麥卡遜 (MCK) 2007 Q1 法說會逐字稿

Good afternoon and welcome to the McKesson Corporation fiscal 2007 first quarter conference call.

All participants are in a listen-only mode. [OPERATOR INSTRUCTIONS]

I would now like to introduce Mr. Larry Kurtz, Vice President Investor Relations. Please go ahead, sir.

Thank you, Colleen. Good afternoon and welcome to the McKesson Corporation 2007 first quarter conference call for the financial community.

With me today are John Hammergren, McKesson's Chairman and CEO, and Jeff Campbell, CFO.

John will provide opening comments and will then introduce Jeff who will review the financials results for the quarter. After Jeff's comments we will open the call for your questions.

Time permitting we will address all questions. We plan to end the call promptly after one hour, about 6:00 p.m. Eastern time.

During the course of this call we will make forward-looking comments. Please see our press release for a full discussion of the risk factors associated with them.

Thanks, and here's John Hammergren.

Thanks, Larry, and thanks, everyone, for joining us on our call today.

McKesson is off to a solid start in fiscal 2007 with strong momentum in our Pharmaceutical Solutions and Provider Technologies segments.

Our first quarter EPS of $0.60 was especially impressive considering that it included $26 million in pre-tax charges associated with our Parata Systems investment and a restructuring in Provider Technologies. We also had $8 million of pre-tax share-based compensation expense as the FAS 123R requirement took affect for us quarter.

I'm very pleased with the balance we are achieving continuing to deliver improved operating results in our businesses while also deploying capital in a disciplined way to create additional shareholder value. Our activities in the quarter were an excellent example of how we take a balanced approach to our corporate strategy and the use of capital.

We made several acquisitions, sold non-strategic assets, and continued to return capital to our shareholders through a steady repurchase of our shares and our quarterly dividend. In the first quarter we repurchased $283 million of stock, leaving $217 million remaining on our previous $500 million share repurchase authorization.

I'm pleased that as its meeting yesterday the Company's board of directors authorized an additional $500 million share repurchase and a $0.06 per share quarterly dividend.

Our strong balance sheet and solid cash flow should enable us to continue our portfolio approach to capital deployment. Combined with consistently strong operating results from having focused businesses in attractive growing markets for healthcare services, we are well positioned to deliver sustained shareholder value creation.

Jeff will review our financial results in detail shortly, but I'm going to highlight a few key trends driving the momentum we have in our business.

We continue to achieve very good performance in our U.S. pharmaceutical distribution business. Our value proposition has never been stronger and we continue to win a greater share of our customer's business.

This business model provides significant working capital savings to our largest retail and mail-order customers. This business model provides significant working capital savings to our largest retail and mail-oder customers.

In the current industry environment, with the focus on inventory efficiencies and supply chain integrity, it just makes sense every day that wholesalers manage more and more of the entire product flow.

We are also expanding our generics business within our customer base. This quarter we once again had above-market revenue growth of 29% in our OneStop proprietary generics program driven largely by increasing penetration with independent pharmacy customers.

In fact, all types of our customers are coming us to for more and more of their generic product requirements. It is a very positive trend as we look forward to the significant wave of generic conversions that have just begun.

While generic conversions are deflating revenue growth, we earned significantly higher gross profit margin and dollars on these drugs compared to the branded versions. You can see some affect of this in our gross profit for the quarter, which was especially strong when you put it on a comparable basis.

With our strong sales margins to customers having stabilized, the profit improvement is being primarily driven by increased sale of generics and our new agreements with manufacturers.

Four major branded products went off patent during the quarter but three of theses generic conversions cam in the final 15 days of June. As a result, our generics opportunities should accelerate throughout the remainder of the fiscal year and this business should contribute even more strongly to our profits in succeeding quarters.

As the quarter ended we launched a generic version of Zocor, a major branded statin drug. The launch went extremely well and we've had have no service level issues.

Our outstanding execution enabled us to attract additional McKesson customers into our proprietary generics programs. As a result, sales of generic Zocor have been very strong.

We have talked in the past about the great progress we have been making expanding our presence in the hospital segment where we now have more than $16 billion in annual revenues. Our unique value proposition that combines pharmaceutical distribution with information solutions and automation has helped us grow our hospital business, but equally important are the improvements we've made in the quality of service which is crucial for these customers.

For example, we lead the pharmaceutical distribution industry in contract price accuracy. According to a comparative study of third-party hospital pricing data, McKesson's price discrepancy is an industry low of 14 basis points compared to a 44 basis point average for other pharmaceutical distributors.

This past quarter we completed the integration of our D&K acquisition into McKesson. We converted the final three retained D&K distribution centers to our information systems while closing down two remaining D&K facilities.

I'm pleased at the terrific job our integration team did with the D&K opportunity. We completed the restructuring process in 10 months after the close of the acquisition and I'm delighted that we retained all key D&K personnel and exceeded our customer retention target. D&K's customer base was mostly independent pharmacies and small chains so this acquisition enhances our generics opportunity significantly.

With increased profit contributions from generics, a steady state on our new agreements with manufacturers, stable sale margins to our customers and better operating expense comparisons later this year, we should make progress toward our goal of an annual operating margin rate of 150 to 200 basis points for the Pharmaceutical Solutions segment.

Retail pharmacy automation is an attractive market given the pharmacist shortage and the need to free up pharmacists time for higher value, customer interactions. We've had a leading position in this market through our APS business unit for some time.

While APS has been developing new generations of pharmacy automation products, we concluded that additional technology is needed to win in the market. As a result, we combined our businesses with those of Parata Systems to create an organization that has market leading product offerings and a more efficient cost structure.

McKesson and Parata entered into a long-term strategic alliance under which we are the sole third-party distributor for all Parata products in North America. We also made an additional investment in Parata and we will participate in the earnings of the combined organization through our significant minority interest.

We continue to make good progress in our payor business. On July 1st McKesson and the Illinois Department of Healthcare and Family Services launched a comprehensive disease management program for more than 168,000 Illinois Medicaid beneficiaries who are disabled or chronically ill.

That brings to 10 the number of state Medicaid programs we support with our disease management business plus our Medicare project in the state of Mississippi. While we continue to invest in this emerging business we are excited about the progress we are making and the value creation potential here.

Last quarter, having determined that we want to focus more strongly on the higher growth, higher margin alternate site sector of the Medical-Surgical segment, we told you that we are reviewing our strategic alternatives for the acute care portion of our business. I was very pleased at how quickly the team formulated a new strategy for the business and found a buyer for our non-strategic acute care unit.

We expect our customers will continue to receive high levels of service and quality that have distinguished these operations in the past.

The pending sale of the acute care business is subject to regulatory review and other customary closing conditions. Once we've completed the sale and the transition of the acute care business, we expect that our remaining Medical-Surgical business, which currently has annual revenues of approximately $2 billion, will have an operating margin rate of 4 to 6%.

Our recent acquisition of Sterling Medical further strengths our presence in the alternate site market by expanding our distribution of medical supplies direct to homecare patients.

In Provider Technologies we had another terrific quarter. We continue to see strong market demand and a very positive response by our customers to the value of our solutions and the quality of our implementations.

As is the case in Pharmaceutical Solutions we are gaining penetration across all classes of customers. We continue to succeed with clinical and imaging solutions mostly within our traditional customer base, however, we are also expanding the breadth of our customer base with increasing wins with small hospitals.

We've also expanded our business in the alternate site market and we continue to invest heavily in this business. We've expanded our Paragon Solutions for small hospital market to include advanced nursing and medication safety capabilities resulting in growing market momentum.

In addition, Paragon is now the community hospital information systems category leader in the latest KLAS Vendor Performance rankings, another factor in the traction we're achieving.

All of our traditional competitors have legacy offerings that are based on aging technology platforms. Paragon offers the benefits of a current Microsoft technology platform with a correspondingly contemporary look at feel.

We're also able to go beyond the bounds of traditional small hospital information systems and offer a complete solution including document imaging and medical imaging for a comprehensive EHR capability. In fact, we've won the last eight times we've gone head-to-head against our chief competitors in this space.

In all, McKesson solutions are ranked in the top three for 16 KLAS categories, five of which are category leaders. Rise in medical imaging was ranked number one for community PACS segments.

We further strengthened our position in medical imaging PACS with the distribution agreement that we signed with Toshiba America Medical Systems shortly after the quarter ended. The agreement calls for Toshiba to offer our Horizon Medical Imaging Radiology PACS solution with packaged products and Toshiba diagnostic imaging devices.

The alliance gives imaging centers and small hospitals a turnkey solution that's affordable and easy to implement and support.

Over the past year, the market or ambulatory information solutions began to expand more rapidly and the market for consumer oriented healthcare information technology is now emerging. A year ago we invested in Relay Health, a pioneering provider of online physician-patient communication services.

This quarter, to accelerate penetration of the IT side of this market, we purchased Relay Health and acquired HealthCom Partners, a leading provider of virtual business office capabilities and consumer interactive patient billing solutions. We are now taking a unified approach to patient facing technologies focusing on interactive technologies and improved connectivity between providers, patients and payors and provide secure electronic access to personal health records, healthcare financial management systems and data from home diagnostic tools.

In the ambulatory market we believe that the government's July 18th announcement certifying the ambulatory electronic health record products of certain vendors, including McKesson's Horizon ambulatory care, will accelerate market adoption of ambulatory EHR solutions and systems that facilitate physician to physician and physician to patient connectivity. McKesson is uniquely positioned to offer comprehensive solution portfolios to physicians and patients and we plan to continue to increase our investments in ambulatory and consumer solutions to ensure that we maintain our market leading position as demand accelerates.

In June we signed a second agreement with Triad Hospitals to install Horizon ambulatory care in 195 clinics across the country. During the quarter Akron General Medical Center became the first customer to purchase our Relay Health product as part of a significant strategic initiative to strengthen its physician alignment strategy by connecting employed and affiliated physicians, payors and patients.

Over time, Akron General plans to connect 250 physicians using a phased approach that starts with e-prescribing. They are using a low cost subscription-based strategy that enables a physician to obtain the benefits of a full EMR solution with only a few hundred dollars per month.

Looking ahead, the savings from our restructuring activities is enabling us to increase sales representatives in the field and to deploy additional resources targeted to high growth, strategic revenue opportunities including clinical solutions, ambulatory care and consumer directed healthcare. I'm especially pleased that we're able to maintain our profit momentum in provider technologies in the quarter, considering the restructuring charge and ongoing investments to drive future growth.

In conclusion, I'm very pleased with our solid results in the first fiscal quarter and the momentum we take into the remaining three quarters of the year.

Our pharmaceutical distribution business continues to deliver steady growth. We are focused on operating margin expansion across all aspects of the business and we expect the sales of generic drugs will play an increasingly important role in our profitability as the year progresses.

Demand remains strong for our healthcare information technology solutions within our historical customer base and we believe we are now well positioned with small hospitals and in the rapidly expanding realm of physician offices and home healthcare. We continue to refine our corporate focus by increasing our investments in new opportunities and plan to continue to be disciplined about the way we use our strong balance sheet to create additional shareholder value.

Based on our first quarter results and the continued progress in our business, we are reaffirming our recently provided financial outlook. For the fiscal year March 31, 2007 McKesson expects to earn between $2.55 and $2.70 for fully diluted share from continuing operations excluding the adjustments to the security litigation reserves. I look forward to reporting to you on our performance.

With that, I'll turn the call over to Jeff for an in-depth review of our financial results and I look forward to addressing your questions when Jeff finishes. Thanks.

Thanks, John, and good afternoon, everyone.

As you just heard, McKesson had a solid start to the new fiscal year building on its momentum from the latter half of fiscal 2006. We continued to execute on our portfolio strategy, fine-tuning our focus on our core competencies and enhancing shareholder value through a measured and thoughtful capital deployment approach.

Let me begin by reviewing the consolidated income statement. We had revenue growth in the quarter of 13% to $23.6 billion. This was driven primarily by the 12% growth in our Pharma Solutions segment, but by new customer relationships and fiscal 2006 wins in the U.S. pharmaceutical business and some favorable currency movements in our Canadian pharmaceutical distribution business.

Our 18% growth rate in Medical-Surgical, which had an extra week of results year-over-year, and our 19% growth rate in Provider Technologies also helped the consolidated number.

Overall gross profit for the quarter was up 11% to $1 billion. However, I would remind you that our results a year ago included a $51 million favorable pre-tax settlement of an antitrust case and our quarter this year includes $15 million of asset impairment charges related to our Parata investment.

Excluding these two items our gross profit was up 19%, well above our 13% revenue growth. We are very pleased with this leverage which was driven by our Pharmaceutical solutions segment results.

Moving below the gross profit line our total operating expenses were up 13% to $751 million for the quarter. Excluding the $52 million pre-tax charge to adjust the securities litigation reserve a year ago, our operating expenses increased 23%, clearly not a number we expect will continue.

This unusually large increase was due to a number of items. First, this quarter's results included the expense of operating the D&K network and certain final integration costs. Second, as previously announced, we booked $6 million in charges related to the combination of our retail automation business into Parata, and $5 million of restructuring charges in our Provider Technologies segment.

Third, we booked $8 million related to share-based compensation under FAS 123R. I would note that these costs, which we allocate to our segments, impact our Provider Technologies segment the most due to the nature of the workforce in this business.

Finally, as I discussed on our call last year, we had some favorable compensation adjustments recorded in our fiscal 2006 first quarter which unfavorably impacts the year-over-year comparison.

Moving below operating income our interest expense of $22 million was $3 million lower than the prior year. Our reported tax rate of 35.4% this quarter was roughly in line with the 35.6% reported rate in the first quarter a year ago, and our annual guidance of 35%.

This quarter we had net income of $184 million, or $0.60 per share compared to $171 million, or $0.55 per share a year ago, all on a GAAP basis. The impact of the securities litigation charge and the positive antitrust settlement in the first quarter a year ago, were essentially offsetting.

Our diluted EPS calculation this quarter is based on 309 million weighted average diluted shares outstanding compared to 313 million in the prior year. The number of shares used in this calculation declined primarily due to the cumulative impact of our share repurchases, including $283 million of stock repurchased in this year's first quarter.

Let's now move on to our three segments. In Pharmaceutical Solutions for the quarter we achieved revenue growth of 12%.

In our U.S. pharmaceutical distribution business revenue growth remained above market primarily due to the acquisition of D&K and the impact of new and expanded warehouse agreements, which drove warehouse revenues up 17%. Our Canadian business continued to perform well growing at 18%, including a positive currency impact of 12%.

Our sales mix for the quarter was 30% institutional, 22% retail chains, 13% independents, 35% warehouse. That breakdown a year ago was 34% institutional, 21% retail chains, 11% independents, and 34% warehouse. The year-over-year change is mostly due to the acquisition of D&K and the strong growth we are seeing in our warehouse business.

Gross profit for the segment was up 8% to $644 million for the quarter, including $15 million of asset impairment charges associated with the combination of our retail pharmacy operations with Parata Systems. I mentioned earlier, we also had a favorable $51 million antitrust settlement in our numbers last year. Excluding these one-time items our gross profit would have increased by 21%, well above the 12% revenue growth we achieved.

The key drivers to our solid quarter were a stable sell margin, an increase in our generic income, our new agreements with manufacturers, and a $10 million LIFO credit which we booked this quarter reflecting the anticipated deflationary affect of the large number of branded products becoming generic this fiscal year.

Our Pharma Solutions operating expenses were up 21% for the quarter to $364 million. The increase is primarily due to the expense of operating the D&K network and it's final integration into our operations, the $6 million of expenses related to the Parata investment, and the strong year-over-year exchange rate in our Canadian business.

We are pleased to have executed quickly and successfully on the integration of D&K and full credit for this goes to our great team in our U.S. pharmaceutical business. We expect a more favorable comparison in our operating expenses by the latter half of fiscal 2007 as we lap the anniversary of the acquisition of D&K in mid-August.

Operating margin rate for the quarter in this segment was 131 basis points compared to 152 basis points in the prior year. However, excluding last year's $51 million favorable antitrust settlement and this year's $21 million of charges related to Parata, our operating margin increased 14 basis points despite higher warehouse sales growth, providing great progress towards our goal of 150 to 200 basis point operating profit margin in this segment.

Turning to Medical-Surgical Solutions, as John mentioned we are moving ahead with plans in focus on the alternate site business where we have a leading market share. Let me begin by reviewing our current quarter and then provide some additional information about the acute care divestiture and its expected impact on our financial results.

Medical-Surgical revenues were up 18% for the quarter to $875 million reflecting solid growth across all sectors and an extra week in this year's first quarter. Excluding the extra week, overall sales were up 8% and alternate site sales were up 10%.

Operating profit in this segment was down 24% from the prior year due primarily to our challenges in acute care. Clearly an unsatisfactory performance, but one we feel we are now addressing.

Looking ahead, we will report results of the acute care business as a discontinued operation starting in the September quarter. We are finalizing the costs of our transition and alignment plans.

We will incur some charges our continuing operations as we align the remaining organization to focus on the alternate site business. We will provide further financial information on our next call.

In Provider Technologies our revenues were up 19% for the quarter to $417 million. Software and software systems revenues were up 27% to $79 million driven primarily by strong demand and implementations of clinical and automation software as well as document imaging.

Service revenues were up 17% in part as a result of our expanding revenues from our NHS electronic staff record project in the U.K. We continue to make good progress in the U.K. and 150 trusts, representing approximately 25% of the 1.2 million NHS employees, are now live on the system. Revenues from 76% of this quarter's bookings were deferred into future periods compared to 81% in the prior year first quarter.

Gross profit margin in this segment was down 97 basis points to 45.3%. Now there's always some quarter-to-quarter volatility in this number in this segment, however, as we ramp-up revenues from the NHS contract, which does have a lower than average gross margin, will continue to put a little downward pressure on the margin in this segment.

Provider Technologies expenses increased 17% in the quarter to $156 million providing some leverage on the19% sales increase despite the $5 million of restructuring expenses and the impact of options expensing on this segment, and last, of course, also considering our investments to expand our sales and product development.

For the quarter MPT had total gross R&D spending of $59 million, an increase of 25% from the prior year. Of this gross amount, we capitalized 23% compared to 24% a year ago.

Our operating profit this quarter of $35 million, including the $5 million restructuring charge and $2 million of share-based compensation, produced an operating margin of 8.39%.

Leaving our segment performance and turning briefly now to the balance sheet. On the working capital side our receivables were up 8% to $6.2 billion versus $5.8 billion a year ago. This represents a decline in our days sales outstanding by one day from 23 to 22 days reflecting our evolving customer mix.

Our inventories were $7.7 billion on June 30th, a 7% increase over last year on the 13% sales increase. Our day sales and inventory of 31 was two days lower than last year.

The year-over-year decrease in DSI reflects the continued gradual decline due to our new agreements with pharmaceutical manufacturers and operational efficiencies. Some seasonality remains so any further improvement will be achieved over an extended period of time and may not be linear.

Compared to a year ago payables were up 18% to $10.4 billion, our day sales in payables increased two days from a year ago to 41. Our payables benefited from the shift to generics, which have more favorable payment terms.

In the quarter we generated $295 million in operating cash flow. We are clearly pleased by our continued improvement in working capital and the lower seasonality due to our new manufacturer agreements.

Capital spending was $26 million for the quarter, lower than the $44 million a year ago when we were investing in two new distribution centers replacing three older DCs. Capitalized software expenditures were up to $48 million resulting from our increased investment in our internal systems.

We ended the quarter with $2 billion of cash and cash equivalents down a bit from the $2.1 billion we held at year-end. Our balance sheet shows restricted cash of $981 million, up from $962 million at March 31.

The increase represents a $19 million payment for an ERISA class settlement. As you recall, the restricted cash will not go off our balance sheet until the settlements are declared effective by the courts. Until then the interest accrues for benefit of the plaintiffs, not McKesson. We expect that the ERISA settlement will be declared effective in our second, or September quarter.

In the case of the consolidated class action, which represents the remainder of the $981 million in restricted cash, the settlement's final effective date will likely not occur until the pending Bear Stearns appeal is resolved.

Consistent with our portfolio strategy for capital deployment in the quarter we repurchased $283 million of shares, had acquisitions of $91 million, invested $36 million in Parata, paid $18 million in dividends, and had $74 million of internal investments. As mentioned before, we are now authorized to repurchase $717 million in shares.

Overall our first quarter results were solid and on track. Our EPS guidance range remains $2.55 to $2.70 for fully diluted share from continuing operations excluding any adjustments to the securities litigation reserves. We continue to expect between $0.08 to $0.10 of share-based compensation and full year cash flow from operations in excess of $1 billion.

We feel very optimistic about the future of our businesses and our role at the center of the trend that's shaping the future of healthcare.

Thanks and now I'll turn the call over to the operator for your questions.

Thank you. [OPERATOR INSTRUCTIONS] One moment for our first question. Our first question will come from Glen Santangelo from Credit Suisse.

Hi, just a couple of quick questions.

I just want to make sure I understand the charges correctly. It sounds like the charge for Parata was $21 million and there's $5 million in the IT restructuring, now could you just remind me kind of what you said last quarter because I thought at the analyst's day you just had you said you expected the charge to be $19 million so are these charges a little bit bigger than what you suggested ay the analyst's day?

You have a very good memory, Glen. Yes, our original estimate on Parata was a little bit lower, so the final amount is 21 versus the 19 that we had originally thought.

And in fact, the restructuring we did at MPT I think cam in a tiny bit lower than our original estimate. I think we are originally thought it would come in in the $6 million range and it ended up at 5. So it's the same charges, these are just the final, more refined numbers.

Okay.

And so, Jeff, maybe of you could just, I wanted to talk about Med-Surg for a second. You kind of said when it's all said and done you'll have about $2 billion left in the alternate site business and if I use the midpoint of the 4 to 6% operating margin range, does that kind of imply that the acute business had a negative operating profit margin, I guess, of about 1%? Am I kind of doing that math okay?

Yeah, you're doing this math okay, Glen, this is John. I don't want to give you anything other than the 4 to 6 range, but your math is correct and your thinking about it is correct.

And so John, when you guys are thinking about the guidance you're incorporating the charge that you expect to take next quarter on the sale of the acute business as well.

I think there's a piece of the charge that's going to be in discontinued ops and so that's not in that 4 to 6 guidance. What would be in continuing operations would be in the 4 to 6 guidance and the reason we've given you a range is clearly we haven't done the separation of the businesses yet, and these are all estimates and the second reason we haven't narrowed the range on the 4 to 6 is we would expect over time to gradually make progress.

So we're not going to come out of the gate at 6%, we're probably going to come out of the gate in the range and then work our way through the range over time. That's our expectation.

John, what I was driving at is trying to understand what magnitude of charges or what charges you had built into the EPS guidance that you have out there.

Yeah, I think the way to think about it, Glen, is our guidance is based on continuing operations, and on the down on the discontinued line, you'll both have the impact of the close of the transaction as well as, as you know, that there will be a couple of quarters as we run out the revenues--

The revenues.

The revenues and so those results will throw through discontinued ops. Now in addition, there will be some charges that flow through the regular continuing operations in the segment as we restructure and realign the business to focus on the alternate site market, but we're not changing our guidance for those charges because we don't have a final estimate for them. We're comfortable that they're covered within the range that we have out there for our consolidated EPS guidance right now.

So John and Jeff this is my last question.

It kind of sounds like you're building a lot of charges kind of into the guidance but yet you're maintaining your guidance range which tells me that you feel a little bit better about your operations, right?

I mean you have $0.05 this quarter alone in charges. Could you just kind of give me a sense, you know, kind of where you're at today versus when you started the fiscal year in terms of what in your operating businesses you kind of feel better about and where you see the momentum that kind of gives you the comfort to maintain that EPS despite all these incremental charges. And I'll cut it off there. Thanks.

We're very pleased with our results in the first quarter. We're very optimistic as we look out through the year. I think we really had strength across the board even in Medical-Surgical we got great revenue growth in the alternate site segment in particular, which bodes well for the future of that business.

We believe strongly that the technology business is running very well and continues to invest for even more growth as we look forward, and clearly, our momentum with generics continues to be robust. So we're pleased with the results and I think that your point about being able to absorb these charges and not have to go back and talk about our guidance again is a very-- a good sign of the strength we see as we go forward.

I think in particular on the Med-Surg business one of the things we don't want do is we don't want to try to screen to the optimum margin rate in alternate site and potentially disrupt operations or lose customers. But that business is likely not to be optimized on the alternate site for a period of time after we disengage from acute care.

So I think that's even more promising as you think about our guidance and our long-term outlook.

Okay. Thanks for the comments, John.

Thank you. Our next question comes from Lisa Gill of JPMorgan.

Thanks very much.

I was wondering if maybe you could just talk a little bit about your drug distribution business. John, it looks like non-bulk grew by 10%. Can you talk about what maybe some of the drivers are there that's clearly above where the industry is growing? Is some of that Medicare?

And then secondly, on drug distribution operating margins you definitely have a different tag line here than Amerisource on Tuesday where they were saying that sell side margins were competitive but stable and it sounds like you guys are saying that they're absolutely stable. And I'm just wondering if you could maybe give us a little color on what you're seeing out there right now?

Sure, thanks, Lisa.

Clearly, we're pleased with the growth of our drug distribution business. Jeff and I both talked a little bit about where that's coming from.

Our customers are increasingly turning to McKesson on the business they used to do direct which is helping us expand our warehouse business. We are making, I think, traction on the generic side and getting additional share there within our customer base.

Clearly, D&K is also helping in our revenue momentum and we do believe that there is some Medicare Part D accelerant in the industry that is helping the baseline growth levels for our customer base. So all across the board I think we're feeling good about pharmaceutical distribution on the revenue side.

As to operating margins, clearly, sell side stability has been something we've been striving for within our customer base. We have been focused on selling the value of doing business at McKesson, selling value-added services, including generic portfolios that increase our profitability and trying to take the pressure off of the price and focus our customers on the value that's delivered.

I really can't speak to what our competitors say in this regard, but we're very pleased with the ability of our salesforce to continue to sell on the total McKesson value proposition. And clearly, to the extent that we don't leak on our sell side margins, we get even more fault to earnings of the margin expansion that's available in selling more generic products. So the model really works well if we can keep our price discounting or repricing of our customer base to a minimum.

On the issue of competitiveness, this industry's been competitive probably for the 170 years that we've been around and probably will remain competitive, but that doesn't mean that you have to reprice your book of business every year.

And then just as a follow-on to the 150 to 200 basis point goal, can you set a time line perimeter around that? I mean is that a one-year or a three-year goal? What's the timeline?

Clearly, it's been a long-term goal that we've talked about for some time and clearly, the upper range, or upper end of that goal will take us a few years to get to. Clearly, it's our goal to move into that space and then to move up into that space once we get there.

I'm really pleased with the results in the business in the quarter and the type of basis point expansion we got. If you net-net all of the unusual items out it shows real momentum to that number.

I think we finished last year in the 140s with like a 5 basis point expansion and I would expect that this year we will get expansion again as we've been trying to indicate and has been delivered in the first quarter. We're still very optimistic and confident in the 150, 200 range, otherwise we wouldn't talk about it and I think that the low end of that range is closer in and we hope to get there.

Okay. Great. Thanks.

You're welcome.

Thank you. Our next question comes from Tom Gallucci of Merrill Lynch.

Thank you very much. A couple of quick questions.

First, you mentioned some incremental expenses associated with the D&K integration and then that should get better over the course of the year. Can you give us some idea of the order of magnitude there?

Well, Tom, I didn't quantify it. If you look at the Pharma Solutions segment, the operating expenses were up about 21% year-over-year and I made the point that once we lap the acquisition of D&K, which we did in mid-August of last year, you will see the year-over-year growth and operating expenses come down to a much more reasonable range in the last two quarters of our fiscal year.

So is it a matter of actually year-over-year comparisons normalizing or are there expenses that are actually going to go away kind of in the interim?

I think it's more of a normalization than it is any expense reduction efforts that are underway at McKesson. I would say, Tom, though, if you look historically at our business, particularly pharmaceutical distribution, we're able to get tremendous expense leverage in our operations, that's part of the beauty of our model is to grow expenses slower than revenues and therefore help drive margin expansion through the accretive aspects of expense control.

We were able to get margin expansion in this quarter even without controlling expenses because of the tremendous power of our distribution business, and what we're seeing is these abnormalities-- this above-revenue growth spend rate is likely to come back in line with historical performance, which is below revenue growth rates as we look forward.

And that kind of leads to another question I had about the seasonality of the business at this point. And know that you've got a growing percentage of the vendor margin in the fee for service-type deals or other arrangements with manufacturers, how should we think about the volatility of the quarters versus just, you know, the revenues getting bigger over time and getting the leverage on that increasing top line?

Well, Tom, this will not be the exact answer you want, but there's still a fair amount of volatility quarter-to-quarter as well as some seasonality, and as we've talked about in the past that's driven by a couple of things. Number one, as we put in place new agreements with the manufacturers, in some cases the manufacturers wanted to somewhat mimic the historical pattern of seasonality perhaps for reasons of keeping their own comparables somewhat manageable, so you would expect to see our fiscal fourth quarter, which is the March quarter, as the biggest quarter.

The other thing to keep in mind is that while we have derisked the Company over the course of a year from exposure to price increases there are certain agreements where the mechanism we use for compensation is still, first, driven by price increases, although subject to a floor over the course of a year if price increases don't come in. What that means is because if some volatility we don't control and when the price increases happen and we don't have perfect quarter-to-quarter insight and it will introduce a little bit of volatility.

If Q4 is the strongest, fiscal Q4, would the fiscal Q2 still kind of be the weakest relatively?

I'd stick with Q4 will be the strongest and the others will be less strong but kind of volatile year-to-year as to exactly which one might be the weakest.

Okay. Thank you.

Thank you. Our next question come from Larry Marsh of Lehman Brothers.

Just maybe one big picture question and a couple of clarifications. Good afternoon, John, Jeff and Larry.

John, I guess you alluded to some success in the mark-- your business of communicating, convincing your customers to drive more of their business through you, both from an efficiency standpoint, also you mentioned, you know, product integrity through pedigree requirements. Would you say some the pedigree initiatives in Florida and other states is helping in that communication and would you anticipate more success for you in the future trying to drive some of that go direct business from our customers through your infrastructure?

Larry, I mean, clearly we've got a great track record of providing supply chain integrity and supply chain transparency and terrific service levels as we talked about this quarter very accurate invoices. As we've continued to progress with Six Sigma in our Company, and I think we're now in the seventh year of it, maybe eighth year now, we have refined our operations to such a point where we are really the most efficient alternative for our customers and many times also more efficient than they can turn to internally.

I think the alternative sources of supply are beginning to become more difficult as a result of the pedigree issues and the issue of not knowing whether the product in some cases is product of origin from the from the manufacturer, and clearly, the efficiency that we afford our customers both in the transaction itself but also in the deployment of capital is a propellant to our growth.

Okay. Maybe just a couple of quick things then, nuances around guidance.

It seems like with the share repurchase, Jeff, you're already at what, 309 and you had said we'll start the year out at 315 but average 310, so it seems like we're already a little bit below what you had suggested about the share count for this year. Is that right and is the tax rate guidance of 35% still reasonable even though it's a little bit higher this quarter?

I would stick with the tax rate of 35%, that's still a very good number, Larry.

And on the shares there's some [artania] that I won't drag you through related to FAS 123 which drove our first quarter shares down a little bit more than we had planned. You know, for the year it kind of depends on exactly where the stock price goes on where we go on share repurchase so I guess I would say our annual share count is within the range of things that might move but still keep us within that $2.55 to $2.70 guidance range overall.

Okay.

And then finally, just, you know, the LIFO, it's unusual for me to see you guys with a LIFO credit in quarter one. Is this-- I think, John, you mentioned a testament, maybe [inaudible] where you think pricing is going to be with generics and what is your view for the full year?

And then just a quick clarification on the restricted cash. You're saying you don't get any interest income from that cash any more and I'm curious why we wouldn't see that any impact in the net interest expense, you know, [inaudible] this quarter or last?

Well, on LIFO you are quite correct in that's this unusual for us to take a first quarter credit. It's also unusual for us to see the kind of very strong wave of branded drugs going generic that we've have seen thus far this year and certainly as we look out we expect it to continue.

So that's why you see for the first time certainly in some number of years us taking a first quarter LIFO credit and that's reflective of what we think our estimate would be for the rest of the year.

Okay.

On restricted cash, once we made the payments in the consolidated class action, as well as in the much smaller ERISA case this quarter, that cash is gone from our control, it's in an escrow account and all interest on that cash accrues to the benefit of the plaintiffs in each of those cases so we see no benefit.

It still remains on our balance sheet for-- because there is one very arcane legal procedural step still to be gotten through before we get to what the lawyers would call the effective dates in each settlement, and once we get to those effective dates you'll see it disappear from our balance sheet. But it has zero P&L impact at this point.

And Larry, that's not a change. I think there were some questions when we posted the restricted cash on the balance sheet on this matter, we just wanted to make sure that it was clear to people that although technically I guess we still control the money, it's not in our hands and we don't accrue any value out of it being on the balance sheet.

Right. Okay. Very good. Thank you.

Thank you. Our next question comes from Ricky Goldwasser of UBS.

Yeah, good afternoon.

First of all, on the 4 to 6% operating margin for the Med-Surg business can you provide us a time frame for that? Should we view this as kind of second half of fiscal '07 event or is it more of fiscal year '08?

Well, as we-- as John stated in his remarks, obviously, we have a regulatory process to get through before we close the transaction, which makes the precise timing of the close difficult to know. Once we get closed think the buyer has made some public comments about the targets in terms of getting through the transition, and clearly we have a common goal with the buyer to hit those kind of targets so it's little hard to predict.

I think-- I certainly feel comfortable saying as we get into fiscal '08 we should be well through the process, whether we're going to get well through it before the end of '07 is a little bit more questionable and depends on the regulatory process.

So assuming you get regulatory approval and the deal closes, that's when we should factor the 4 to 6 into our model?

Well, no, not exactly. I mean when the deal closes-- we will report this as a discontinued operation beginning in September no matter when it closes.

When it closes and for two to three quarters thereafter, you're going to have a discontinued operations line which will show two things. It will show any gain or loss that occurs on the close of the transaction and then it will show, over the next couple of quarters, the run out of the business because the buyer is paying us some fees, those will be revenues, and we're operating part of the business until they can take over all of the transitions.

In addition to that, we need to do some things in the remaining alternate site business to focus it on the alternate site business a little bit more squarely. That will drive some level of restructuring charges and those restructuring charges are going to run through the continuing operations of that business, and you know, could perhaps pull us for a couple of quarters down below that 4 to 6% range.

Once we get through those restructuring charges that's when you should expect us to see us to get into that 4 to 6% range.

Okay. That's helpful.

And then I know you talk about every quarter about your generic business growing faster than market growth. What are you assuming for market growth for generic?

Well, I think the market growth rate in generics is in the range of the high teens probably mid-to high teens depending on who you listen to.

Okay. And you should be in--

We grew at 29% in the quarter in our OneStop program.

Okay. And then lastly--

And that's really because our existing customer base is turning more and more of their generic buy over to us. I just want to point out where that growth is coming from.

It's because our program competes very effectively with in-house programs and clearly, our program competes very effectively with what would have been the precursor D&K program that we're replacing now with our program.

So the way we should look at it the mid to high teens is really coming from just the [inaudible] brand to generic and what you're growing beyond and above the market is market share gains?

Yes.

Well, careful, because market share gain-- what-- we are getting more of our customers purchase of generics. It's not coming from taking other customers generics.

It's just increasing penetration into our own customer base where they buy their generics from us as opposed to going direct to the generics manufacturers.

Or responding to the blast fax people and all of these other little guys that used to be out there marketing generics into our customers.

It's a phenomenon, as you know, we have a significant relationship with most of our customers it's called a prime vendor, and that relationship in the past has leaked some of the generics. We're attempting to stop those leaks and that's what we're effectively doing with these programs.

Okay. And lastly, does your guidance assume $0.60 for the first quarter?

Yeah, we're giving our guidance based on our GAAP results for continuing operations excluding any adjustments we might have for the securities litigation reserves. So it includes everything that we talked about.

Okay. So just to clarify if I back out the additional $26 million the 60 is really 65?

Yeah, I guess you can look at it that way.

Okay. Thank you.

Thank you. Our next question comes from Sandy Draper of JMP Securities.

Thanks, good afternoon. Congratulations on a nice quarter.

Most of my questions have been asked, I just wanted to talk a little bit more about the top line growth you're seeing on the distribution business, which was much better than I had modeled.

It there anything in there that would suggest, you know, that there were any sort of one-time pickups of sales to warehouses or in other businesses that you would see any sequential declines in absolute revenue dollars, so obviously, growth rates are likely to moderate going forward but is there anything that absolute dollars would moderate?

And then also, can you just remind me, I know there is a contract loss or some loss coming up that I think is about $750 million or so a quarter. Can you just refresh my memory? There is something I think we need to factor in that starts in the September to December quarter. Thanks.

Thanks, Sandy for the question.

There's nothing really in these results that are one-time in nature, and to your point there are some relative growth rate changes that will take place as we start to get into later quarters and revenue because of the D&K lap primary. But there's nothing that really will come out of revenue and that really covers the second question that you asked on the customer loss.

We did lose a large customer that was not profitable and that revenue run rate was basically out of this last quarter. We had some minor runoffs in it, maybe a few hundred million dollars but the rest of it was basically gone, and so that's out of the rate.

Okay. Great. Thanks.

Was there a second part of your question, Sandy or was that it?

That was it.

Thanks.

Thank you.

Thank you. Our next question comes from Andy Speller of A.G. Edwards.

Thanks, guys.

I'd like to focus in more on the margin opportunity that you guys see within pharmaceutical distribution. I think, John, if I take your comments right, you would expect to be in that range that you gave during fiscal year '07, you know, as maybe a run rate in the fourth quarter. And then perhaps as we look at fiscal year '08 to move up in the range, is that how I'm supposed to read your comments?

I don't want to be more specific but directionally you're correct. Whether we get into the range late this year or next year is yet to be seen or whether we ever get there, but our point is that I clearly feel at this point comfortable continuing to provide the ranges guidance, and as I said, the low end of that range is clearly near-term for us. It should be in our sites. We have plans that should allow us to accomplish that objective.

As to the continued progress, we see nothing in our business that would tell us that we can't continue to expand margins over time. Our distribution business should be able to grow revenues faster than we grow expenses.

We should be able to get margin rate expansion through the sale of generic products and other value-added kinds of services. We should haven't to reprice our customer base every year.

If we continue to focus our salesforce on selling the value of our relationship and how we perform against the service requirements of our relationship. So if you have those assumptions in place you can be pretty optimistic about having a 150 to 200 basis point operating margin and that's how we get to it.

Great. And then Jeff, I think you said at the end of--

That's an annual number.

Right. Okay. Okay so it's, okay. All right. I'm with you.

The fourth quarter, I think we've been above it in the past you have to blend them together.

Okay.

And then Jeff, I think you said in the fourth quarter call that in '07 you expect about $14 million worth of antitrust manufacturer gains. Is that number still right? I thought there was going to be some in the first quarter. Can you just refresh me there?

We did not have any the first quarter and the comments I made in the last call are probably still valid over the course of the year. These things are hard for us to predict in terms of specific timing but I think that's still a pretty good number for the year.

All right. Thank you.

Thank you. Our next question comes from John Ransom of Raymond James.

Hi. Just a question about SG&A costs.

I think if I adjust your SG&A numbers you were running roughly 675 a couple of quarters ago and now you're kind of running 717 so there's been a $37 million step-up. And I know this has kind of been asked but, is that sort of a permanent plateau of expenses that what we'll see is just revenues growing faster than this as you lap some of the unusual things?

Is there no dollar amount in there that's going to drop off and if so, what's the main driver behind that dollar amount jumping up so much? Thanks.

I'll make a couple of comments. The biggest driver depending on what time period you're looking at year-over-year is just adding D&K, which given the nature of the customers tends to be higher gross margin and a little higher SG&A.

The other thing to keep in mind is that in the non-pharma businesses, in MPT, when you're growing your revenues at 19%, even when you're getting nice operating leverage, your operating expenses are going to grow at a pretty good clip.

And in Med-Surg we had 10%. This quarter we had an extra week so that contributed to it, but even if you adjust for that, we had 10% revenue growth so you're going to see pretty healthy growth rates.

The specific comments we made earlier though about the back half of the year when you look at the Pharma Solutions segment, which is the one where John went through how focused we are on operating leverage, by the time you get to the back half of fiscal '07 you'll see comparisons that are much, much more modest year-over-year and in line with the kind of historical experience we've had.

Two other quick things.

The 29% growth in generic, I mean that's phenomenal. Is there any sort of D&K effect or contract churn that turns out into something other than an organic number?

I know D&K didn't do a ton of generics, but is there, is that normalized number, sort of like we should think about as that's how fast you're really growing versus kind of a steady state market growth? Or is there anything in there that might level off some?

We have consistently grown our proprietary OneStop program at rates higher than the market. Even prior to D&K you heard us talking about the strength of our program.

I believe we will continue to be very robust there and it really is a combination of a great program and a great customer set being fed by a nice stream of products going generic.

Right.

So I hesitate to tell you how long I think we can grow that program faster than the market, but clearly in the--

But that 29% number is a pretty clean number there's no contract or acquisition effect in there?

Not any more than what I said when I said we're beginning to penetrate the D&K customer class helped us, but there's no one time items in there that aren't sustainable.

Okay.

And then finally, just your absolutely gross profit percentage was a little higher than we were looking for which is [inaudible] in your business. Given that you're going to have the dilutive effect of maybe seasonality but the accretive effect of a full quarter of this new generic class, should the market expect gross profit percentages to slip a little bit sequentially or should we look at this as a pretty good number to kind of go from?

Well, the cautionary note I'd give you, we're very upbeat about the general gross profit trends because that's where the leverage that we've talked so much about on this call in terms of generics, really shows itself.

Now the other thing we also talked about on this call is there's a little quarter-to-quarter volatility because on the branded side, just due to the nature of the way some of those contracts work, you don't get a pure linear sequential progression. You kind of need to think about it over the course of a year.

So over the course of the year we are very upbeat that you're going to see continued, tremendously strong performance on the gross margin side.

And you're not saying, of course, we're hearing a little bit of distress to a lot of distress in the independent retail channel, especially vis-a-vis Part D and $2 dispensing fees and DSO issues and what have you. Is your level of anxiety on a 1to 10, where would you say that is vis-a-vis that customer class? And are you having to maybe take a little more provision for some credit issues there or do you think that customer class has bottomed and might adjust to this new environment and come back a little bit?

We just came off of our trade show with roughly 5,000 of our closest independent customers and we had a great show and we're doing all kinds of creative things to help bolster their performance including the acceleration of our Healthmart program and our Value Right programs, generics are clearly helping as is our new automation product lines with the partnership with Parata, so I'm very bullish about the stability of that customer class and their ability to be resilient in the face of changes that take place.

On the subject of Part D or other kinds of Washington activities, clearly, we're well aware of what is going on and we are heavily involved along with them side by side supporting legislation and/or regulation that supports the continued vibrance of this important customer class.

And I think people throughout our country understand the value that's delivered by retail pharmacy, and particularly the independent pharmacies, and our focus on making sure they're healthy. So I'm positive and optimistic about the health of the customer base and continue to be so.

Okay. Thank you.

I think we're going to have time for just a couple of more questions we're going to run a little over. I know some folks asked multi-part questions. So we'll see if we can't get through a few more here.

Thank you. Our next question comes from Chris McFadden of Goldman Sachs.

Thank you, and good evening, everybody. If I could two questions.

One, you've had a competitor enter the Canadian market in a meaningful way and I'm interested in your thoughts on how you think that affects the competitive climate there if at all and if there's any strategies that you and your team may deploy to react to that?

And then, Jeff, building on one of our earlier comments you talked about the Medical-Surgical, you know, ambulatory salesforce getting more focused in the wake of the asset sales to Owens and [Minor]. Should we expect that greater penetration on information technology to that customer set as one of the areas that you think you can kind of uptick in the context of the restructuring you're doing within your ambulatory marketplace? Thanks.

Chris, I appreciate the question. You broke up a little bit on the first question. I got the ambulatory and IT and the second. What was the first one again?

I'm sorry-- Canada-- [inaudible]

I got it, Chris. I got it, Chris.

Our Canadian business has performed exceptionally well for a long time, and think that our next biggest competitor is probably less than 20% the size of the McKesson in Canada. Just like in the U.S. we sell a wide range of products and services including automation and other types of products that allow us to develop long-term relationships, and in fact, some of our most significant customers in Canada have relationships that last a decade.

So are we concerned about competitors in all of our spaces? Absolutely. Are the markets competitive? Absolutely.

Do we think we're going to have to discount heavily to retain our book of business? No, we don't think so, and we think that when you have that kind of scale advantage, you know, it primarily comes down to a value discussion with our customers.

So on the ambulatory side, I'll let Jeff answer the question, but clearly, we're optimistic that we will continue to bundle a one McKesson solution to that customer set.

Right. The only point I'd add to that is, it's not new for us to use that salesforce to focus on getting technology into the ambulatory market, and if you think about it, we talked a lot today, John in particular, about how our MPT segment business is increasingly focused on the ambulatory market and the strength that we have in the channel in our Medical-Surgical business we think is a real advantage for us.

Jeff, is there a metric that we would think about over time whether it's penetration rate or number of sites where you've been able to create a cross selling opportunity or some other metric that we could sort of be mindful of over time?

Clearly, we'll continue to look at the metrics we provide on our calls and on our Web site and other places and evaluate whether there's other things we can do that would not tangle us up but at the same time provide you better visibility. I would say that clearly our momentum on the new Med-Surg business without acute care will be at least easier to understand our acceleration in that area.

You've seen us make announcements about ambulatory wins, we've announced some big wins with Triad on the ambulatory side, and we talked about, I think on the call before this one, the adoption rate of our technology and now we talked about our product being certified by the government in terms of its capability to communicate in a full EHR/EMR kind of a way.

So I think it is important for us to talk about it. I don't know that we'll be able to provide you metrics that can be compared quarter-to-quarter, but you'll hear us, I think, talk more and more about it and you'll hear us talk more about consumer health and getting into the home.

We made an acquisition, two acquisitions that quarter, actually, that are focused on bringing the patient into the process. As you might guess, the way reimbursement is changing in our world and people having healthcare savings accounts, et cetera, the complexity for providers and patients to deal with the economic and paperwork side of healthcare is going to be just as difficult as with the clinical side and we've attacked both of those things.

Relay Health allows us to do real-time communications with the physicians via the Internet and get the physician paid for that Internet visit with a patient and HealthCom allows us to deal with the financial transactions between all the parties involved in a real-time Internet enabled way. So everybody's looking at the same data at the same way and they're able to access their records clearly.

And so I think we really stand extremely well positioned to attack these fundamental priorities, and I think just this afternoon the House passed legislation to facilitate further adoption of healthcare information technology, and I'm really excited about that happening as well. So I think that you'll see Congress supporting this even more.

Very good. Thank you for the detail.

Last question please.

Thank you. Our final question comes from Robert Willoughby of Banc of America.

Hey, John, I can't believe you'd ever consider an EPS dilutive divestiture of your acute care supply business.

You know, it's an idea I came up with on my own, Robert, I'm sorry you didn't suggest it.

I'm always late.

I was just looking, can you give the breakdown of options expense by business line? And secondarily, is the mix of spending you plan to do on acquisition, share repurchases, Cap Ex, dividends, that you plan to do for this year close to what you did in last year and possibly in the first quarter? They were fairly similar.

On the share-based compensation expense, we had $8 million in total that went about $2 million to the Provider Technology segment as I mentioned in my call notes, $3 million to Pharma Solutions and just given rounding, most of the other three went to corporate, obviously, some did go to Med-Surg it just sort of rounds that way.

Okay.

Then mix of spend on capital. Do you have any thoughts on that? That was the other question that he asked.

You've said a portfolio management approach in the past, I mean is the percentages about the same or could acquisitions skew it?

You're talking about M&A that, the total spend not just our capital numbers we've been giving you.

Correct.

Okay. Well, I think it's difficult to predict what our portfolio approach to capital deployment will be. I think our internal capital budgets are relatively low number one, and pretty steady as we've discussed.

On the broader picture of how much are we going to spend on share repurchase versus dividends versus acquisitions, I think we're going to continue to be disciplined, I think we've shown tremendous success in the acquisitions that we have made and I also think we've, frankly, snuck up on a few people on the amount of share repurchase we done.

And we haven't announced any big bangs, but if you actually add it up I think well in excess of 50% of our entire deployment of capital has gone to either dividends or a share repurchase. So I think that we will continue to evaluate alternatives as they come across the plate and we will also proactively look for opportunities to create shareholder value and we'll probably do it in a disciplined and multifaceted way.

There's probably not an answer to that question prospectively, it's always retrospectively.

I guess if you're at the targeted share base for the year, though, is it likely we'd see some bigger things on the M& A front or--

Yeah. I don't think there's necessarily a correlation between the targeted share base and where we deploy the capital. I think the only guidance we try to provide on that early on was that we expected to buy shares back at least enough to offset dilution.

I think the important point there was at least and that doesn't mean we won't go beyond it but sometimes we'll fall short of it. It's a timing matter.

Really, the way we deploy capital here is that we look at every alternative against the base case of share repurchase or dividend increase, which is a sure bet kind of a deployment of capital, and if our opportunities don't exceed those base cases on a risk adjusted basis from a return perspective, we're just not going to do it and so that's the discipline I'm talking about.

Excellent. Thank you.

You're welcome. Thank you. I want to thank you, operator, for helping us manage this call and I want to thank all of you on the call for your time today.

We are, I think, exceptionally well positioned in attractive markets across the entire healthcare services segment. We're continuing to refine our strategies we've been talking about to ensure that we're not only in the right businesses for today, but also in the right position for tomorrow and that's why we talked a lot about the consumer and homecare space as well as alternate site on today's call.

As we just finished talking about it, we planned to be disciplined in our operations with our deployment of cash and we think that the first quarter has been really solid and it gives us great momentum as we think about the remainder of the year.

So thanks, again, for your time and now I'm going to turn the call over to Larry to talk about upcoming events. Larry?

Thank you, John.

On September 8th we're going to present at the Thomas Weisel Healthcare Conference in Boston. On September 12th we'll present at the Bear Stearns Healthcare conference in New York.

We plan to release our second quarter financial results and hold our call after the close of market on Tuesday, not Thursday, but Tuesday October 31st, happy Halloween, everybody. Thanks until we see each other at one of these events good-bye and take care.

That concludes today's conference call. Thank you for your attendance.