 3 basis points. Again, in our view, on a more normalized basis it would have been lower by 9 basis points if we exclude the impact of gas deflation. In terms of a little editorial on SG&A, again, the reported 3 excluding the deflation would have been better by 9.
The core operations component was better or lower by 2 year-over-year and again, 7 excluding gas deflation. Within core, our payroll as a percent of sales improved year-over-year by 4 basis points. Total payroll dollars actually increased about 6.5% in the quarter compared to the 8% total sales increase. In addition to improvement in payroll, we were able to leverage benefits including healthcare and workers' comp. They were leveraged during the quarter by a few basis points. Actual healthcare costs in the U.S. which is the key driver of this area eased a little bit, up around 6 percentage points in dollars during the quarter. That's down from low double-digits in the past couple of quarters.
Our central expense as I just mentioned was better or lower by 2 basis points. That's by the way notwithstanding the fact that the ongoing IT modernization costs which I've talked about in the last few quarters. During the quarter, that represented about a hit to SG&A or higher SG&A by about 5 basis points. So, notwithstanding that impact of minus 5 in the central category, we still showed a lower by 2 there. So, overall, I think pretty good expense control and certainly helped by strong sales results as well.
Next on the income statement, preopening 6 million last year and 10 million this year. We opened 4 net openings last year in Q3 and 5 this year. All told, operating income in the third quarter was up $100 million or 16% from $623 million last year to $722 million this year. Below the operating income line, reported interest expense was $6 million higher year-over-year in the quarter coming in at $25 million versus $19 million a year ago. If you recall, last year on March 15, so about a little over a month into the fiscal quarter we paid off a $900 million fixed rate 5.4% interest debt. This represented about a $4 million reduction in interest expense year-over-year in the quarter. Offsetting that $4 million reduction of course was our December offering of $3.5 billion debt offering in late November of senior notes, with an average – a weighted average interest rate of just under 1.25%. For the 12 weeks, that's about $10 million increase, of course, in the interest expense. So, the $4 million reduction and the $10 million increase is the $6 million net increase that we're talking about here.
Interest income and other was lower year-over-year by $3 million coming in at $15 million this year versus $18 million a year ago. About two-thirds of that $3 million delta is actual interest income being lower this year coming in at $9 million this year compared to a $11 million last year, and other rounded to the last million, both relatively similar numbers within the interest income and other line.
Overall, pre-tax earnings were up $90 million or 14%, from $622 million last year in the quarter to $712 million this year. In terms of our income tax rate, very close to being the same in both third fiscal quarters; 34.81% this year, down just a tick from 34.84% last year; so, essentially the same year-over-year. Overall, net income was up 19%, from $386 million last year to $459 million this year.
While the balance sheet is included in this morning's press release, a couple of items I usually point out, depreciation and amortization for the quarter totaled $221 million and that brings year-to-date for the three quarters to $651 million. If you look at the balance sheet, of course, if you look at accounts payable as a percent of inventories, on a reported basis, it was 104% a year ago and 102% at Q3 end. That includes payables for things other than merchandise, most particularly all the construction and expansion activity we got going on. So, if you look at just merchandise payables to actual inventories, it was 92% last year and ticked down at 91% this year.
In terms of average inventory per warehouse, I think in the last several quarters on a year-over-year basis, we've generally shown numbers in the $600,000, $700,000, $800,000 increase range or 5%, or 6%, or 7%. This quarter on a year-over-year basis it was up $400,000 or 3%, coming in on average of $12.2 million versus $11.80 million a year ago.
Just over half of the $400,000 increase related to higher levels of merchandise in food and sundries, scattered among various sub-departments. About $100,000 was consumer electronics, with the balance spread over a variety of other non-foods departments.
Overall, inventory is in good shape. As well, our mid-year physical inventories which were taken back in January and February were our best ever, so we continue to do well in our view in terms of inventory control and how that relates to operation safety as well.
In terms of CapEx, in Q1, we spent $488 million; in Q2, $455 million; in the quarter just ended, $435 million; so, to-date, just under $1.4 billion. Our estimate for the year is right at $2 billion, and that, of course, compares to fiscal '12 expenditures and CapEx of $1.5 billion, and, of course, reflects the fact that we're opening quite a few more units than we did a year ago.
In terms of Costco Online, we currently operate Costco e-commerce activities in the U.S., Canada, and more recently in the U.K. For the third quarter, sales and profits were up nicely over last year. Q3 e-commerce sales were up over 20% both in the U.S. and Canada, and as I mentioned, Costco U.K. started less than a year ago.
In terms of expansion, as you recall, in the last two full fiscal years, in '11, we opened 20 net new units; in '12, 16; to-date, for the first three quarters this year, 19; and our plans are to open nine in the quarter. That would put us at 28 for the year. So, as compared to fiscal '12's expansion of about 3% unit and square footage growth, this year's 28 units on a base of – the beginning base of 608 would be about 4.5%.
New locations by country for the year of the 28 – assuming the 28 would be 13 in the U.S. and 3 in Canada, 3 in the U.K., 7 in Asia, 1 in Taiwan and Korea each and 5 in Japan, and then as well 1 additional unit in Australia and 1 in Mexico.
As of Q3 end, our total square footage was 89.709 million square feet, so again, an increase of about 4.5% year-over-year.
In terms of common stock repurchases, as you know, we purchased a small amount in Q1, about $34 million worth and that's all the activity we've done so far. We did no additional repurchases in the second and third quarter.
In terms of dividends, our current quarterly dividend stands at $0.31 a share. That was recently increased about a month ago, up 13% from the previous 27.5% share. This annualized number of $1.24 per share represents a total cost to the Company of about $550 million a year. These quarterly dividends are, of course, in addition to the $7 per share special dividend which totaled about just over $3 billion that we paid out to shareholders back in December of 2012 in the second quarter.
The usual supplemental information we will be posting on the Costco Investor Relations site a little later this morning.
Lastly, our scheduled earnings for Q4, which is the 16-week quarter that ends at September 1 is currently planned for Wednesday, October 9 and that will again be for the 16-week fourth quarter ending September 1. Mind you, last year, what we had, it was a 53-week year and therefore, a 17-week fiscal fourth quarter. So, that was about 6% more days in the quarter, if you will.
With that, I'll turn it back to Angela and be happy to answer any questions.
Operator: Deborah Weinswig, Citi.
Deborah Weinswig - Citi: Can you talk about your frequency which was obviously very strong in the quarter and absolute on a relative basis? Can you talk about any unique drivers behind that?
Richard A. Galanti - EVP and CFO: Not really. I mean, we're not doing anything different other than continuing to be aggressive on pricing and if you haven't tried our rotisserie chicken, that's the new hotdog in terms of $4.99 chickens. We haven't changed – there's not been a lot of difference year-over-year in any of the MVM mailers, the coupon mailers. So, not really. We certainly are getting our share of free press out there, whether it's the late night talk shows or the morning business shows. So I think we certainly are getting a lot of – but that's all anecdotal of course, but there's nothing specific that we have done different of late.
Deborah Weinswig - Citi: And then can you also discuss your inflation outlook as it stands right now?
Richard A. Galanti - EVP and CFO: Talking to the buyers, there's not a lot of anticipatory inflation with the exception of some aspects of protein. They continue to see inflation in some of those items, beef, poultry and pork, some of the, what we call, limited resource commodities like nuts because of increased world demand with the increasing middle-class, if you will. Those have spiked up. With those few exceptions, there is not a lot. I think to-date, we are – if you use as your benchmark the LIFO calculation which looks at what our U.S. inventories by item at cost were and how those costs have changed from the beginning of the year to now, again, it's ever so slight credit in each of this quarter and the last quarter. I think together it's – if the 100.00% was the base as of the beginning of the fiscal year, as of Q3 end, it was 99.41%, so 0.6% lower cost inflation. Now, that's again – that's one measurement that's easy to look at because it's basically our U.S. LIFO inventory accounts. But that was discernibly different than a quarter ago. But we overly see a whole lot of trend upward beyond those smaller areas that I mentioned. I think gas is always (there), who the heck knows.
Deborah Weinswig - Citi: And then on the executive membership style, which has obviously done incredibly successful in the U.S., beyond Canada, the U.K. and Mexico, how should we think about the growth there?
Richard A. Galanti - EVP and CFO: Well, we continue to look at it in all countries. I think we seem to like it. It works for us. Generally speaking, we like to have a core number of locations there and start off with some small number but more than one or two of services that we can provide under the executive member format; the member services where the executive members in some cases get a better deal on some of those services. So, we'll continue – we continue. I would guess over time we'll continue to roll it out to other countries. I mean, again, the $13.3 million, I think, all but about $400,000 of that are U.S. and Canada, which, of course, are – U.S. and Canada is probably roughly 80% of our Company in terms of sales or locations or what have you and well over 95% of the executive member base, but that's because it started here.
Operator: John Heinbockel, Guggenheim Securities.
John Heinbockel - Guggenheim Securities: So, Richard, a couple of things. The price investments, is there more of skew toward consumables or no? It's more broad-based than that?
Richard A. Galanti - EVP and CFO: It's more broad-based than that. Given just the sheer volume of items what we need to make share is we don't want to spread it out. You've got to be wow, if you will, on items and not just spread it across all categories and all items. So, we try to do a pretty good job at that. But it's spread among categories. Little tongue and cheek talked about the chicken. I mean, as protein prices go up, our costs go up and we've been very successful, we think in driving sales and if we can get you in – go to the back of the location and give that great chicken for $4.99, you're going to shop doing other things. But it's across the board.
John Heinbockel - Guggenheim Securities: So, the idea – no matter what department you're talking about the idea here is not so much where you can get your costs down, but where you can make it clear on production on the customer perceptionalized.
Richard A. Galanti - EVP and CFO: Sure. I mean, ultimately, it's an art form and it's merchandising and it's across the board. Sometimes we work with vendors and sometimes we rotate in and out. It's not unlike what we do historically on the fence, you're always going to see – or end caps, you're always going to see some – and try to create excitement as you walk down those larger aisles down the main aisles.
John Heinbockel - Guggenheim Securities: Do you think – as you guys look at it, do you think the price gap has changed or widened versus your various competitors or no, it's about what it was?
Richard A. Galanti - EVP and CFO: I think it's been pretty similar over the last few years. We don't see any dramatic change in it. If anything, we tend to sincerely play offense irrespective of what's going on out there. I mean, you're always going to see be it our direct competitors of Sam's and BJ's or other category dominant retailers, you're always going to see items and departments but for the most part, when we do our weekly by location market baskets on key competitive items, those ranges in our view of our competitiveness is pretty similar to what it has been, if not, a little higher, a little better.
John Heinbockel - Guggenheim Securities: More favorable to you.
Richard A. Galanti - EVP and CFO: Yeah. But I'm talking to (indiscernible).
John Heinbockel - Guggenheim Securities: And then, just two last things. Is there about $30 million left of incremental benefit on the membership fee increase, is that about the residual number?
Richard A. Galanti - EVP and CFO: It has a three in it, it's a little higher than $30 million. It starts with a three, but it's higher than $30 million.
John Heinbockel - Guggenheim Securities: And then lastly, when you look at Kirkland, where are you roughly now with SKU count and do you think as a percent of club SKU count, that inevitably goes higher and I know you don't want to force it on people, but obviously there is – you continue to find value-added items. Do that just go higher over time as a percent of total SKU count?
Richard A. Galanti - EVP and CFO: Yes, absolutely. I think it's still in the low to lower mid-20s, but it keeps going up incrementally. Part of that is the increased penetration of some of those items overseas where whatever extreme value we are, it's even more extreme on those kind of things. I mean, we have items that do $2,000 and $3,000, and $4,000 of, (call it), position in the U.S. that do five and 10 times that in some of the Asia countries. It's simply because it's a great value on great stuff. And we can even be more extreme over there versus brands. So, yeah, we continue to look at different areas and we've – this past year I know we put it on some women's exercise apparel activewear which has been very successful. We continue to put it on – I know we have several men's summer items, whether it's shorts, performance polo shirts, and so – all those types of things. So it's not just – it's food and non-food. I don't see any discussion of putting it on a television or anything anytime soon, but certainly there is a lot of categories. All the low-lying fruits; paper goods, water, those are all done. But probably the lowest lying fruit in the last few years was probably the disposable diapers. But there's lots of things; it always amazes me when individual food items, the cashew clusters or something innocuous like that is a $15 million item and $25 million and $30 million later. All said, you've got those types of things out there. So, I think it'll scale slowly through the 20s and upward. But it's not like we have a conservative effort to try to get to a number next year.
Operator: Paul Trussell, Deutsche Bank.
Paul Trussell - Deutsche Bank: Just with the price investments, you've had a very consistent message over the past few quarters, past few years really in terms of Costco being on the offensive in terms of making consistent pricing investments. So, should we look at the core being down this period compared to being more flattish the past two quarters as a signal that this is incremental or this is in addition to what you've kind of done over the past few periods? Should you go deeper or wider and how should we think about the next few quarters?
Richard A. Galanti - EVP and CFO: In all, obviously, I don't think we're that smart about it and strategic about it. I think that our strategy is, is to constantly drive it downward and the more we can do that, the bigger gap we have with our competitors and the more our traffic grows and the more our sales grow. Good things happen. I remember somebody a few years back asking what happens if a month into a fiscal quarter you're doing well, what do you. We say we don't change what we're doing. I think that given our strength of late we look at it and say this is a good time. When we look at certain countries where we are profitable relative – bottom line as a percent of sales relative to the U.S. and Canada, and Canada is a little more than U.S., we say, let's just make sure – we're our own toughest competitor when things get too good. So, again, I can't suggest that it's a trend. I think about three or four quarters prior to the last three quarters, so all of last fiscal year comparing those quarters to their respective comparable quarters a year earlier, it was down and we are talking about investing in price. And then last quarter or two was a relatively flat. So, does that suggest it's going to continue to be flat? Well, Q3 says, no, it doesn't. But I don't think that you can use that as a trend line either way. We're going to continue to do things to drive our business. And we are fortunately in a positive way – we'd rather be aggressive on pricing and see the benefits of SG&A which always has been a challenge for us. But margins are not a problem.
Paul Trussell - Deutsche Bank: And on the international, it's becoming a bigger penetration of your business overall and currently that is – that segment has a few hundred basis points higher margins than the U.S. Is that sustainable or is there anything – any changing dynamics that you see that might alter that?
Richard A. Galanti - EVP and CFO: Higher – meaningfully higher, yes. Is it sustainable at this rate? Probably not. I mean, we know ourselves that as we – as we take a $300 million unit in Taiwan or Korea or Japan and put a new unit 15 miles or 10 miles away, we will do $450 million the next year between the two, but it's going to hit the margin, it's going to hit the P&L for a couple of three years. So, a part of this ramp-up overseas is going to impact that a little bit, and as we've constantly been reminded originally by Jim and now you can be assured by Craig, is let's not have the illusion that we can just continue at these strong numbers. We want to – again, I think some of what you saw in a little bit of margin reduction year-over-year this quarter, there was a little more so internationally, and part of that is the things I mentioned; a little bit of the increased expansion and sitting in the meeting and saying, guys, let's not get – these numbers are growing pretty fast, let's make sure we're giving back price in terms of price. So, it's our doing.
Operator: Sandra Barker, Montag & Caldwell.
Sandra Barker - Montag & Caldwell: Richard, I just wanted to clarify, on the price investment internationally, don't you have less competition there? I'm just wondering, I would imagine you had a bigger – as you talked about the extreme value on some of the private label, I would think you already had a very large price gap versus the competition, and I had another question also.
Richard A. Galanti - EVP and CFO: We do. But again, if you look at our Company that has a pre-tax return on sales in the 3-ish range, very high 2s or 3, whatever it is now, and then you look at that U.S. column and extrapolate from the operating percentages, it's in the low to mid-2s in the U.S., better in Canada, and a lot better in other countries. We're very good at looking at something saying, guys, we're making too much here. And so, we want to keep driving in the right direction.
Sandra Barker - Montag & Caldwell: And then also just some illumination on buyback and how you think about that in the future since it seems to have dwindled away this year?
Richard A. Galanti - EVP and CFO: Yeah, I think – I mean we look at it as between the regular dividend and the special dividend, and even assuming just the $34 million in stock buyback this year, we still essentially between the two given back about a little over $3.5 billion to shareholders this year virtually almost all in the form of dividends. But we look at both and over a longer period of time we would expect to continue to buy back stock as well. But again, we don't suggest it's going to be a certain number. Clearly, given the relative strength and the fact that – and importantly, the fact that we did the special dividend, we don't feel any pressure – exterior pressure to just do it on a regular basis. We'll continue to do that over a period of time though.
Sandra Barker - Montag & Caldwell: And any commentary on any impact from target in Canada, just…
Richard A. Galanti - EVP and CFO: Really, no, and not to – without disrespect there has really not been in our view a lot of competitive – now, our margins in Canada have come down and again, that's more us than that. Certainly, as I mentioned over the last year-and-a-half, we've been preemptive knowing that they are coming in. But we also have had very strong numbers. Our local currency comps up there are in the very low double-digits in local currency. So, it's a strong economy. We're doing very well and again, it's one of those things where Craig in the budget meetings says, guys, we're getting – let's make sure we're watching – let's not close our eyes and turnaround one day and find out that we're not special and let's get pricing back where it needs to be. And what that means is, is we're making good money up there. It's growing well, so let's make our competitive posture stronger. But a lot of it has to do with us and not really a lot of promotional pricing issues from what's going on with them. Keep in mind; they haven't opened a lot of units here either.
Operator: Joe Feldman, Telsey Advisory Group.
Joseph Feldman - Telsey Advisory Group: So just wanted to drill down on the inventory again. I know you'd mentioned you feel like you're in pretty decent shape with inventory, but I mean, are there areas where you could be adding more or maybe where you're actually missing a sale because of not having the right product or just saw opportunities within inventory management, I guess, and assortment planning?
Richard A. Galanti - EVP and CFO: Well, again, it's part science, and a lot of art form. As you probably know, over the last 10 years, we have consciously taken down – reduced our active SKU count in the warehouse from 4,100, 4,200 down to 3,700, 3,800, and that's in our view driven sales because we could double mass out something versus having taking out an item and replacing it with more of the other item. In that double space, you will do more than you would've done with two items. So it's always that, if you will, that intelligent, lots of sales. I can only tell you that in the 26 days a year that we spend in a budget meeting reviewing, a third of which is merchandising discussions and part of the operations discussions are also merchandising discussions, I hear many more comments from Craig and others of when we have too many of something; five varieties of cordless phones, or whatever it might be. So, if anything, we continue to look to see how we can reduce our selection a little bit. Now, we're also mindful, it's the buyers' and the operators' responsibility as they are visiting competition, is identifying what they perceive as hot items, not only at Sam's, but at other forms of retail, be it Home Depot or category-dominant retailers or specialty retailers. And so, we're constantly trying to figure out what we're missing. Generally, it's more the opposite though, what do we have too much selection of.
Joseph Feldman - Telsey Advisory Group: And if I could ask one more, sort of – about the traffic trend, which has been just so strong for so long, I guess I'm curious. I mean, how do you sustain it? How does it keep driving? Because people are coming in it seems like at a pretty frequent pace; 4%, 5% every month, and it's better than grocery, it's better than most anybody else out there right now. And is it just the fact that you have membership fees so people feel like, well, I may as well get my money's worth and go to Costco? I mean, is there anything – how do you sustain it, I guess, and I know it's a tougher, bigger picture question, but just any thoughts on that?
Richard A. Galanti - EVP and CFO: Well, first of all, this is one person's view here, but I certainly believe that two big things that have occurred over the last four or five years in this bad economy is gas prices and the fact that 10%, 11% of our sales are gas, and that clearly drives, no pun intended, drives people into the parking lot, and 30 or so of those for every 100 that pump gas go to shop. Clearly, even if one of those 30 is incremental, that's good, aside from having a profitable gas operation. The other is fresh foods. All this (indiscernible) is that when the economy got hammered people ate out less, not just the steak houses, for business travel, but families with neighborhood restaurants. While it's come back, it's not back to where it originally was, and clearly, our strength in fresh foods I think has helped a lot. That again is a driver in my view of more frequency. I get back to the – but the mission of constantly coming up with wow items and getting brands that refuse to sell us to sell us, and diverting more of stuff when they won't want to sell us if we can get it, all those things are what we're about. Again, I'm probably a little biased and my antenna are a little stronger at looking, but it seems like every day there is something on television about us, whether it's a national talk show or a news item or a late night talk show, you name it. All that stuff I think is reinforcing. The last thing, of course, is the ramp-up and expansion outside of the U.S. and Canada, our most mature markets. Clearly, you have higher frequency numbers in newer markets. So, that's got to help a little bit too. I don't think that's as big a factor, because it's still a small percentage of how many total units we have. So, I think the bigger factors are that constant lowering of price, that constant – in the gas and the fresh foods. And look, we've all seen what's happened of late with some of the relative strength in companies like Home Depot and Lowe's and the housing market. I think I mentioned some of the category areas, merchandise category areas in non-foods where we've been strong. So, we get a little benefit there as well, but that frequency has got to be more that – I have no illusions that it can sustain itself. Seemingly for 20 years prior to late '08, on average, the number was in the 1%, 1.5% range, and ranged generally from minus 1% to plus 2% with the exception of a couple of outliers based on how Easter or July 4 or something falls year-over-year. So, we're in unchartered territories. I remember a year-and-a-half into this recession after having maybe a 4 for all of calendar '09, reminding people that if we're zero in 2010, that's still a 2 and a 2 for two years, and not everything can that we could accomplish what we have. And so, we certainly benefited by our model and perhaps by the demographic of our member and by the other things I just mentioned.
Operator: Chris Horvers, JPMorgan.
Christopher Horvers - JPMorgan: So I wanted to follow-up on the international margin side. So the ramp and expansion understanding that you're investing in price internationally because you're more profitable there and you're not resting on morals, and also densifying the base, and that brings down existing probability. But what's the other side of it? Does opening up new stores that are inherently more profitable relative to the domestic, is that a net positive to margins for the Company?
Richard A. Galanti - EVP and CFO: I'd have to honestly pencil it out. Probably a little, but I'm shooting from the hip on that one.
Christopher Horvers - JPMorgan: And then also a lot of retailers are talking about pressures from the weather and variability to the weather. You had a great quarter on the traffic side and on the comp side, but did you see much variation around weather? You saw a lot of strength in lawn and garden, do you think that was – it would have been better ex the weather impact, suggesting that maybe there's some pent-up demand here that could flow through?
Richard A. Galanti - EVP and CFO: Fortunately, we are in, I think, 41 or 42 states in Puerto Rico in the U.S., if you will. So when the weather was bad in one part of the country, it wasn't bad in the other part of the country. Clearly, I know – I don't have the numbers in front of me, but I know over the last few months, when the regions got up in smoke – some of the regions had incredible strength as expected – when expected, seasonal items like seasonal clothing and seasonal patio furniture, and what have you. Whereas other regions, it came a little later. I know – I don't have the detail in front of me, but if there's a little pent-up demand, it's in a little bit of the – a few of the regions and some of it's already happened in the third quarter. So, maybe there is a little bit there, but I don't see a whole lot of that.
Christopher Horvers - JPMorgan: So, is that similar vein that the high exposure to California buffered your weather-sensitivity?
Richard A. Galanti - EVP and CFO: California was – again, as I mentioned earlier, all the eight regions in the U.S. were pretty good. But they were actually at the low end of that range of, I think I said, mid-to-high single. It's still positive, but (they know).
Christopher Horvers - JPMorgan: And then final question, you mentioned healthcare cost up 6% year-over-year versus low double-digits in the past quarter. Is that – what's changing there, are you doing something, is this in anticipation of Obamacare next year and that's flowing through early, and what's the outlook there?
Richard A. Galanti - EVP and CFO: I wish I knew. For the 12-week quarters, when I look each week, what we pay out in U.S. healthcare costs which is the thing that drives that line item, it generally speaking was pretty consistent in the mid to little higher single-digits and so we didn't have an outlier. Sometimes when you see a week or two this a 3% or 5% increase year-over-year, the next week is 12% or 14%, and so the average will still 10% or whatever excess. And there is not a lot of new things we're doing. We're doing a little – couple of things, but nothing that would have driven this. We're hopeful that it'll continue, but we still budgeted up a little bit higher than Q3.
Operator: Dan Binder, Jefferies & Co.
Daniel Binder - Jefferies & Co.: A couple of questions. First, any early view on how real estate is lining up for next fiscal year? Secondly, just curious if the – you commented on the seasonal business being lumpy. Was there any kind of gross margin hit related to seasonal businesses in the quarter?
Richard A. Galanti - EVP and CFO: Nothing out of the ordinary in the latter question. What was the first question? Real estate, yeah. I mean, our best guess right now is right at that 30 number with half or a little over – probably a little over half of it outside of the U.S.
Daniel Binder - Jefferies & Co.: And of that 30 number how many are secured or definitely what's going to fall on to the year versus what might be still be at risk?
Richard A. Galanti - EVP and CFO: I think that there's more than 30 on the list. And you kind of just use a little guestimate by location and we come up with the number that's close to 30. So, it's a little too early to tell. I could be – if you ask me for a range, I'd probably say, 3 less and 5 more than 30, in the sense, 27 to 35, but I'm guessing here. But 30 is probably a good number.
Daniel Binder - Jefferies & Co.: And a final question on membership fee growth, recognizing due to the cruel accounting that may be sort of the tail end here of benefits that you're getting from the membership fee increase. When we take that into account and the one less week in the quarter, any color you can sort of provide from the impact of those two things versus, let's say, the 11.8% growth rate that you were at here in Q3?
Richard A. Galanti - EVP and CFO: Right. I mean, I think if you take out the deferred accounting over the last few quarters, the numbers in the 6% to 7% range probably in dollars. And when we look at Q4 last year, 17 weeks versus 16, one-seventeenth is about 6 percentage points. So, I don't have any Q4 estimates in front of me, but just those two simple math items would tell me that anything at or slightly above zero would be expected, but I haven't looked at it.
Operator: Mark Miller, William Blair.
Mark Miller - William Blair: Richard, I think you said payroll was up 6% plus in the quarter, and so if your dollar per hour wage increases, I think, around 3%, that's implying your hours worked per club would be flattish. Is that correct? And if so, how are you managing that with the mid-single-digit traffic increase, I know you've got a signature change you put in with AMEX, but what are the other key initiatives that are helping here?
Richard A. Galanti - EVP and CFO: Cutting overtime I think has helped a little bit. I've used the word focus before. The operators and I've also talked about when people asked me a year ago, what's different about Craig? It's not a question of what's different about Craig versus Jim, but Craig would say himself, his strength is he grew up in operations. So I think there is focus on that. SKU count management, it is going from X to a lower number, means you're (messing up) more stuff and I think it's all of the little things. There's nothing here – I mean, your comment on the signatures didn't capture, certainly yes. Can that shave off seconds in a transaction? All those things help. But a lot of it is the power presentations and what we do.
Mark Miller - William Blair: And then can you give us some perspective on your efforts to get global pricing in terms with suppliers, I mean, are you getting traction on this? I guess if it's in the numbers, it doesn't look like we're necessarily seeing it yet?
Richard A. Galanti - EVP and CFO: Yes, we are getting traction. It's still not material to the size of our Company. But again, every month when the country managers, the country heads from each country are here for two days, part of their presentation is – and part of their offsite additional meetings with our merchants here is getting on a global basis our buyers here to work with multinational vendors to make sure we're getting better pricing, and in some cases, better availability of certain items. It's a process.
Mark Miller - William Blair: Final question. What was the one-time legal settlement?
Richard A. Galanti - EVP and CFO: I can't say what it is, but it's a few year period of time where we picked up money that totaled about 7 basis points in the quarter. It was good, but it's non-recurring.
Mark Miller - William Blair: Better plus than minus. Thanks.
Richard A. Galanti - EVP and CFO: Yeah.
Operator: Brian Nagel, Oppenheimer.
Brian Nagel - Oppenheimer & Co.: It's Brian Nagel from Oppenheimer. I wanted to just focus on unit growth. I think a couple of questions; someone asked you about the number for next year. And it sounds like you're intended to open new units at a pace next year that's consistent with this year. The question I have is, what's allowing you more from a – I guess, stepping back philosophical standpoint – what's allowing you now to more rapidly open units? Is there something changed in the marketplace or was the decision internally to do it? And as we look at beyond just this year and next year, are you – is the Company committed to continue to open units at kind of longer term pace consistent with what we've seen this year?
Richard A. Galanti - EVP and CFO: To answer the last question first, yes, we've got literally more real estate people on the ground in more countries. The pipeline has taken time to fill up, but it's filled up. Once we decided – if I look back a few years ago when we had just as an example in Korean, Taiwan and Japan six or seven units in each of Korea and Taiwan and maybe eight or nine in Japan, we've ramped that up. So, we're going from opening between those three countries a few years ago opening a couple of units a year between the three countries to opening up five, six, seven, eight between those countries a year. But again, that's partly that conscious effort both in the real estate area under Jeff Brotman and his people and Craig also pushing that. Yesterday and today they are both out looking at sites in different parts of the country. And we believe that we can – at the end our goal over the next five years, I think, I've said, is about 150 buildings. And if we get a little better than that, great, but that's certainly a good starting point given where we've come over the last few years.
Brian Nagel - Oppenheimer & Co.: So, I guess, Richard, just a follow-up. So, as you look at it, if you remember we talked about – and it seems like if you go back a few years growth – the unit growth numbers didn't hit your targets maybe what investors were thinking and now you're showing a faster growth. So, it sounds to me like you've kind of made the internal decision to grow faster. Is there – to any extent is it a competitive response? Are you seeing the need to jump out in front of a competitor or is it just internal decisions?
Richard A. Galanti - EVP and CFO: Well, sometimes, it is competitive only from the standpoint that as we look at our success in other countries – we have a competitor in Korea. We recognize that. We are successfully in several countries where we're the only one. We want to do more of that. We think that – if you look back at the history of Canada, there was a competitor there that chose to not stay there. And I can't remember the time when we had probably 55 or 60 units in Canada and felt one day we might have 75 units. Now we have in the mid-80s, high 80s, and we think that we can get to a little over 100 units. So, we'll keep doing that to drive our business. So, mostly it's not a reaction to others. It's a reaction that we're doing well, and we want to keep ramping it up a little bit. And (you got to get the) decision to ramp up, as an example, internationally given there is a longer timeline to get a unit open many times. It was really made two or three years ago, and it's now coming to fruition this year – those efforts.
Operator: Jason De Rise, UBS Investment Research.
Jason De Rise - UBS Investment Research: I wanted to ask a bit more about the membership fees. Could you maybe share a little bit, actually about how the membership fee grew without FX for this quarter, in organic number? And then if you could talk about how membership grew internationally versus U.S., that would be helpful.
Richard A. Galanti - EVP and CFO: Well, again, I think the $56 million or whatever million dollar number of increase, a little over half of it was the deferred accounting. So I think you take that out, and I think it was a 12% dollar increase, so that would imply about a 6%, rounded up to 6%, a dollar increase ex-that deferred accounting. Overseas, I don't have the detail in front of me. My guess is it's higher in local currency but it was a little lower because of the FX, of the fact that on average, on a weighted-average, foreign currency has weakened relative to the dollar. So when converted everything to reported U.S. dollars, it was actually a slight negative. So, you've just made – the light bulb just went off. Actually the underlying number, ex-deferred accounting in local currency probably would have been a little better, but again, the numbers we speak about when we showed membership income was including the detriment of weaker FX.
Jason De Rise - UBS Investment Research: Right, and I mean the FX would be similar to the FX impact you see on your net sales. Is that right or…?
Richard A. Galanti - EVP and CFO: Sure; yeah, yeah.
Jason De Rise - UBS Investment Research: And then, I guess, understanding the members from another point of view in terms of the traffic, obviously, you guys give an all-in number, do you have how international traffic is actually doing versus the U.S.? I know you alluded to that it's been good and…?
Richard A. Galanti - EVP and CFO: It's actually very similar to the U.S., but we're not going to go down the road in detailing because I always find my – as I try to put more out there, then I got to give it for the rest of my life.
Jason De Rise - UBS Investment Research: You could just put it all out in one statement, right, at the beginning of the (deck), but maybe we can talk about that later. But the other question that I have in terms of this international versus U.S., obviously, U.S. fee increases are very invisible to most of the investor base, but what's happening elsewhere in the world in terms of fee increases and anything in the pipeline there?
Richard A. Galanti - EVP and CFO: We're driving the business. Historically, we've shown that we're prepared and we will increase fees, but we'll take that one step at a time. Again, I don't want to suggest that we have a plan to do it tomorrow or a year from tomorrow, but I would guess over time you would expect to see fees continue to improve, to go up, but that recognize what we do when we have increased fees we get more competitive.
Operator: Bob Drbul, Barclays Capital.
Robert Drbul - Barclays Capital: I guess just one question that I have. Over the next several years, I think you talked about like 150 clubs over the next five years. How many do you think you can have in the U.S., and how many of those clubs would you expect to be in the U.S. of the 150?
Richard A. Galanti - EVP and CFO: Well, I think on our cheat sheet from last year it was 55 out of 150 were in the U.S. And my guess is it will be a little bit more than that. And if we open what we say we're going to open this quarter, we would end the fiscal year with 636 units, of which 452 would be in the U.S. And if you add 50 or 55 to that, you're at 505 or 510. And my guess is that five years after that, it's not 50 more, but it's 20 to 30 more. Who knows? So, I think what we have found over almost three years, and what I assume we'll continue to find, is that we'll always end up opening a few more than we thought were possible.
Operator: Sean Naughton, Piper Jaffray.
Sean Naughton - Piper Jaffray: I guess on the international front, just on – you talked about Mexico a little bit, and that does sound like one of the strengths in the international business. Can you guys give us a little bit of an update on that business and how that market is performing, and is there an opportunity to grow a little bit more aggressively in this market and how the productivity is doing in those boxes that I…
Richard A. Galanti - EVP and CFO: For the five years up to when we acquired the remaining 50% interest last July, I think in five years we opened a total of three units, so less than one a year. I think this year we're opening one, and my guess is that it'll quickly go to a few couple of, two to four, who knows, but we'll ramp it up. Keep in mind; we have, I think, 32 or 33 units there. Sam's has well over 100, and we think there's plenty of opportunity down there. It's very profitable. And expressed in dollars, its average unit does about half the dollar volume because of just the relative currencies, but it's growing nicely. Its bottom line is much stronger than the Company as a whole, but so are a few other countries, in terms of the bottom line with a much stronger top line. So, Mexico is great. It's been a healthy growth for us, and if anything, for unrelated reasons, we had grown a lot for those four, five years and we are starting to invest more now.
Sean Naughton - Piper Jaffray: And then I guess from a category perspective, consumer electronics has been an area of strength. I think it inflected about, maybe if I'm remembering this correctly, about 12 months ago. And it sounds like the inventory is up a little bit on a per warehouse basis. I guess, can you talk about the strength, kind of what's driving that in this category, and then, is the opportunity still there moving forward? And then, is this an increase in the SKU, or is this more ASP-related?
Richard A. Galanti - EVP and CFO: Yes, and yes, and yes. There's a little bit more presence out there. We have done very well, not only within TVs, but higher-end TVs, the 60-inch and 80-inch TVs, and the smart TVs. We've also done well at a much smaller scale, dollar-wise, but on cell phones and doing much better in things like tablets, because we're selling some. We've got all but one of the main brands, and the names are out there, and those are really starting to pick up for us. But TVs dwarfs everything else just in sheer dollar volume. And again, they were up low double-digits this month. And I think in the last year probably been up in the – probably on average in the mid-to-high single-digits in dollars.
Operator: Peter Benedict, Robert W. Baird & Co.
Peter Benedict - Robert W. Baird & Co.: Just back to the traffic question, can you give us a sense of maybe which member group is driving more of that traffic, if there is a difference between the Business member or the Gold Star member? Is there anything discernible there?
Richard A. Galanti - EVP and CFO: It's Executive. If you put them in simple sequence order, you've got your regular Gold Star, you've got your regular business, you've got your Executive of either of those categories. And then the triple-play, if you will, would be, you've got the Executive business member with the co-brand AMEX card. All those things blend itself towards higher frequency and higher total purchases. But Executive member is clearly the driver.
Peter Benedict - Robert W. Baird & Co.: And then, on to the SG&A, the 5 basis point headwind that you called out from the IT monetization efforts, how does that compare to the last few quarters? I know you've talked about – I don't know if you've quantified the impact, but just wondering if that's kind of typical, if that's what has been running? And how long do you think it will persist and when do you think we start to see some payback from those investments?
Richard A. Galanti - EVP and CFO: I think it's been in probably a range of 4 to 6, but it's been pretty similar the last few quarters. I think they will still be incrementally up over the next four quarters, but probably at a little – not 5, lower than that, and then, hopefully, it will subside a little bit. And hopefully then you get some benefit from it as well from more efficient operations whenever we're putting out from it. But for those of you who've known us for a long time, we pride ourselves in keeping things simple. And we were basically a legacy shop. We wrote our own (GL) years ago. And this is new for us and we're taking a lot of effort and for us a lot of money, fortunately, it's divided by a lot of sales and dollars. But 5 basis points is still a lot this year. I don't know if it's 2 or 3 next year. But it's going to be lower than 5 is my guess, and that will then not the discussion topic in terms of SG&A basis points.
Peter Benedict - Robert W. Baird & Co.: And then one last one if I can here. Just back on what Bob's question was, on the clubs left in the U.S., can you talk about maybe what do the markets look like that you're going to the next 50 to 80 or so Costcos in the United States? I mean, how are they different than kind of your existing footprint? Is there certain regions where you're going or is it the different types of formats, malls, et cetera, just kind of curious on that.
Richard A. Galanti - EVP and CFO: Quick back of the envelope guess would be half of it's infill in strong existing markets and half of it's in newer markets. Yeah, I think even – I'm just looking at the opening schedule this past year. It's been everything from another unit in Washington, DC and Maryland in the U.S. to one last fall in Huntington Beach, California which is clearly infill, to several units in the Dallas and other Texas markets which are, I will say, have gone from new markets to very clearly good infill markets in Chicago as well infill to markets like Knoxville, Tennessee, New Orleans, Louisiana; so, a combination of both. But Baxter, Minnesota, I'm not sure I that's an inflow or an extension of Minneapolis off the top of my head.
Peter Benedict - Robert W. Baird & Co.: It sounds like your voice is starting to go, Rich. We will let you go. Thank you.
Richard A. Galanti - EVP and CFO: Why don't we have two more questions?
Operator: Greg Melich, ISI Group.
Greg Melich - ISI Group: I just had two questions. I wanted to follow up on the inflation in the quarter or a lack thereof. So if I've got it right, gas and FX was a 100, 150 bps, so ex-those, ticket was up 1 or 1.5. How did that break down? Was there any inflation, or was it all just items in the basket and mix that actually got some basket growth?
Richard A. Galanti - EVP and CFO: Very little inflation. I mean, the difference – I'm just looking here.
Greg Melich - ISI Group: I'm saying with LIFO gain, it might have been little deflation and maybe items in the basket or mix helped a couple of hundred bps.
Richard A. Galanti - EVP and CFO: Yeah, (indiscernible) LIFO deflation, just from – as of the beginning or the end of last fiscal year, not just this quarter. But if I look at – literally it's a couple of basis points on our LIFO inventories in the U.S. So very little inflation or deflation other than gas, but that's at year-end.
Greg Melich - ISI Group: And also with the – and that's a nice transition – what behavior have you seen with the dotcom sales up 20%. Who is driving that? Is it a small group of members that are using it a lot more or do you find that a lot of your members are trying the online site?
Richard A. Galanti - EVP and CFO: I think it's a little of both. We're still doing it the old-fashioned way and some would say the stubborn way. We are doing a few more things. Clearly re-platforming the dotcom people, I feel that's helped. Mobile has helped a little. The apps are driving people to it. I forget what percentage of the total sales are coming on apps which is both phones and (that). It's small, but it's growing. And again, we don't do a lot of stuff. Our MVM is probably, in our view, have had as much effect as anything when we have some of those exclusive online-only MVM coupons in the mailers – and the physical mailers. So, we're doing a few – I hate to (lose) use the phrase, social network and stuff, but we're getting the name out there a little bit more. It's nice to see some increases that didn't have one digit or a one in front of a two digit.
Greg Melich - ISI Group: And then lastly on the cash flow, could you help us out a little bit on the – even with the CapEx up, do we still expect free cash will be around $1.5 billion even with CapEx up this year, and can payables actually get to inventory, and then also, is it still the plan to buy back enough stock to make sure that there's no option dilution, now just you did the big special dividend, how you're thinking about that?
Richard A. Galanti - EVP and CFO: Well, clearly the special dividend has some impact on that; clearly the very ramp-up and strength and in our valuation. But our view is, is we're still on average a stock-buyer over time, we don't feel pressure that we've got to do a certain amount by a certain date. In terms of cash flow, you take your estimates for net income, take depreciation up – the 9% or 10%, it's up. The regular dividend seems to be going – we just represented pretty close to what our eight-year average increase is about 13% or whatever. Your dividend, I think, right – the regular dividend is about (5.50%) a year. Even with no stock and assuming CapEx went from the (1.5) to the (2.0), you're going to cash flow a little higher than you suggested, but that assumes no stock buyback and we'll see. I would hope and I can't say expect because we don't look at it that firmly every day, but over a period of time, clearly we want to cover our (issue) dilution but we don't feel compelled that we have to do it by year-end for this year.
Greg Melich - ISI Group: And on the payable side?
Richard A. Galanti - EVP and CFO: Getting to a 100 is tough. I think it's been in the low – seasonally, it gets over a 100 share, but probably on average, it's probably 94, 95 on average during the year; maybe 93, 94. One of the things that happens particularly in this low interest rate environment particularly since we have a lot of cash, we'll offer vendors, particularly medium-sized vendors that might need to clean up the balance sheet at quarter end for certain covenants, we're being pretty aggressive on, what will you give us if we pay you little early on something, even though – outside the regular terms, these are not big numbers, but in turnaround it's hundreds of millions of dollars. So, I'm not sure if it ever gets to a 100, unless the term goes from the 12, 13 up to 15 or something and that's going to be tough. But we'll keep working at it.
Greg Melich - ISI Group: And how does international affect that payables, and maybe you look at per merchandise payables to inventory, does that force it down a little bit or...?
Richard A. Galanti - EVP and CFO: Its higher volumes, but I think the payables percent is a little lower in some of the countries. But the part of that is timing. If there's a bunch of the stocks you ship to Asia; if 25% 35% of our sales over there are U.S.-sourced goods, and with the exception of probably fresh food items that have to be airfreighted, a lot of that stuff could be on two and three-week – two-week plus containers. Sometimes you are able to negotiate with a vendor to socialize that and sometimes you're not. So my guess is, I'm just looking here at one thing. Hold on a second. If I talked about like the – what it was if – I think I mentioned it was 91 for the quarter, merchandise payables and that 91, there were two countries that were over 100 and they were outside U.S. and there was two countries that were below 80 and a couple of – one in the 80s, and a couple in the 90s. Of course, the U.S. was right on – U.S. and Canada are on average a shade above the 91 average; and U.S. is right on it. So it's a little bit all over the board. Australia, I would've guessed Australia would be near to lower end, and that's because it's the longest place to ship goods by sea.
Operator: Sandra Barker, Montag & Caldwell.
Sandra Barker - Montag & Caldwell: Richard, I don't want to beat a dead horse about the price investment but I just wanted to clarify. Can you explain the mix of the price investment and how much of it is going towards international versus the U.S. because – I mean, I know, in the U.S. you had a fee increase and that would be sort of a logical assumption that you would have that you'd be offsetting that there. But if it's more skewed toward International, is this a different philosophy than you've had in the past and how are you sure that you get back more than you're giving up if you are the only club in the country or you're still sort of new and you have a ton of traffic already? I'm just trying to sort of understand the philosophy there?
Richard A. Galanti - EVP and CFO: Every action has a different reason. So it's not – sometimes it's emotional and it's what we do for a living. Sometimes it's – certainly as you just suggested, given our membership fee strength in the U.S. and Canada, that allows us to be more competitive in that areas and certainly that's part of it. Given our strength in profitability in some countries, that gives us an opportunity to be more aggressive in certain things. So, it is – I do want to emphasize, it's not as scientific or as analytically thoughtful, but we know when sales are going in the right directions, we could be more aggressive and we choose to be. And it has worked for us. So, I'm sorry, I can't shed more light on it. If I look at the core businesses, I think probably the least one that was least impacted was the U.S. this last quarter. But if you look at all the other countries, every country has a different reason. It is not every country; it's all over the board. Sometimes it's on hot items; sometimes we're trying to build something.
Sandra Barker - Montag & Caldwell: Okay, thanks.
Richard A. Galanti - EVP and CFO: Okay. Well, thank you very much, and happy to take any calls; Bob, Jeff and I. Thank you.
Operator: This concludes today's conference call. You may now disconnect.