Question-and-Answer Session
Operator
(Operator Instructions) The first question comes from the line of Matthew Fassler – Goldman Sachs.
Matthew Fassler – Goldman Sachs
I would like to ask two questions. First, just to dig into the contract gross profit dollar rate to a slightly greater degree. Historically I guess when your contract revenues were light there was some element of self-discipline driving that and that showed up on the gross margin line. That was less the case here. I know you spoke about customers moving to contract items and to some lower margin products in the mix but a little more color on your selectivity played into that and whether you think there is anything you can do in this type of environment to migrate customers to a better margin product. Then I have a quick follow-up.
Sam Martin
Our contract efforts have been around expanding our assortments in what we sell to our contract customers. Our opportunity there is most of these expanded categories have higher margins than our current core supply category margins would generate. We have had some success in that. It has been offset largely by the movement of most of our big contract businesses to really being more disciplined in how they purchase supply items and really focused on the stuff that is more consumable in nature and staying away from the more durable goods that have higher margins such as furniture.
So those are the two things that really have levers that we pull against the operating margins. In addition to the fact we have indeed reduced the cost to serve through the supply chain and a number of our customers were able to negotiate through and get different delivery cadences so we can have larger amounts of merchandise on each truck as we talked about in the script.
Matthew Fassler – Goldman Sachs
The second question I have relates to pension. You talked about the expected P&L impact of pension and potential cash flow impact. Was there some pension accrual reflected in the first quarter P&L and I guess as I think about that I am very focused on the corporate line where you didn’t have an increase from last year’s run rate. That is where we expected the pension accrual would show up.
Bruce Besanko
Let me make a few comments on our pension plan. First as you know it is a frozen plan so there are no new folks entering it. Second, we have suffered just like everyone else has as the market went down and so as a consequence we are somewhat under funded as are many folks. We had indicated we would make a cash contribution of about $7 million this year. There wasn’t much made in the first quarter so we will see that over the course of the next three quarters. I do want to point out some good news regarding the pension fund though too which is that as you may know the IRS has recently introduced a new funding option which we are evaluating that could potentially result in the cash contribution in 2010 being close to the $10-20 million range versus our earlier projection of $50-70 million. As we evaluate that option we will certainly let you know.
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