麥卡遜 (MCK) 2011 Q4 法說會逐字稿

Welcome to the PSS World Medical fourth quarter and fiscal year end 2011 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. (Operator Instructions) As a reminder this call is being recorded Thursday, May 12, 2011.

I would now like to turn the conference over to Rob Weiner, VP Investor Relations. Please go ahead, sir.

Thank you, Benjamin. Good morning, everyone. Thank you for joining our fiscal year 2011 fourth quarter conference call. Today on the call our speakers are Chief Executive Officer, Gary Corless, and our Chief Financial Officer, David Bronson. We issued our earnings release for the fourth quarter fiscal year 2011 earlier this morning, the release and our financial workbook for the quarter are available on our website at www.pssworldmedical.com.

The Securities and Exchange Commission and the State laws allow for the use of forward-looking statements which we will make during this call to provide listeners and investors with greater insight into our businesses and our future goals and expectations. The forward-looking statements we may make today and in the past involve a number of risks and uncertainties that could cause actual results of the Company to differ materially from what is expressed or forecasted. For a list and descriptions of certain of these risks and uncertainties, we refer you to the forward-looking statement disclosures in our fiscal year 2011 fourth quarter press release and to other information provided in our most recent Form 10-K and other SEC filings, copies of which are available from the SEC on our Company website and directly from our Investor Relations department.

We may reference certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You'll find these reconciliation charts in our financial workbook located in the Investor Relations section of the Company's website and is filed on our Form 8-K that we submit to the SEC.

Our Management team will be hosting our 2011 Investor Day on May 25 at the NASDAQ market site in Times Square, New York. We will also be participating in some of the upcoming conferences in June. We'll be both presenting and conducting investor meetings at the Jefferies Global Healthcare Conference in New York on June 7, the Goldman Sachs 32nd annual Global Healthcare Conference on June 8 in California and the William Blair 31st Annual Growth Stock Conference in Chicago on June 14th. We'd like to see as many of you as we can at these venues, so please contact the appropriate conference sponsor if you'd like to schedule a meeting with our team.

For our call today, we will follow our formal remarks by a Q&A session as prompted by the Operator. We will limit this call to no more than one hour in duration. And with that I'm very pleased to turn the call over to Gary Corless, our President and CEO of PSS World Medical.

Thank you, Rob. Again we'd like to welcome you to our Q4 and FY 2011 call and as always appreciate your time knowing that none of us is getting any less busy these days and in fact as soon as we complete this call, many of us are going to hop on a plane to go to Dallas to go to our Gulf South divisions national meeting we're very much looking forward to.

So, this morning we reported $0.38 earnings per diluted share in the fourth quarter and $1.32 per diluted share for fiscal year 2011. This was at the high end of our goal for the year which we had raised after our third quarter to $1.30 to $1.32. I will tell you that I'm very proud of our teams execution and accomplishment over the past year and throughout this last 3-year plan that we just completed. During this 3-year plan we grew revenue by $179 million. We grew our gross margin by over 200 basis points. We grew our operating margin by 160 basis points and we grew earnings per diluted share at a compounded growth rate of 18%.

We're able to achieve these results in what is proven for many to be an extremely challenging environment and that in large part is due to the strength of our relationships with over 100,000 customers and our 4000 team members. Knowing what they need most and providing it first, continues to be key to our success and that competency is always valuable but it provides out sized returns in times of change. And this is evidenced by the success of our customer focused strategies, each of which we have being pursuant for some time now, Reach, Strengthen, Our Health and Lean.

Our Health starts with their health and one of the key tactics under the Our Health strategy is to improve the caregivers' financial strength and our shareholders return by successfully growing our own brands, and we did just that. Over the past 3 years we've grown our mix from 12.7% of sales to 17% of sales. Simply put we're able to do that because we were talking to our customers about what they want and need and providing it to them. Our Reach, customer acquisition strategy has been very important part of our 3-year plan and is delivered. Over the past 3 years, we have brought over 59,000 new customers to PSS World Medical. These are customers who were not purchasing from us and have given us a chance. We now have the opportunity to build their trust and our business over the coming years. We see no reason to slow down.

Our caregivers have helped us develop our portfolio of services, programs and products, all based on their needs and values. We believe we have the opportunity and even responsibility to make all caregivers aware of our ability to help them solve their biggest problems. The Reach will continue to be a key strategy.

Our Strengthen strategy, which is directly related to our purpose has been a key driver of our ongoing success. It drives our learning of what is top of mind with caregivers in realtime, so that we can be the first to meet those needs. Our 850 strong sales team makes close to 11,000 face to face calls every single day and we work to maximize every encounter. This past year we have leveraged our expertise and our relationship to conduct in depth business reviews with our caregivers interviewing them to better understand their individual challenges and goals, analyzing current practices for opportunities to strengthen their business, so that they can provide care. We have completed over 10,000 of these this past year and they have been invaluable. We continue to learn and grow closer while uncovering real opportunities to improve the clinical health and financial strength.

All this happened during a changing environment and we were not going to attempt to cover the myriad of changes we've seen in the market or legislation over the past few years. We will review the current environment as we see and experience it. As you saw from our financial results, the signs we saw in the physician market pointing towards increasing patient utilization last quarter continued in our fourth quarter. We saw solid activity associated with the more normalized flu season and overall more broad based support in all product and service categories.

In the Elder Care market we continue to see pretty flat demand environment in skilled nursing and a continuing growth in home care. We continue to see signs of primary care support and funding from the payer side and the continuing shift to alternate site care through various models. Home care, community health centers, rapid care clinics, skilled nursing, hospice, assisted living, IDNs and hospital owned physician practices, larger group practices and more. We are well positioned to seize opportunities to serve the front lines of alternate site in US healthcare as it is delivered through these and emerging new models of clinical care.

Many people think of us as historically focused on the small one to two Doc branches. Today in addition, we serve nearly 500 IDN owned practices, [10,000] large practice sites, and we define that as multiple locations averaging double our normal volume. We'll talk about all these topics and many others at our Investor Day on May 25. We will also discuss our plan to achieve our initial earnings per diluted share goal of $1.46 to $1.50 for fiscal year 2012, I hope you will join us. I would now like to turn the call over to our CFO, Mr. David Bronson.

Thanks, Gary, and good morning, everyone, and thanks for your participation today on our call. I'm going to start with a review of the fourth quarter and then I'll talk a little bit about the full-year performance and update you on some of our long-term business strategies. In the fourth quarter consolidated revenue growth was 10.6% over the prior year fourth quarter.

Physician Business grew by 15.4%, and a little over 7 points of that growth came from the physician dispensing acquisitions that we completed in Q3 and Q4. Looking at individual segments within Physicians, disposables, the largest category of growth was 1.7%; lab diagnostics grew by almost 18%; reflecting a higher sales of flu test diagnostics versus last years' relatively light seasonal flu season. Pharmaceutical products grew 8.5%. Sales of equipment grew by 1.5%, nice to see equipment growing again. HIT or healthcare information technology revenues, although it's still a small number overall, was up by more than 150% in the quarter. And then sales of our brands, private label products increased by 6.4% in the quarter and represent now 15% of Physician revenues.

Elder Care Business revenue as Gary said was flat year over year. In the customer segments there we saw skilled nursing home actually decline by 1.4% reflecting some customer loss due to consolidation among larger customers and as we continue to focus our efforts more on the mid size, regional and independent parts of that market. Home health revenues increased by 2.6%, hospice growth was 4.2%, and sales of our brands increased by 9% in Elder Care and represent now 22.5% of our overall mix.

Back to consolidated results for the quarter. Gross margin increased by 40 basis points. Operating margin grew by 117 basis points to 6.9% and operating margins were very good in both businesses with 9.7% in Physician and 7.1% in Elder Care which is an all-time high operating margin for our Elder Care business. As Gary said we reported $0.38 per diluted share and we generated just under $42 million of operating cash flow. Return on committed capital for the quarter was 39.7%, almost 40%, again an all-time high.

Now, a few comments on the full-year for fiscal 2011 which ended this past April 1. Consolidated same day of sales growth was 1%. 3.6% growth adjusting for last years' $52 million of H1N1-related product sales. As Gary mention we saw signs of a modest but broad based recovery of demand in the third quarter which continued in the fourth quarter and it was across all product segments.

Besides the dispensing businesses that we acquired, which represent about $100 million in annual revenues, we also acquired several smaller fold-ins mostly in the Physician business that have been or are now in the process of being integrated. Gross margin for the full year improved by 70 basis points, and as we've said this is a combination of growing our brands mix as well as driving improved profitability and supply chain economics with our branded manufactures, and I'll just say that we had a very good year in our buy side activities.

Operating margin grew by 70 basis points to 6.9%. Full-year operating margins improved in both businesses with 9.7% in Physician, 6.2% in Elder Care. We reported $1.32 per diluted share at the high end of our goal which we had raised twice during the year. And we generated $116 million of operating cash flow. And we did see improved inventory turns, especially in Q4 as volumes begin to grow again. From my perspective, our results for the year and especially when viewed over the last 3 years are quite satisfying. It was a period marked by the biggest liquidity, capital and consumer confidence crisis any of us have ever seen and ever hope to see, which lead to a sharp and prolonged reduction in utilization of our healthcare system which is only now beginning to ease and a definite increase in inflationary cost pressures for raw materials, labor, fuel and utilities.

Gary summarized our revenue gains, margin improvement and earnings growth over the last 3 years. I would add the Company also generated over $300 million of operating cash flow which funded our M&A strategy, we acquired over $150 million of annual revenues. We did $72 million of capital expenditures focused on improving our distribution infrastructure and systems, supply chain capabilities, and customer facing technologies, and the repurchase of almost 9 million shares over the last 3 years, 2.7 million of which were repurchased during FY 2011 at an average price of just over $20.

Company's return on committed capital, which is for us the best measure of overall return, improved from 28.3% in FY 2008 to 35.5% for the year we just completed. In terms of shareholder return, maybe one way to measure that is in market cap which has increased by about 45% over the last 3 years. We believe those results have been due to our execution of customer centered business strategies and in FY 2011 we had a solid year of execution on those strategies. One of the most important of which is reaching new customers. In the Physician Business we added 5,700 new accounts just in the fourth quarter and over 23,600 accounts for the full year. We continue to see retention rates of 40% to 50% for both the new accounts we added this year and more importantly, for the new accounts that we added in FY 2010 as part of our Reach campaign. The goal for Reach accounts per sales rep for this past year was at least 10 each and we had over 92% of our reps achieve that goal, with many achieving and opening many more new accounts than that.

In the Elder Care business, Reach added 261 new accounts in the fourth quarter and 1,600 accounts for the full year. We're seeing a little bit better retention, better than 50% retention rate among our new Elder Care customers and we're seeing new customer adds weighted more on the home care side versus skilled nursing.

We also had very good results in our Strengthen and Our Health strategies as Gary covered earlier. Lean, for us, continues to gain momentum and post excellent progress as evidenced by a full quarter point reduction in G&A and warehouse expenses as a percent of sales this past year; despite fewer billing days and lower overall volumes.

Now, for fiscal year 2012, which we are 6 weeks into, we've set an initial goal for diluted earnings per share of $1.46 to $1.50 per share. I would like to make one point on next years' goal without stealing too much thunder from our Investor Day. As those of you who have followed us for several years who will remember, we plan our business in 3-year segments. The first of each of those 3-year plans is generally characterized with heavier than normal investments that drive future returns. These investments are in people, technologies, systems and programs, always with the requirement that any investment we make has at least a 30% return tied to it. FY 2012 is the first year of this 3-year plan and our financial goal is to contemplate about $10 million to $15 million of new investment and that's about twice what we would normally invest in any given year. Much of which is already being started and implemented to support new initiatives, all of which will drive our purpose, improving the clinical success and financial health to caregivers by solving their biggest problems. And we'll also improve our position as the Company in our industry best known for expertise delivered.

Now, we look forward to sharing a lot more details about those investments and our overall business plan at our Investor Day on May 25 in New York. Like to turn it over to Gary just for some closing comments before we open it up for questions.

Thank you, David. As we look forward to the opportunities to strengthen our customers, our team and our shareholders, we are confident that continued success will not require reinvention. It will require continued innovation, commitment and investment. We will continue to benefit from the following, our unique position, 100% focused on the alternate site, US healthcare system. Our purpose which is powerful, timely and resonating with our customer. Our differentiated portfolio of products, services and programs and our expansion from a distribution Company to a service and solutions Company. We will benefit from our team of over 4000 professionals fully aligned to customer satisfaction and our financial metrics and focused on delivering expertise with every single encounter. And lastly, our culture of execution, which makes us both demanding of our sales, our partners and each other. Yet grateful for the chance to serve our caregivers, teammates and shareholders.

Today we remain confident in our ability to for continued strong execution and our new 3-year planning cycle, fiscal years 2012 through 2014. We'll discuss this in more detail at our Investor Day on May 25 in New York. At this time I'd like to turn the call over to Rob to start the Q&A portion.

Operator, if you could go ahead and queue people up for Q&A, we're ready to go.

Thank you. (Operator Instructions) Larry Marsh with Barclays Capital. Please go ahead with your question.

Thanks and good morning, everyone. Thanks for the review and nice top line. I know you talk a lot about the details of your expectations at your analyst day, but I just sort of think about the fourth quarter, it sounds like adjusting for the acquisitions and then in my mind I guess adjusting for a particularly weak fourth quarter last year, it still seems like same day revenues in your Physician Business was up 4% or 5%. I know you talked about increasing success at diagnostics piece of the business but were there any other key drivers for that kind of growth and are you going to be talking specifically about kind of how you're thinking about same day growth in Doc and Elder Care at the analyst day?

Yes, Larry, you're right, it was about 4.5% backing out the dispensing business. A lot of that was a more normal flu season as Gary talked about and-- but even setting that aside, it just feels better, in talking to our guys. It's an extra line on an order here and there, a few more needles and syringes than they were selling this time last year, so it's as I said it's broad based but modest.

And I think for the first time in some time we've seen that kind of improvement in all product categories, so it's a combination of again the more normalized flu and just a gradually improving utilization environment.

Right, so just-- so it sounds like a continuation in which you communicated back last quarter maybe a little bit better as you see modest incremental improvement and just-- I just want to clarify and I have one other follow-up question. Are you guys going to be talking about your expectations for same day growth on Doc and Elder Care at the analyst day?

Yes, we definitely will.

Okay. Let me follow up then on the investments you're making and communicating incremental I guess $5 million to $7 million of investments this year versus a normal year, I think if I heard that right which is about $0.05 or $0.06 of earnings reinvested in the business, if you will, and you talked about a whole series of initiatives. Two things around that, are you able to be anymore granular at this point, Gary, about the kinds of things you're doing, again are you going to defer that to the analyst day? And how should we think about the timing of those investments, first half/second half?

Larry, our plan is definitely to go into great detail at our investors day, so I think David mentioned, it's across-the-board, it's people and it's programs, it's technology and we'll fully detail those on May 24. As far as the timing goes, David I don't--

We've already started and in fact probably a tiny bit of that happened towards the end of Q4. I mean once we decide what the plans are, we're going ahead with it. But becoming more of a services Company, addressing the opportunity in the IDN and emerging markets and CHCs. All of those things that we've talked about are now getting some investment dollars going forward, and so we don't want to necessarily go into a lot of detail here, it's not the purpose of this call. But it'd be-- it's not going to surprise you, it'll be in all the areas you would expect.

Yes, okay. And then finally I guess going out to the Gulf South meeting here, it would seem like a priority for this year as you think about organizing the troops is trying to drive some top line back into the business, you're seeing nice margin expansion there, are there any other specific initiatives that are going to be the center of attention at the meeting, Gary, and how might we see those being rolled out this year?

It's a very good point, Larry. I could tell you that the team there as Mark Steele started at the beginning of this year as the President of Gulf South and as I told you and others one of the reasons I chose Mark was because he was responsible for-- or largely responsible for developing the differentiated portfolio of products and services and programs at PSS heading up marketing. So-- and I can tell you that I feel very good about his leadership and the team that he's put in place. That has been working to develop new competitive capabilities, many of which are going to be rolled out today and over the next few days so I won't steal their thunder but it's-- yes, they've been very focused on improving the profitability and hit a high watermark for gross profit and operating profit. And I'm pleased with that and proud for what they've done there. But to your point we're going to now leverage the customer relationships that we have there and utilize in the new programs to create growth in that higher-- in a better running business.

Yes, okay. Well I'll look forward to hearing a lot more details later this month. Thanks a lot.

Thanks, Larry.

Thanks, Larry.

Eric Coldwell from Robert W. Baird. Please go ahead with your question.

Thanks and good morning. First question is on raw materials and energy fuel costs. Can you give us some sense of what the impact was in the March quarter and how to think about the next year there? Maybe if you could also add in just an update on what fuel costs are in your transportation network?

Yes, so we spend probably $7 million or $8 million now, Eric, on fuel either through putting it in our trucks or paying surcharges to third-party carriers or in-bound freight. But we've gotten a lot better, Eric, at managing our fuel surcharge with our customers and certainly in a time when they're seeing it obviously at the pump, it's-- we used to have a little bit of a lag in terms of our reaction to increases in our costs and changing our fuel surcharge. We've shortened that lag now so that I would say that in the quarter, we had very little, no impact, no material impact from rising fuel costs on our cost structure or on our overall profitability.

And as far as raw material cost increases, we have seen those, but for the most part we've been able to pass those on as well. Now, our customers are under pressure, under cost pressure, and we are facing increasingly competitive pricing in the market. So we're paying very close attention to that but it just for us, it just cements down and reinforces why we are doing our brands in the first place which Gary likes to say is controlling our own destiny there instead of letting other factors control our destiny. So I'd say that we're absolutely on top of that. We're doing a good job of managing those cost increases and it did not have a material impact on our results.

David, that sounds, that $7 million to $8 million sounds fairly similar to what you talked about perhaps 3, 4 years ago when fuel first spiked to $4.50 nationally and maybe even down $1 million or so. Is that accurate that you've been able to hold those costs pretty steady against the last major spike in fuel?

Yes, and part of the reason is that we are much more efficient in our operations, so using route planning software and using the best-- the more fuel efficient vehicles, so we have been able to keep that relatively flat.

That's great. The dilution from the converts and the warrants is certainly picking up here and it's one of those vicious cycles the better you do the better the margins expand et cetera, the stock goes up but you get more and more dilution each quarter from that. You've been running at $60 million. $70 million a year in repurchases somewhere in that ballpark. Should we read into this given pretty good guidance for the first investment year of this 3-year plan, the read is obviously that the 3-year total plan must be higher because the first year is the investment year. How are you going to offset this dilution? Are you going to be more aggressive on buybacks? Can you give us any hints on that thought process?

What we've said in the past is that we want to offset any dilution that we get either from our financing or from new grants to employees with share repurchases and we've done a little bit better than that in the last 3 years and I think that the assumption, the planning assumption, is that we're going to do at least enough to keep our way so flat if we can.

Does that limit your ability to continue the M&A pace which has heated up a little bit here?

No, it does not. Not at all. We're still accumulating cash and so I don't see it as a constraint.

Okay. And last question is if you could give us some more details on the dispensing acquisitions, maybe some specifics about what you've done to integrate those businesses, I believe there were some solutions that the acquired companies had that perhaps you've divested or at least not invested in going forward, could you talk a little bit about that and also any initial success with the acquisitions or with your sales force?

We actually haven't, Eric, extended it to our sales force yet just in a few cases. And in the few cases where we have done that, its gone very well, but we've been very focused behind the scenes in making sure that the integration is efficient and effective. And so I will tell you that we haven't even begun to leverage this business across the PSS sales force. This has all been about picking the right structure and the right offering going forward, so we're still very much in the process I would say of the integration. David, I don't know if you want to add to--

Yes, and the other thing that has kept us from making too many decisions, long-term decisions is that we're still looking at other candidates in that space and so the decision on what system we'll use, what platform, what approach, what go to market approach, all of that stuff will kind of get decided once we have gotten our critical mass and looked at all the candidates that we want to look at. I would also say that just to remind everyone that we've always said all along that this solution is not going to be something that will be applicable to every doctor that we serve. And there is certain states that we can't go in with the dispensing right now, so this is a great solution for us that meets our purpose but just like anything that we sell, it won't be for everyone.

The G&A actually, G&A expense came out a little bit above our model both as a percent of revenue as well as nominally, some of that clearly driven by the revenue upside. I'm curious if you could give us a sense on how much incremental integration expense or kind of transitory costs you assumed in the quarter, the first full quarter of these deals related to the acquisition?

Very little. There's almost no sort of one-time costs associated with these yet because we really haven't done anything significant yet. And I don't know that there will be, Eric, because this is going to continue to be a standalone business. We aren't shutting down any of the locations that we've acquired, so it had very little impact. And all of the G&A dollar increase over prior year was associated with the acquisitions. Other than that, our G&A was actually down slightly.

That's great. Nice results. Thanks.

John Kreger with William Blair. Please go ahead with your question.

Good morning, this is [Robbie Faught] in for John today. Thanks for taking the question. It sounds like the IT revenues were pretty strong this quarter, can you update us on the strategy there? And also can you give us anymore detail on the new ads for Athena?

The new ads. Well I'll tell you the, as David mentioned, the growth, and I will pull the exact numbers for you, from the HIT side has been strong. Again, still a small number in looking at it as a part of the entire business and we believe that this will continue to grow both because of our growing competency here, our continuing improving relationship and ability to leverage the Athena sales force and also a customer that is just becoming more and more open to having to do this. So from an HIT strategy again we'll give you more of an update, a go forward update, at our Investor Day. But this continues to be an important area of need for our customer and a successful space for us. I don't know if--

Yes, I know we say this every time but Q4 was the best quarter so far for Athena. We had I think about 125 closes, a couple hundred physicians and just a lot of good lead generations, so again it's-- we continue to gain momentum there. Our people get more and more comfortable with it and the industry and environment, the market is much more receptive to it. So it's still a small part of our revenues as I said, but we're very encouraged that each quarter is better than last.

Great, thanks. And then a broader question on the physician consolidation trends. Now that you have another quarter under your belt presumably dealing with a lot of these consolidated entities, how is your sales force fairing from a competitive perspective?

That's a very good question and we see it sort of about the same pace that we've been seeing it. And I'll tell you, we haven't changed our answer because we haven't seen anything different in this way in that we seem to win and lose business, physician office business whether it's owned by the doctor or the hospital at the same rate that we win and lose on the street every day. So there are a number of individual success stories that we've had. Just in this past quarter we've convinced a couple of different hospital systems to end their self-distribution strategy that they had attempted and then found quickly that that does not work for the physician office. We brought on some other systems that were using competitors that you would know. So what the many of the hospital systems are finding out is that it's as something we all know is it's very, very different to deliver in a very small office in small units of measure to an unsophisticated procurement person. So we feel good about what we're doing there, but as David alluded to and we'll talk about at Investor Day, we'll be investing more time and energy in that strategy and building up even I think an even stronger portfolio.

Great. Thanks very much.

Robert Jones with Goldman Sachs. Please go ahead with your question.

Thanks for the questions. So just on the operating margin, and trying to isolate looking forward, isolate the incremental investments you discussed, but obviously some pretty impressive margin expansion over this last fiscal year despite what was a challenging top line environment, in this quarter as a percent of sales, SG&A was in line with what we were looking for but obviously the dollar amount higher as you exceeded top line expectations. I guess my question is, as volumes come back, can you talk about how costs might need to return to service the increased business? I guess how should we be thinking about the operating leverage at this point?

Hasn't really changed, Bob. Always our volume dropped through in terms of leveraging revenue growth is somewhere between 12% and 14%, depending on the branch that it's coming out of, how close to capacity that branch is and how much-- what their geographies are and those kind of things. But on average, 12% to 14% of incremental revenues drops through the operating margin and that continues to hold true for us in both businesses and across the system.

So the infrastructure there on both sides as far as reps is enough for-- you can foresee it at least looking forward to handle any increased volumes that would come back in?

Yes, our selling expense is almost 100% variable, so that's not really in play here, but it's the warehouse costs and the G&A costs is the part that we leverage.

Great. Now then just 2 quick follow ups. One, you might want to postpone this to the Investor Day but I was wondering, does the guidance include unidentified acquisitions? I know last year did.

Yes, and we will talk about that more at Investor Day, but similar to this last year, where we had, I think we said $20 million to $30 million, that's about what we've got in our plan for next year . Now this last year, we significantly overachieved that and the opportunity is still there and the capital is still there to deploy, but that's kind of what's embedded in the

Okay, great. And then just my last one, Gary, I know in the past you've highlighted the opportunity in community health centers. I was wondering if you could just give us an update on that customer and your expectations around that group going forward? Thanks.

I think we had some success stories in the fourth quarter and I will tell you that again, we'll talk to you a little bit more about it at Investor's Day but that's also an area of investment in fiscal years 2012 through 2014. So we feel good about how our offering currently matches up to what the community health centers are telling us they need, but we also feel like with the more investment of time, talent and money there that we can do an even better job there. So definitely it will be an area of focus as it is for the country in trying to determine how we handle the millions of new insured lives and continue to be a growth area and we'll again highlight to you how we're going to be handling that. Did that answer your question, Bob?

John Ransom with Raymond James. Please go ahead with your question.

Good morning. You guys had a little bit of a tailwind from the commodity price fall and I know there's a lag, but based on-- let's assume that this cycle has peaked, when do you think you'll hit kind of your maximum pressure point in terms of your commodity cost pressure going up and when would you kind of get over that hump?

Well, I don't know that there is a frog in the snake here. It feels to me more like because it's broad based and because it's across a lot of products and a lot of different plants and manufacturing sites that we use and a lot of different vendors, it feels more like a gradual thing than a big lump. I would tell you that in terms of just how we measure our profit and inventory, which is the difference between what we've bought the inventory for and what's hit cost of goods sold, is about the same month to month. So we don't see a big bubble of costs coming at us, if that answers your question.

Okay, thanks a lot.

Yes.

(Operator Instructions) Lisa Gill with JPMorgan. Please go ahead with your question.

Good morning. This is actually Gavin Weiss in for Lisa Gill. I was wondering if you could just talk about the recently announced Medicare rate cuts for skilled nursing facilities and whether or not you see that having an impact on the Elder Care Business?

As we say around here pay attention to the people that pay the people that pay you, so we always pay very close attention to the reimbursement side. In talking to our people and many of our customers it wasn't a total surprise, so it really fits within the same direction that we've seen coming and see continuing that we have to continue to help our customers become better business people as their margins get squeezed and it's offset some by increased volumes, so there wasn't anything in there that totally shocked us. It fits was in the direction that we're planning for and I think to a degree continues to point towards the importance of the things that we're doing to help them control their costs, for example, our own brands. So in many ways it helps facilitate that conversation every single day as we start to see an increasing penetration of our brands even within individual customers that are dealing with those type of challenges. So again, within what we were expecting.

Okay. And then I think I heard you guys say in your prepared comments that Linear and DSI were about now $100 million in annual revenues, did I hear that correctly? I thought before it had been $75 total million for those two.

No. It's about $100 million.

$100 million?

Yes.

Okay and is that up from your previous expectations or is that in line with what you had?

No, I don't know where the $75 million might have come from. Maybe that was an annualized impact because of the timing of when we did them or something like that, but on an annual-- a full annualized basis, it's a little over $100 million.

Okay, great. Thank you very much.

Yes.

Mr. Weiner, there are no further questions at this time. I will now turn the call back over to you, please continue with your presentation or closing remarks.

I think that's it, Operator. Thank you very much for all joining. We are going to be somewhat available right now after the call but then a little later this afternoon we've got calls scheduled and will be available this afternoon and tomorrow for follow up. Thanks.

Good, thanks, everybody.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.