Question-and-Answer Session
Operator
(Operator instructions) our first question comes from the line of Eric Gommel from Stifel Nicolaus & Company. Please proceed.
Eric Gommel – Stifel, Nicolaus & Company
Good morning. I was wondering if you could just given the level of integration you have done today and the integration cost related to that, can you give us sort of a sense as what additional cost you expect to incur for the rest of the year relative to the rest of your integration?
Mike Culotta
Yes Eric. We’ll probably have probably another close to $10 million associated with it and predominantly the merger integration and related costs are as we close an existing pharmacy, the predominant large dollar amounts are one, as we close that pharmacy, we accrue the rent expense on the remaining lease term. Number two, we write-off any assets which we are unable to use or transfer to another location. Number three is any inventory that we are unable to use in the move to the location, we would be writing-off that and destroying that and number three would be any items like stay-on bonuses, things of that nature as we try to maintain the workforce as we are shifting the work over to the other pharmacy.
Eric Gommel – Stifel, Nicolaus & Company
Just a follow up, I just want to kind of clarify one line item, the employee cost, what goes into the employee cost, the integration cost and other charges?
Mike Culotta
Mainly as we stated it is mainly items such as stay-on bonuses or it may be for example, as we staff up a particular location, we sometimes have to use contract labor. We know we are using them temporarily until we can get everything moved over then we will move some of our people over to the moved location. During that time frame, that extra cost of the contract labor which is only the incremental component, the piece that is above the amount that we are presently paying, that amount is being made into that area. So, in other words, if a contract labor for example is getting paid $75 and I am just using a number, we are paying someone $50 an hour, we are paying that $75 an hour, that’s $25 differential. It is only for a temporary time frame.
Eric Gommel – Stifel, Nicolaus & Company
Then my last question, I will jump off, the leverage for at least relative to our model this quarter, the thing that really drove the better margin was really the SG&A and so as I am thinking of that going forward for the rest of the year relative to your guidance, is that where we still see some more savings or are you thinking more on the gross margin line?
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