美源伯根 (ABC) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the AmeriSourceBergen fourth quarter earnings conference call.

At this time, all participants are in an only listen mode.

Later we will conduct a question and answer session with instructions given at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

We now would like to turn over the conference to our host, Mr.

Michael Kilpatrick.

Please go ahead.

Good morning, everybody, and welcome to AmeriSourceBergen's conference cal covering fiscal 2007 fourth quarter and year end results.

I'm Mike Kilpatrick, vice-president corporate investor relations, and joining me today are David Yost, AmeriSourceBergen president and CEO, and Mike Dicandilo, executive vice=president and chief financial officer.

During the conference call today we will make some forward looking statements about our business prospects and financial expectations.

We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations.

Fro discussion of some key risk factors we refer you to our SEC filings, including our 10K report for fiscal 2006.

Also, AmeriSourceBergen assumes no obligation to update the matters discussed in this conference call.

And this call cannot be taped without the express permission of the company .

As always, those connected by telephone will have an opportunity to ask questions after our opening comment.

And here is Dave Yost, AmeriSourceBergen's president and CEO to begin our

Good morning and thank you for joining us.

We reported strong fiscal '07 earnings this morning despite the inventory write down in the quarter.

Operating revenues were up 4.5% for the quarter and 9% for the year to almost $62 billion.

Operating expenses as a percent of revenue continued their downward trend for the year.

And operating margin, the pharmaceutical distribution segment, was up five basis points for the year.

We generated $128 million of cash in the quarter and $1.2 billion for the year.

Diluted EPS from continuing operations were $0.63 for the quarter and $2.63 for the year, up 16% on a GAAP basis, with a lot of moving [forces] with micro detail.

We have grown our EPS from continuing operations at a compounded growth rate of 16% sice our merger six years ago.

Our performance this year exceeded the guidance we announced this time last year.

We have laid a strong foundation for FY '08 and beyond.

I want to spend the bulk of my time focusing on FY '08 but first a few comments on the just completed quarter.

Our fourth quarter features a very large vaccine inventory write off and relatively large bad debt charge.

It is very important to put the vaccine issue in the context of the strong performance of our specialty group over the last five years with historic revenue increases and strong EBIT performance, our specialty group has been extremely innovative and creative as it has gone to market and on occasion taken calculated risks involving the market.

Last year our specialty group made a commitment to purchase a large quantity of tetanus diphtheria vaccine, a product we didn't have access to previously.

In the simplest of terms it was a bad deal.

We have implemented steps to increase focus on the risk in this business, including reporting relationship changes and greater control of visibility to mitigated happening again.

And we had an unusual high bad debt expense primarily due to a single regional chain on the West Coast that defrauded both process and the bank.

I think that it is very important that these events do not overshadow our outstanding performance this year in the distribution segment.

The drug company had a blowout quarter and an exceptional year, exceeding all our internal expectations.

Our [FIFO] service execution was excellent.

Our ability to capture generics profitability, not only through new introductions, but also through expanding our pro-generics program and driving compliance were big contributors to the year.

This was our first year with our fully completed completed distribution network and lower expenses and increased productivity were contributors that we should continue to see expanding in FY '08.

Our packaging group, especially Anderson Packaging, although small, continued to deliver strong performance in FY '07.

We will complete a major new addition at Anderson this spring, which will allow us to deliver on what we think is the largest contract packaging [printed actions] ever awarded by a top 20 branded pharmaceutical company.

With a strong pipeline at Anderson there is more to come in 2008.

Specialty group despite some head winds contributed a strong 23% increase in revenue and solid EBIT for the year.

As expected, we anniversaried the semi-exclusive distribution contract we signed last year with a large biotech manufacturer as well as the introduction of new physician administered ophthalmology products.

Sales of anemia drugs were down 40% compared to last year's quarter.

In total for AmeriSourceBergen in the quarter, anemia drugs represented 5% sales and were down 26% compared to last year and were down 15% sequentially.

In addition to the anemia drug situation, the specialty group's revenues will be impacted in fiscal '08 by the acquisition of OTN by competitor.

OTN represented $800 million in revenue last year, and is expected to give notice shortly.

The combination of the OTN acquisition impact and the expected year to year decline on the anemia drug sales will significantly lower the specialty group's revenue growth outlook in fiscal '08 to arrange a flat to down 5%.

We expect this slow down to be only FY '08 issue and expect to return to mid teens growth in this area in FY '09 as the pipeline in this space continue to be strong.

It is important to note the commanding position our specialty group has in this space and how excited we continue to be about its future.

The specialty group revenues cross the $12 billion threshold this year.

They are the clear market leader in sales of product and services to physician and several key disease categories especially oncology and have the most comprehensive and robust offering of related services for physicians and manufacturers in the market providing a unique blend of product and service.

We have provided more commercialization services to start up companies than any of our peers.

Very significantly, we are uniquely positioned for new product offerings in the future.

Turning to the other segment.

Formerly labeled PharMerica.

PMSI had a disappointing quarter with performance less than our reduced expectations.

PMSI struggled with the loss of a key account and high cost structure as we continue to build out our IT infrastructure and customer facing solution.

Expense controls have been implemented and I continue to have a great deal of confidence in the current management team, who have begun implementing an aggressive turnaround plan.

However, this performance warrants higher management attention and it is receiving exactly that.

Now some more about FY '08.

First, we begin FY '08 with a streamlined organizational structure within ABC which will be more efficient and focused on the future needs of the business and most importantly, our customers.

The position of chief operating officer has been eliminated and we are moving from a holding company model to an operating company model with greater integration and enhanced control and visibility.

I have made very clear to management and all of our ABC associates that we must focus on two critical principles going forward.

Working smarter and working together.

Working smarter means eliminating duplication of work, prioritizing and focusing on what really needs to be done, and eliminating work not focused on the customer.

Working together means capitalizing on opportunities across our businesses and deciding how to provide integrating solutions for customers, both [expenses] and manufacturers.

To facilitate the change I have taken on direct responsibility for the drug company.

Steve Collis, who now reports directly to me has been promoted to executive vice-president, with clear responsibilities not only to continue to lead the specialty group around the two principles noted above but also to see greater integration opportunities across the distribution segment.

Mike Dicandilo, executive vice-president and chief financial officer has taken on added responsibilities in packaging, PMSI and drug company financial operations and IT.

Again with the view of integrating the company and driving operational excellence.

To further to integrate the operations and improve our efficiencies and to better position ABC to meet the future requirements of our customers we will move forward with an ERP implementation to transform our business processes.

Terry Haas, previously president of AmeriSourceBergen drug company has taken on the new role of executive vice-president and chief integration officer reporting to me, and he will directly supervise the design and execution of new ERP system and business processes with the assistant of Tom Murphy, our chief information officer among others.

Terry is imminently qualified to lead the task of this magnitude.

He has not only led the successful performance of the drug company most recently but also you will recall, Terry was in charge of the integration that created AmeriSourceBergen.

The largest and most successful integration ever done in our industry.

We will use the same discipline, customer first integration model that we used to to create AmeriSourceBergen to successfully add a system and processes that will be the foundation of our future.

This is a strong indication that we are prepared to invest in our future.

We will do our ERP project within our current expense and capital structure and we do not anticipate any unusual or significant charges.

We began FY '08 on a positive note by completing our largest acquisition ever, Bellco Health on October 2 for about $192 million.

To refresh your memory.

Bellco has revenue of over $2 billion and is a great fit for ABC.

Bellco was strong in the New York metro market, the largest market for independent drugstores in the country, and services that market with an excellent facility in Amityville on Long Island Which we will continue to operate enhancing our traditional drug company.

Bellco has a strong dialysis business and a well developed generic telemarketing business in Florida enhancing our total generic offer.

We are excited about delivering to Bellco customers the opportunity to participate in ABC's leading programs for independent community pharmacies, including Good Neighbor Pharmacy, now 2,800 stores strong, GNP provider network, the third largest managed (inaudible) network in the country with approximately 5,000 stores and our pro-generics formula.

The first few weeks with Bellco have been super.

Bellco culture of customer focus and service fits nicely in the ABC culture and Bellco associates, many of whom I have known are among the industry's finest.

We could not be more excited about Bellco.

We expect FY '08 performance to be in line with our long term guidance, which is EPS growth of approximately 15% driven by revenue growth with the market expanding distribution segment operating margin by single digit basis points and reinvestment of our free cash flow.

We expect free cash flow to approximate net income and Michael will provide more details on FY '08.

Generics continue to be, to represent a great opportunity for AmeriSourceBergen where we provide strong value to both our suppliers and customers.

It will be hard to match the exceptional growth of FY '07 in this area from a revenue perspective but the profitability opportunities in generics continue to be robust.

We expect both our improved generic compliance and new generic strategy to make strong additions in the area.

Our strong independent and regional chain business enhanced our generic opportunities.

We will continue to leverage our expenses in FY '08 as we continue to benefit from the investments we have made in our physical distribution facilities.

Our operating margins expected to improve even as we gear up our ERP project mentioned previously.

Our guidance reflects no acquisitions other than Bellco and none are contemplated at this time.

We will continue to evaluate opportunities in our space when available.

During the six year history of ABC we have spent over $1 billion on acquisitions with our most recent, Bellco, being our largest.

Before I turn the floor over to Mike.

Let me emphasize my enthusiasm we are in and the role ABC plays in it.

The fundamentals for our industry continue to be very strong.

We begin FY '08 with a new streamlined organizational structure, the largest acquisition we've ever made, and the right market segment to capitalize on generic opportunities and capitalize on new products entering the market.

We are very excited to continue our history of strong financial and operational performance.

Now here is Mike to provide some detail and we will then open the floor up for questions.

Thanks Dave.

Good morning, everyone.

I am pleased to report the fourth quarter and fiscal year results and I will also give some additional color around our fiscal 2008 guidance.

Before I get to our quarterly results which have a lot of moving parts, I think it is important to review the fiscal year 2007 performance against our original 2007 guidance that I discussed last November.

We have truly had outstanding financial and operational performance on a consolidated basis in 2007.

And despite a number of unanticipated hurdles we met or exceeded each of the targets we set out at the beginning of the year which continues to validate the long term financial model.

Our model is based on solid market revenue growth, operating margin expansion and significant cash generation, all of which are designed to generate annual EPS growth of approximately 15%.

Our original operating revenue guidance for fiscal 2007 was seven to 9% and we finished at the high end of that guidance despite the unanticipated market events with anemia drugs.

We expect to have operating margin expansion in the pharmaceutical distribution segment and we ended the year with healthy expansion of five basis points which helped drive operating income growth within the segment to an impressive 14% increase over the prior year.

Our free cash flow of more than $1 billion more than doubled our expectation of $425 to $500 million and far exceeded that income as our inventory productivity resulting from the first full year of operations under the completed distribution network was even better than we expected.

That strong cash flow allowed us to far exceed our expected returns to shareholders through the share repurchase programs and all of the above factors contributed to a GAAP EPS from continuing operations of $2.63 per share, $2.54 excluding a $0.09 benefit from special items which is on the high end of the $2.40 to $2.55 range we gave at the beginning of the year and represents the 16% year-over-year increase.

Before turning to the quarterly results I will spend a minute discussing the accounting classification of the former long-term care business units financial results.

As we stated, and in October press release, we anticipated that the historical results of the business would be reflected as a discontinued operation.

However, due to the significance under the accounting rules of our continuing supply contract with PharMerica LPC it was determined that our historical results for long-term care would continue to be classified as continuing operations.

So starting with the current September quarter results and for the next four quarters we will have an apples to oranges comparison to historical results which we will highlight and clarify each quarter.

Now moving moving to our quarterly results.

The majority of my discussion will focus on continuing operations but note that as we disclose during the quarter we had a $25 million loss from discontinued operations due to an adverse decision and litigation related to the contingent earn out provisions within the acquisition agreement for the former bridge medical business which was sold in fiscal 2005.

We strongly disagree with the decision and have appealed.

On a consolidated basis in the quarter operating revenues of $15.3 billion were up 4.5% driven by the 5% growth in the pharmaceutical distribution segment.

Operating income was down 7% due to the vaccine write down and the decline in the other segment where PMSI operating income was down substantially from last year and current year quarter only included one month of LPC results.

And we had significant increases in bad debt expense in both segments that I will discuss in my segment comments.

And special items included on the facility consolidation, employee severance and other lines were a benefit of $7.6 million relating to a favorable ruling on appeal in the employment case of a former Bergen CEO who was terminated prior to the creation of ABC.

This allowed us to reduce our reserve for that case by $10.4 million in the quarter which off set special charges of 2.8 million in the quarter relating primarily to the closing of the long-term care transaction.

In the prior year quarter special charges of $7.8 million were more than off set by anti trust litigation recoveries of $8.9 million.

Netting out to $1 million of net benefit from special items.

Net interest expense of $7.9 million in the quarter increased as expected versus the prior year due to the cash used for our significant share repurchases during the year.

Our effective tax rate for the quarter was 35.6% down from last year's 37.6% as we benefited during the quarter from the resolution of certain tax audits among other adjustments.

We continue to expect our tax rate to be in the 37 to 38% range going forward.

Our diluted EPS from continuing operations in the quarter was $0.63 up 3% compared to the prior year and included a net t$0.03 benefit from the special items mentioned earlier.

The one month of long-term care results contributed one penny to the current year quarter EPS compared to $0.03 in the prior year quarter and the current year quarter again was obviously impacted by our vaccine inventory write down of $28 million which reduced September '07 earnings per share by $0.10.

Average diluted shares outstanding in the quarter were 176.9 million down a significant 25 million shares or 12% from last year reflecting significant share repurchases over the last 12 months.

Outstanding shares at the end of the quarter were 169.5 million.

Taking a closer look at the pharmaceutical distribution segment.

Revenues were up 5% as the drug company grew 4% and the specialty group grew 7% in the quarter.

Specialty groups growth rate in the quarter was less than the 23% growth rate for the year as expected for the reasons Dave detailed.

Going forward, the combination the OTN acquisition impact in the expected year to year decline in anemia drug sales will significantly lower the specialty groups revenue growth outlook in fiscal 08 to a range of flat to down 5%.

We expect to slow down to the fiscal '08 issue and expect to return to mid teens growth in this area in fiscal '09 as the pipeline in specialty area continues to be strong and our unique combination of distribution scale, customer service excellence and our broad array of of commercialization services will enable us to take advantage of new product introductions.

Drug company growth was 4% for the quarter and 6% for the year with quarterly growth driven by the institutional segment as retail sales were flat as a result of its decision earlier in the fiscal year to discontinue servicing the large retail chain.

We would expect drug company growth to be in the mid single digit, to be in the mid single digits in fiscal '08 in line with the market excluding the impact of the Bellco acquisition.

Our packaging group, while very small to the overall segment results continues to have excellent momentum driven by outstanding results in Anderson Packaging and continues to be the leader in innovative, compliance packaging in quality performance.

Gross profit in the quarter grew 3% a very strong price appreciation quarter as expected in good performance under the fee for service agreements was off set in part by the inventory write down in the specialty group.

Excluding the impact of this item, gross profit for the quarter would have increased 9% significantly above our 5% sales growth.

We had a LIFO credit in the quarter of $4.9 million compared to a $15 million credit in the prior year and for the year had a charge of $2.2 million compared to a credit of $1 million in fiscal '06.

The LIFO credit in the quarter was driven by a combination of generic price increases in the reduction in inventory which off set strong brands drug price increases.

Operating expenses in the quarter were up 7% compared to last year and as a percentage of revenue were 201 basis points, up four basis points.

This increase was largely due to a $13 million increase in bad debt expense primarily due to a regional chain in our west region.

Bad debt expense in this segment for the quarter was $17 million and was $31 million for the year.

Compared to $4 million in the fourth quarter of last year and $21 million in fiscal '06.

Net of the impact of bad debt expenses to decline in our expense ratio was driven by continued operating leverage in the drug company which off set the higher expense ratio from the current year service acquisitions in the specialty group.

Operating margin in the quarter was 110 basis points, down 10 basis points from the prior year, again reflecting the 18 basis point impact of the vaccine write down as well as higher than normal bad debt expense.

For the year.

Operating margins expanded by a solid five basis points and operating income grew a very strong 14%.

Now turning to the other segment formally known as PharMerica.

As mentioned previously the segment September quarter results include one month the results of the former long-term care business.

PMSI, our worker's compensation business which represents the remainder of this segment saw its revenues decline 4% to $112 million due to a significant customer loss.

Operating income fell by $9 million to 4.1 million with six and a half of the $9 million decline due to a swing in bad debt expense as prior bad debt recoveries were not repeated in fiscal 2007.

The remaining decrease was due to the cost of our IT and customer projects, and while significant progress seems to be made with our IT infrastructure and customer software initiatives we were disappointed that PMSI's results fell short of our reduced expectations.

Significant management effort is currently focused on expense reduction and turn around plans to enable this business to return to operating margins in the seven to 9% range.

Now, let's turn to the consolidated cash flows in the balance sheet where we continue to exceed our expectations.

Cash generated from operations in the September quarter was $128 million.

Bringing our full year cash generation to 1.2 billion.

Well above the $800 million we generated last year.

Our precash flow which we defined as operating cash flow less capital expenditures was just under $1.1 billion, and well ahead of the range of 750 to 825 million which we revised upward twice during the year.

While we have some favorable timing impacts from the working capital at the end of September, the majority of our excess cash generation has come from excellent inventory management and the impact of having a stable distribution network for the first full year after five years of facility consolidations and building new distribution centers.

The safety stock inventory we expected to come out of our system has come out and we are very happy with the results.

Inventory days on hand during the quarter were 26 down four day from last September.

DSOs in the quarter were 19.5 compared to last year's 19 days reflecting our growth in specialties and DPO's were up one day reflecting timing.

Our growth debt to capital ratio at the end of September was 28.4% up from 21% last year and is just under our target range of 30 to 35%.

Our strong cash generation during the year allowed us to repurchase significantly more stock than expected and we did purchase 1.4 billion of our stock in fiscal '07 and have now brought back more than $3 billion of our stock or over 30% of our shares since the first program was announced in August of 2004.

And including share repurchases and dividends, we returned 135% of our precash flow to the shareholders in fiscal 2007.

Our cash in short term investments totalled 1.1 billion at the end of September and after subtracting out our maintenance cash level and adjusting for working capital timing we have approximately $700 million of cash to deploy.

Approximately 190 of that 700 million was used to pay for Bellco at the beginning of October and another 197 million will be used to complete the current $158 million share repurchase program.

We continue to have strong financial flexibility.

Now turning to our fiscal 2008 guidance.

Because of the PharMerica long-term care spend.

I want to define what our base fiscal 2007 EPS from continuing operations number should be for comparative purposes.

The 2007 base should be our reported $2.63 less $0.09 of benefit from special items and less the $0.08 contribution from PharMerica LTC or $2.46 per share.

Our fiscal 2008 guidance per earnings per share is a range of $2.77 to $2.95 per share or EPS growth of 13 to 20%.

While our range of earnings guidance has increased to $0.18 from $0.15 last year.

Keep in mind that the outstanding shares are down significantly meaning our dollar range has not increased.

The $0.18 range is $25 million of income on either side of the mid point.

By far, the narrowest dollar range in the industry.

The assumptions behind our guidance include revenue growth of five to 7%.

Operating margin expansion in the single digit range in pharmaceutical distribution and free cash flow approximating net income in the range of $450 to $525 million in share repurchases in the 400 to $500 million range subject to board approval and market conditions.

Capital expenditures which were $118 million in fiscal '07 are expected to be in the $125 million range in fiscal '08.

As I mentioned in my previous comments, the revenue growth target reflects mid single digit growth for the drug company.

Flat to 5% for the negative growth for the specialty group and the Bellco acquisition which is expected to contribute 3% of our revenue growth in fiscal '08.

While we do not give quarterly guidance, our toughest comparison from a top line stand point will be the first or December quarter where we had extraordinary performance last year and will have a difficult comparison due to the anemia drug situation, the OTN acquisition and the retail chain relationship we exited in January of 2007.

As a result, we would expect that our first quarter operating revenue growth will be below the low end of our annual range.

Operating margin expansion will come from all business units except PMSI, which will be flat to down.

Net interest expense will increase significantly based upon actual fiscal '07 and anticipated fiscal '08 share repurchases driving down average cash on hand.

However, the increased interest expense will be more than off set by the reduction in average outstanding diluted shares which should be down in the 10% range.

In conclusion, fiscal '07 was another outstanding year with 16% EPS growth from continuing operations in line with our EPS growth rate since the creation of ABC.

We expect another strong year in fiscal '08 where our expected EPS growth rate is in line with the past performance and long term goals.

Now, I will turn it over to Michael Kilpatric far Q&A.

Thank you, Mike.

We will now open the call to questions.

I would ask you to limit yourself on the time that you spend on questions until others have had an opportunity and if there is time we will be able to come back to you.

Go ahead, Julie.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from Robert Willoughby with Banc of America Securities.

Please go ahead.

Thank you.

Dave or Mike, why wouldn't we be more worried about some of the bad debt issues with the retail customers.

Shouldn't we -- this is the tip of the iceberg on some the business models?

I don't think so, Bob.

I will tell you, the bad debt experience we had this quarter with primarily our regional chain in California.

The independence has been very resilient.

And they have continued to do very, very well.

So I don't think that is a big cause for concern.

You know, it is a one by one situation.

You know, any way, where individual count by individual count.

And I would say the independence as a whole are handling or hanging in there very, very well.

Bob, I would just add to that and keep in mind our DSOs on average are in the 19.5 day range and that includes the impact of longer terms with our physicians in the specialty group.

If you just look at the drug company itself.

Our DSOs are in the 13 to 14 day range.

It is an area we focus on very closely.

And we have had great experience over a long period of time.

Thanks.

Thanks, Bob.

Thank you.

We will go to the line of Charles Boorady with Citigroup.

Please go ahead.

Thanks, good morning.

I'm wondering, with respect to generics, if you can elaborate on your prepared comments regarding a new contracting strategy and if you just tell us more about that strategy and whether you have had any new customer wins or losses recently in your generics program?

Well the big change in our generic strategy, Charles, comes from the fact that we used to be on a three year cycle where we would go out to market every three years and let new contracts and make changes from time to time based on market conditions and it was really a three year cycle.

We have come to the conclusion that because the generic business is changing quickly and the data associated with the change so quickly that the manufacturers and customers would be best served if we had a more interactive process and did not rely on big contracts at the end of every three years.

That's what our new contracting you know, policy is and that is away from these once every three year [shoes] deals and we enter contracts as we go along with a heavy emphasis on data being provided back to the manufacturer.

And new wins or losses in the program?

Well, we continue to do very, very well in our generic program.

We think it is one of the reasons that our regional business and independent business continues to be strong.

We think we have the most comprehensive offering in the market place.

I'm a little uncomfortable talking about any specific customers that we win or lose.

Just last question on customers in terms of your largest ones.

Longs and Medco.

And with longs,there has been speculation what their next step might be and I'm wondering if you could remind us about the duration of that contract is, any change in control.

And with Medco, just an update on how that renewal process maybe going.

We're a little uncomfortable talking about specific customers.

And you know, since Medco is the largest customer disclosed in the public documents.

I will comment on that one and simply say we continue to have a great respect for the Medco operation.

And as you would expect given their continued success in the market place.

They are currently our contract with them is currently up in spring-- The end of March.

They are currently in an RFP process and we are participating in both the spirit and letter of that RFP process.

Thank you.

You bet.

We will go to the line of Larry Marsh with Lehman Brothers.

Please go ahead.

This is Steven Postal for Larry.

You already alluded to some of this on the call and I know over the past couple of years you talked about contract compliance and you initiated a customer program called transform.

And I am wondering if you could talk about how that program has evolved over the past few years and how you would grade the company's performance in achieving its goals in both contract compliance and some of your other customer initiatives.

Steven, first of all, I think we have done a good job in our compliance and I think we also have continued opportunities you know, going forward.

Part of that is because the market keeps expanding in generics.

So what ever you set the bar at today.

It needs to be set a little higher going forward.

One of the things we are excited about with the acquisition we made with Bellco is they have a generic telemarketing operation in Florida.

And what we look to do is use that to enhance the compliance program.

And that is you know, identify the generic opportunities we have with individual customers and allow the telemarketing operation to fill the gap and provide the communication.

I would rank the compliance program as good but I would also say we have more up side as we go forward.

Just to add to that, Steve.

The proof is in the numbers and during the fiscal year, our proprietary generic program grew its top line over 27% ahead of the overall markets and that's a good indication of where our compliance is heading.

Mike, I don't know if you mentioned it, what was the impact from the currency in the quarter.

It was minimal.

Again, our Canadian operation is really a small part of our overall results you know, being well less than 2%.

So, the currency impacts were minimal and are part of the other income line.

Okay.

Thanks a lot.

Thank you, we will go to the line of Tom Gallucci with Merrill Lynch.

Go ahead.

First, good morning.

On the anemia related business, obviously sequentially the hit was a lot worse.

Can you give us the run rate that we are thinking about or did we get progressively worse as we move forward.

It is kind of tough to judge you know, how we are doing on an a quarter basis because month end and quarter end could have a pretty big impact.

But there is no question that you know, ESA business is a challenged business right now.

Okay and then I guess on the guidance, you know, it seems to be a fairly wide range out there.

Can you just let us.

Give us a little insight on what you think are the variables are in terms of the lower end and the higher end of that range.

Yes, you know, one of the comments I made on the call, Tom, we have a $0.18 range of guidance but I think one of the things you have to keep in perspective is that our outstanding share base is significantly less than the share base of our competitors.

We have got, we have not an outstanding share base in the 170 million range compared to 300 in (inaudible) and you know, 400 at Cardinal.

So each penny for us is less absolute dollars.

Sure.

And again, when we have a range of $25 million of income on either side of the mid point of our guidance range, that is by far the narrowest range in our industry.

So, jo look at the range as a very wide range.

No, I understand EPS calculation.

.

Maybe I prefaced it incorrectly.

I guess what are your key variables at the high end and low end as you think of the 25 million or so that you

I think again, some of the issues we have talked about and the anemia drug situation depending where the results come out and the specialty group we gave a range of flat to down 5%.

And you know, certainly the closer they are to the top ends of the range, and the better it will be.

And certainly, you know, timing of generic introductions and can have a big impact within that range.

And you know, we had a very strong price increase environment in the fourth quarter of this year and you know, really a pretty fair, pretty fair price increase environment for the year for brand name drugs and fluctuations in that can have some impact.

You know, LIFO.

We ended the year with a small charge for the year of $2 million.

And we expect that charge to be in the $10 million range.

And for next year.

And again, you know, that is something that can have some fluctuation.

And we feel pretty good about the prospects next year and the range is adequate.

Thanks a lot, Mike.

Thank you.

We will go to the line of Ricky Goldwasser with UBS.

Yes, hi.

Can you give us more color whether in your fiscal year guidance you are including any potential impacts from the AMP and I think you touched upon and I want to clarify if there is any impact from continued deterioration on the drug side.

On the AMP issue, Ricky, we do not have any negative impact reflected there and the AMP issue continues to be a moving target.

And we are not sure how it is going to shape out and one of the things I will say about the AMP market and AMP situation regarding the independent retail or in the regional change.

It as resilient group and much like Bob's question earlier about the receivables issue.

This is a group that has found a way to compete in the markets.

So, you know, I take great comfort in the fact they have a great history of doing that.

And the AMP thing will be taken in stride when we figure out what it is for them.

I forget the second question.

The second question was how we factored in the anemia drug situation and the answer is yes.

That's why, X the anemia drug situation and X, the acquisition of OTN by a competitor.

We would expect the business to be growing in the mid teen range and by coming down to flat to you know, minus 5% growth, that factors in the anemia situation.

Again, as Mike pointed out in his comments and I did as well.

This is an FY '08 phenomena.

We don't expect it to be an FY '09 because especially the group is so well-positioned to get new products coming into the market.

Thank you.

Thank you.

Thank you, we will go to the line of Lisa Gill with J.P.

Morgan.

Please go ahead.

Thank you and good morning.

Dave, as you look at what IMS has been saying around (inaudible)and what we've seen, both you and the customer report, it doesn't seem to correlate very well and John talked about this on their call but can you give me your insight as to why on an annual basis IMS trends against what we see in the distribution model and on any given segment or period of time it doesn't really make sense.

And then, secondly, as we start to think about overall trends, clearly this year was a good year for price increases from the manufacturer.

How do you think that will line up going into with 2008 being an election year.

Do you think the manufacturers will take same level of price increases or do you think they will try to push them forward in anticipation of what, having a change of administration in '09.

If you could give me your thoughts on that, that would be great.

Okay.

Thanks, Lisa.

I think John did a nice job of really explaining it and uncoupling the two.

We look at this on a yearly basis.

Not a quarterly basis and you can get fluctuations from month to month and quarter to quarter and don't have that much of an impact on the yearly basis.

And the second thing is the size of the prescription is a big deal to us.

Whether it is a 90 day prescription or 30 day prescription makes a difference and we are cracking dollars.

And so, we have just found over time not a good correlation between script counts and our total revenues.

You know, the other issue with revenues is that different scripts make a big difference.

Generic script versus granting a script 30 days, 90 days, so forth and so on.

We just knocked down a good correlation between the two and as a result of that.

Don't watch the script trends very, very closely.

You know, if terms of the price increase.

Lisa, I will tell you we are not anticipating dramatic changes as we go forward.

We have a full time lobbyist who lives in Washington, who walks the the halls on a daily basis and we are not hearing anything on an anecdotal basis that gives us great cause for concern at this point.

I think it is going to be pretty much steady as she goes from the political standpoint.

I will tell you that most of the people that we talked to clearly understand that pharmaceuticals are part of the solution to the health care issue and the issue is getting more prescriptions, you know, just fast and utilized and keeping people out of the emergency rooms and hospitals.

And so I will tell you, we are not at this point.

Lisa, we do not have a great cause for concern on the political front.

Can you put a number around that?

Do you expect it to be 5% price increase?

That's a fair approximation, Lisa.

It is important also to remember, although our contracts differ from manufacturer to manufacturer.

In total by 80% of gross profit from brand name manufacturers is not subject to price increase volatility under our fee for service contract.

And again, we have positioned ourselves very well going forward from significant changes in the overall price increase arena.

But the industry primarily is based on revenue for the manufacturer.

So it will depend on price increases as well.

So we understand that, right?

Well, absolutely.

The growth rate is.

The drug price increases have an impact on the overall revenue growth rate.

Okay.

Thank you.

Thanks, Lisa.

Thank you.

Everybody for joining us today before Dave makes some final remarks, I wanted to invite all those to know more about the ABC story to that we'll be at the Credit Suisse health care conference in Phoenix on November 14 and then on December 11, we will host our annual investor's day meeting in New York at the Grand Hyatt tentatively between 12:00 noon and 3:00 PM, including lunch and we will be putting out more information on that as we go forward.

Here is David who will make some final remarks.

I would like to say that we are very, very excited about the FY '07 operating results and another year of 16% EPS growth which is in line with where the company has grown for the last six years and we expect another strong performance in FY '08 and we look forward to seeing you in New York at our investor conference and appreciate your participation in the call today.

Thank you very much.

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