Owens & Minor Inc (OMI) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Owens & Minor fourth quarter and full year 2009 earnings conference call. My name is Tymica and I will be your operator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference call. If at any time during the call you require assistance, please press star followed by zero and an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Craig Smith, President and Chief Executive Officer of Owens & Minor. Please proceed, sir.

Good morning, everyone, and welcome to the Owens & Minor fourth quarter and year-end 2009 conference call. We'll review our results and take your questions in just a moment, but first let me introduce my colleagues on the call today -- Jim Bierman, our Chief Financial Officer; Charlie Colpo, our Executive Vice President; Grace den Hartog, our General Counsel; Olwen Cape our Controller; and Drew Edwards, our new Corporate VP of Finance who has recently joined our accounting team. Now, before we begin, Trudi Allcott, our director of Investor and Media Relations, will read a Safe Harbor statement. Trudi.

Thank you, Craig. Our comments today will be focused on Company results for the 2009 fourth quarter and full year, which are included in our press release. The press release, as well as related presentation, can be found in our website. In the course of our call today we may make forward-looking statements. These statements are subject to risks and uncertainty that could cause actual results to differ materially from those projected.

Please see our press release and our SEC filings for a full discussion of these risk factors. And finally, tomorrow we are participating in the UBS 20th Annual Global Healthcare Services Conference in New York. Our presentation is scheduled for 8:30 in the morning. That's tomorrow, Wednesday, February 10th, and a webcast of this UBS presentation will be posted on our website under the Investor Relations section. And also a webcast of today's conference call will be archived on our website. Thank you. Craig.

Thank you, Trudy, and let me call on Jim to jump into the financial results. Jim.

Thank you, Craig. Good morning, everyone, and thank you for joining us today. We are very pleased with our results for the fourth quarter and the full year. Despite all the business, market, and economic challenges in 2009, our teammates maintained a clear focus on serving our customers and achieving our goals for the year. Consequently, our fourth quarter results demonstrated improvement across almost all areas of our business. For the year, we reported double-digit increases in revenue and operating earnings and more than $165 million in operating cash flow. 2009 revenues exceeded $8 billion, an increase of 11% when compared to 2008. These results were in line with our expectations for the year. Slightly more than half of the growth in revenues resulted from net new and acquired business, while net increases in sales to existing customers accounted for the remainder of the growth.

For the quarter, revenues exceeded $2 billion, an increase of more than $80 million, or 4.2% when compared to last year's fourth quarter. As we have said previously, after lapping the Burrows acquisition in the fourth quarter, we expected our growth patterns to revert to more normalized levels. As we look to 2010, we continue to target revenue growth in the range of 4% to 6%. Gross margin dollars increased 9.7% to $787 million for the full year 2009 compared to $717 million for 2008. The increase in gross margin dollars was primarily driven by greater revenues. Looking at annual gross margin as a percentage of revenues, we reported a decline of 11 basis points to 9.79% for 2009 when compared to the prior year. The decline results primarily from factors we have discussed throughout the year. These include lower gross margin as a percentage of revenues on sales to new and acquired customers and a decrease in supplier incentives as a percentage of revenue.

These decreases were partially offset by the effect of net supplier price changes, as well as the effect of changes in the mix of inventories. This resulted in a 2009 LIFO provision of $2.7 million for the year, approximately $10.5 million less than it was in 2008. For the fourth quarter, gross margin dollars increased $8 million to $201 million when compared to the same period last year. As a percentage of revenues, quarterly gross margin was unchanged at 9.86% when compared to last your's fourth quarter. As we consider 2010, we continue to target gross margin within a range of 9.60% to 9.75%. Due to the timing of our supplier incentive programs, as we have seen historically, we would expect the second half of 2010 to see a margin increase when compared to the first half of the year. For the year, SG&A expenses increased $44 million to approximately $566 million when compared to 2008.

Increases in labor costs, occupancy costs, and information technology services necessary to serve business growth accounted for the majority of the increase. Expenses related to our strategic initiatives, which are designed to improve future operating margin, also represented a portion of the increase during the year. Looking at SG&A expenses as a percentage of revenue we are very pleased to report that SG&A decreased 16 basis points to 7.04% for the year when compared to 2008. We see evidence that we are gaining operating leverage with improved distribution center productivity and cost reduction measures Companywide. For the quarter, SG&A expenses remained essentially the same as the prior year at $140 million. As a percentage of revenues, fourth quarter SG&A expense decreased 33 basis points to 6.87%. When comparing the two periods, please keep in mind that during last year's fourth quarter we incurred expenses related to the Burrows acquisition and transition.

Fourth quarter 2009 benefited from the successful conclusion of our mainframe migration project. Going forward we will continue to work on efficiency, productivity and expense control in an effort to improve SG&A. But keep in mind, there's a certain seasonality to our expense profile. Typically, in the first quarter of a year, we experience increases in payroll related taxes and equity based compensation expenses. For 2010, we continue to target annual SG&A to be in a range of 6.90% to 7.05%. Turning now to operating earnings. For the year, operating earnings exceeded $201 million, an increase of more than 11% when compared to 2008. As a percentage of revenues, operating earnings for the year was 2.50%, unchanged when compared to the prior year. For the fourth quarter 2009, operating earnings was nearly $56 million, increased more than 15% when compared to the fourth quarter last year.

As a percentage of revenues, quarterly operating earnings were 2.73%, improved 26 basis points from last year's fourth quarter as a result of improvement in SG&A expenses. Interest expense, a component of net income but not of operating earnings, was $13 million for the year, decreased $3 million when compared to 2008. For purposes of comparison, the prior year's interest expense included a $3 million loss from interest rate swaps that were terminated during 2008. For the year, our effective interest rate was 6.5% on average borrowings of approximately $208 million compared to 6.2% last year when excluding interest expense related to the terminated interest rate swaps. For the fourth quarter, interest expense was approximately $3 million, essential unchanged from the prior year quarter. Turning to our tax rate, the effective tax rate for 2009 was 37.9% compared to 38.5% last year.

The lower rate for 2009 resulted primarily from the recognition of tax benefits following the conclusion of IRS audits of our income-tax returns for 2007 and 2006. On a per share diluted basis, income from continuing operations for the year was $2.79, improved from $2.44 when compared to 2008. For 2009 we reported a loss from discontinued operations of $0.29 per share compared to a loss of $0.19 in 2008. Net income per diluted share for the year was $2.50, an increase of 11% from the prior year. On a quarterly basis, income from continuing operations was $0.76 per diluted share, improved from $0.66 in last year's fourth quarter. Net income per diluted share was $0.77 for the quarter compared to $0.49 in the same period last year. Now turning now to asset liability management for the year. We reported operating cash flow from continuing operations of $165 million compared to $63 million in 2008.

Operating cash flow for the year was positively affected by strong operating earnings and a decrease in accounts receivable, partially offset by a decrease in accounts payable and an increase in inventory to serve our new business. Inventory turns in the fourth quarter were 10.6 compared to turns of 10.9 a year ago. Our receivable DSO was 21.4 days as of the end of the fourth quarter, improved when compared to DSO of 24.5 days at that time same time last year. DSO results were positively impacted by an increase of approximately $17 million in net customer deposits in late December 2009. Cash used for capital expenditures for the year was approximately $32 million. The cash was used primarily for investments in strategic initiatives, such as the installation of automation equipment and voice pick technology in our distribution centers, as well as investments in the healthcare logistics distribution center and its information technology systems.

These investments were partially offset by proceeds from the sale of two of the properties acquired in the Burrows transaction and a positive $7 million purchase price adjustment from the acquisition. This all results in a $20 million of cash used for investing activities. During the year, cash dividends paid were $38 million. For the year-to-date, cash provided by discontinued operations was $73 million, including the $63 million we received from the January sale of certain assets of our DTC business and the collection of accounts receivable, partially offset by costs associated with exiting the business. Combining the proceeds from the sale with operating cash enabled us to reduce long-term debt by $151 million for the year.

Before we turn to 2010 guidance, I would note that our team is very pleased that our results for 2009 are well within our guidance for the year. As we look to 20 10, we believe SG&A improvement will be the fundamental near-term contributor to operating margin improvement. As we outlined at our 2010 investor meeting in December, we continue to target revenue growth in the range of 4% to 6% and income per diluted share from continuing operations in the range of $2.90 to $3.05. Thank you. I will now turn it over to Craig for his remarks.

Thank you, Jim. And as Jim said, we are obviously very pleased with our results for 2009. We reported more than $8 billion in revenue for the year with more than $165 million in operating cash flow. We also reported double-digit growth in revenue and operating earnings and during the year we successfully on-boarded a significant amount of business, while at the same time we made good progress in bringing down our expenses. Our teammates effectively managed our business growth without sacrificing great customer service, which we're known for. In fact, we earned 97% customer satisfaction ratings for the year 2009. Considering the overall economic environment and the range of initiatives we tackled during 2009, obviously, again, we are very pleased with our financial results and operational achievements. Now during the year we completed a number of important projects.

One of these projects was the successful mainframe migration initiative, which we have not talked a lot about over the last several quarters and we completed that in the fourth quarter. But by migrating these business processes and computer code to a Windows environment, we've achieved greater flexibility, we've improved our capacity to accommodate business growth and grow, lowered our day to day IDT operating expenses, but as we have said, we intend to reinvest some of the savings in technology improvements. Now, the project involved in the cooperative efforts of scores of teammates who participated in hours of testing and preparation. Also in 2009 we continued to invest in our strategic initiatives, which are designed to improve operational excellence, expand into specialty products, and expand our reach into the nonacute care markets. Among the strategic milestones in 2009 was the establishment of OM Healthcare Logistics, our 3PL business.

Now this effort provides order to cash supply chain solutions for suppliers. During 2009 we opened a designated distribution center in Louisville and I'm very proud to say we built a great cross-talented team of outsiders and insiders whose expertise are in operations, sales, and supply chain technology. We did achieve ISO 9001 certification in 2009 and we are in talks with a variety of potential supplier customers. Regarding our ASE initiative, as we have announced before, we have a new leader in place and he is currently continuing to build out the sales team for this initiative as we speak. We do intend to approach this attractive market with the right mix of products and services, and we've made great progress with our business model. During the year we also completed the installation of voice pick technology in 40 distribution centers. Already we are are seeing productivity improvement in many of those distribution centers and we look forward to achieving the full benefits of this new technology.

Among our key programs and services we saw double-digit growth in PANDAC, SurgiTrack and MediChoice. With MediChoice, our private label, we are seeing growing acceptance by our customer base and our task this year is to increase market share and continue to add new products to the offering. In light of all we've accomplished in 2009 I cannot say enough about the efforts of all of our teammates. On a day-to-day basis, maintaining and growing business requires significant effort. But in 2009, our teammates not only managed through daily demands, they also achieved double-digit growth in revenue and operating earnings. However, our teammates also contributed to the well-being of the communities we serve and this is an ongoing focus for us at Owens & Minor and one of our key core values. In the wake of the earthquake in Haiti our teammates have volunteered in many ways.

Through our D.C.'s across the country we have donated medical and surgical supplies to a variety of groups who are organizing relief missions to Haiti. We are also matching teammate donations to the American Red Cross on a dollar for dollar basis and we hope that in some way our donations can help those poor folks in Haiti. I'm also very proud of our teammates, but I'm especially proud when they really reach out to help others. Now turning to the year ahead and the healthcare market overall, in contrast to a year ago, we are hearing that our customers are doing their best to get back to normal and our customers are telling us they are moving forward with or without healthcare reform. As for Owens & Minor we continue to do what we do best, which is to provide exceptional supply-chain management and distribution services to our customers every day. In the coming year we also recognized that our supplier partners are a vital element of our business.

We continue to focus on developing relationships with the most efficient, effective suppliers. Our supplier agreements for 2010 are in place and I would reiterate that, as we said in December, we believe the supplier component of our business model should normalize this year to what we have seen historically. As we outlined at our December investor meeting, our priorities for 2010 are -- to work toward improving operating earnings with a near-term focus on reducing operating expenses and a longer term focus on improving gross margin; focusing on improving productivity after three years of near constant activity from two major acquisitions; and finally, to make steady headway with our strategic initiatives, which are also designed to improve operating margin over time.

Also, I'm very happy to report that our board of directors has approved a 15% increase for the first quarter dividend. At the same time the board also approved a three for two stock split. Both the cash and stock dividends will be distributed on March 31st to shareholders of record on March 15th. We believe the board's decision reflects confidence in our operational and financial performance, as well as support for our strategic initiatives. At Owens & Minor we have a long history of paying dividends, as we believe they are an important element of long-term shareholder value. In conclusion, we are very pleased with our 2009 results and we continue to believe that Owens & Minor is well positioned operationally, financially, and strategically for the year ahead. Thank you and now we would be happy to take your questions. Operator.

(Operator Instructions) Your first question comes from the line of Richard Close.

Yes, thank you. Just curious if you can talk a little bit about the revenue growth as we progress through 2010. I guess it was a little softer in the fourth quarter than we expected, but if you can just give us a little bit of an update on what -- any trends you're seeing in the purchasing environment currently.

Sure, Richard. Let me start by saying and reaffirming the fact that the results for the year really came in pretty closely to where we had expected and where we had indicated in numerous calls and discussions with the investor and analyst community. So we were very pleased with 11% growth and the results for the quarter came in line with that. That being said, I think as we have also indicated on numerous occasions, including investor day in December, we will selectively decide where to invest in customer relationships. And certain relationships that don't have the profit potential or profile that meet our criteria, we will take action with. And that's a continual part of our business, but certainly a factor to consider as we look into 2010. All that being said, we reaffirm the targeted growth that we've talked about of 4% to 6% for the year and we're approaching 2010 with that initiative and confidence in mind.

The follow-up to that, can you go into a little bit more in terms of the comment there to decide to invest in certain customer relationships. Anything that happened in the fourth quarter that you can point to or, as we enter 2010, anything with regard to that statement?

Well, Richard this is Craig. I would just go back and reiterate what Jim said. At investor day I did say we would be somewhat selective in terms of profitability. I mean -- and I would not guide to the fourth quarter or any quarter in particular. I would stand to the 4% to 6% next year and that's part of the plan is, is that any time we go through major growth, we take a step back, we look at the profitability of certain customers, whether it's credit worthiness. We look at the distribution centers and the throughput in the distribution centers, so there's a lot of variables that go into this. But clearly we had said last year that we would start to look either at large IDNs that we want to go after or maybe there's smaller books of business that perhaps just are not as profitable as we want them to be or there's a credit risk. So I would stand with that and just say that 4% to 6% is still above industry growth what's projected for 2010, and we feel comfortable with guidance that we gave for this year.

Okay, thank you.

Okay, thank you, Richard.

And your next question comes from the line of Larry Marsh.

Good morning. This is Adam Poussard calling in for Larry. First, just on the LIFO provision we saw another step-down from, I think, $4 million last quarter to $2 million this quarter. I guess, could you elaborate on what happened there? And then thinking of next year, I guess, what is the targeted LIFO provision for 2010?

Sure. As you know and we've talked about in other calls, the calculation of the LIFO provision is an annual event and during the course of the interim quarters you're always estimating what the annual impact is going to be. What we saw in the fourth quarter was an element of the change in the mix in the inventories. It was not a result of additional significant price decreases in any customers, which was the triggering event in the third quarter. But it did relate to the mix of the inventory at the end of the year differed from estimates over the -- during the course of the year. As we said in investor day and as we think about 2010, we would target that LIFO provision would revert to more of a normalized level and to that we would look sort of the 2007, maybe 2008 kind of time frame to think about the provision. But clearly 2009, with the significant price changes that we saw during the course of the year, was a bit of an anomaly and so we would look to a more stabilized period. Again, 2007ish time frame.

Then secondly, could you, I guess, could you elaborate on your comments about the second half of 2010, just kind of why the supplier payments more back end loaded for next year?

Sure. Many of our supplier incentive agreements are annual contracts. They tend to follow somewhat of a calendar year basis. And they tend to have various incentives associated with them, be their floors or ceilings or other aspects of those contracts, such that for accounting purposes we need to have achieved the levels of performance before we start recognizing the benefits associated with that performance. That tends to be a back half of the year issue. In the third, fourth quarter historically, we've seen us achieve those thresholds and therefore begin to recognize the benefit associated with those arrangements.

And just to clarify, you said I think the margins in the second half would be greater than the margins in the first half. That was your specific comment.

Correct. You would expect, in large part because of this, that you would see correspondingly the second half of the year have better margins than the first half of the year. And I think that that would tend to prove out if you look at the historical experience of the Company.

Thanks a lot.

And your next question comes from the line of Robert Willoughby.

Hi, good morning. Just a quick one. Your debt to capital has fallen to recent lows. Are we thinking about perhaps moving that back up by, I know you just obviously paid down a bit of debt, but what's your thought process on the long-term capital ratio for you?

Yes, Robert. Obviously we're constantly looking at that, particularly in light of significantly changing economic environment. If we think back to a year ago and the situation that existed, there were certainly different factors and pressures on companies than may exist today and the same may be true a year from today. So as we all know, these are challenging times to navigate the capital structure. That being said, I would point out that our bank revolver is due to -- for renewal or expire in May of 2011. As would be normal and customary practice we would expect that sometime during 2010, we would be renegotiating and re-signing that agreement. I think that's where we're focused initially and as we think about the rest of the year and have better clarity on the credit markets, we'll look accordingly. My last point would be, I'd reaffirm Craig's point that he made earlier, which is we are a dividend paying Company, have been so since 1930s, and that we've just increased our dividend 15% as we go into next year.

And did you break out, Jim, in your review our CapEx number? I may have missed that for 2010.

I did in investor day and -- let us check on that. I would -- I was trying to remember off the top of my head. I think it's in the $35 million to $45 million range, but I would point you to the investor day discussion along those lines.

Okay, thank you.

Thank you.

(Operator Instructions) And do you have a follow-up question from the line of Richard Close.

Yes, just clarification maybe on the incentives from the 3Q. Obviously that caused, I guess, some pain in the 3Q. Did those incentives end up coming through in the fourth quarter. If you can talk a little bit about that. And then just exactly, again, where does that hit on the P&L?

Sure, Richard. The results for the fourth quarter, our margin did benefit from achieving the supplier funding we had been targeting and there was a bit of a carryforward from the third quarter into the fourth quarter as we achieved certain levels that had a catch-up aspect to it. So the answer is yes, we did revert back to far more normalized levels. The second part of the question --

It's just in the standard gross margin.

Where do we report this. Yes, it's reported as part of gross margin.

Okay, thank you.

Thank you.

And your next question comes from the line of Glen Santangelo.

Yes, Craig, just a couple of follow-up questions on those supplier agreements. You said you kind of put some supplier agreements in place. Are those different than the ones you had in place last year, because I'm trying to understand if you're sort of contractually protected from what happened in the third quarter of this year. So what I'm trying to surmise is if you're right on your revenue assumptions, should those supplier incentives be more predictable this year versus last year?

Yes, and again, there's a lot more that goes into gross margin than just the incentive plans, but these are just standard plans, Glen, that we have annually with different -- with all the major suppliers and we have different programs with smaller suppliers, medium size, so it's not a one-stop agreement that we kind of lock over multiple suppliers. So there was, there were some volume levels that we had hit. We're moving around a little bit more in terms of -- and it isn't all about growth incentives. It's also about operational incentives. There's a whole host of different programs that we work with on our suppliers based on what they want to do on an annual basis. So, it's pretty tough on a call to break it down into a three-minute explanation, but I think, based on my remarks, based on Jim's remarks, we're comfortable with where we are in the supplier agreements. Charlie has worked pretty hard over the last three or four months to work on these and get them squared away. And so what I would say is we're locked in for 2010.

Okay, that's fair enough. And Jim, just to kind of follow-up on some comments you made regarding SG&A, it sounds like that's going to be a big focus for the Company in 2010 and you laid out that guidance of 6.90 to 7.05 and you were kind of already below that this quarter. I'm trying to understand if there's a reason why SG&A as a percentage of revenue would tick up before it comes down a little bit more.

Yes, that's a great question, Glen. As we've looked at that, and certainly we'll have more information as we produce first quarter results, a couple of points. I would point out, as I said in my remarks, that there is a bit of a seasonality profile to our expense pattern and we would expect, based on historical experience, the first quarter to potentially increase relative to, as a percentage of revenues at the very least. I think what we're attempting to try to reach is what is the normalized SG&A level for the volume of business, an $8 billion annual run rate. And we're constantly challenging our teams to achieve new and better levels. As we think about 2010, though, keep in mind that there are a handful of strategic initiatives that will be gaining more traction during the course of the year that we'll not achieve breakeven profitability until probably 2011. And I think the offset of all that makes us, as we look at 2010, still comfortable with the range that we have targeted.

Okay, fair enough. And then if I could maybe just ask one last quick one to you, Craig. I hear your comments that you're a dividend paying Company, but kind of looking at your stock and the way it kind of dipped after those third quarter results, I'm kind of curious as to why maybe share repurchase wasn't considered a little bit more strongly than it has in the past, given the levels where the stock was trading.

Well, Glen, as I have said, I've been asked this question a lot. We, on a quarterly basis as a board decide what we're going do with the cash and the feed back that we continue to get back from our larger shareholders and many of our shareholders is that they see us as a value stock and that the dividend is key for them from the standpoint of holding onto Owens & Minor and look at our total shareholder value as that dividend piece being a key to the. So it's not that we don't look at it. The board takes their responsibilities very seriously. And it's part of the things that we look at in terms of what we're going to do with the cash on a quarterly basis.

Okay, thanks for the comments.

Thank you.

And your next question comes from the line of Lisa Gill.

Thanks very much and good morning. Craig, earlier you talked about opportunities in the IDN market. Are there any large contracts that are up for renewal this year for you to be able to go after? And then secondly, can you give us a status on the update of the DOD contract renewal?

Sure. On the first part, Lisa, our agreements with IDNs are usually separate agreements from GPO contracts, so we're always working IDNs on a regular basis and, as you know, that's what I've talked about is we think that that's an area where we do very well in terms of competition and we've got 14 of the top 21 hospital systems and we continue to go after larger systems on a regular basis. The DOD I believe is still sometime late in 2010 and so it would be, if anything, a fourth quarter phenomenon, but that's really up to the Federal Government when they want to announce that. I mean, we continue to do well with them. We continue to support them operationally across the world and so we're all just kind of waiting to hear. Again, I would say that we have a great relationship. We've done, I think, a great job. We continue to be recognized for our work in Iraq and Afghanistan and in the eastern part of the United States, so we're looking forward to the announcement, but I would say it would still be sometime late in 2010 when we all hear from the Federal Government.

And just to go back and understand the IDN relationships, are they generally three years in length? If you've got 14 of the 21, the other seven, do they come up for renewal every three years and do they go out to bid or is this just a relationship type business where you maybe have a relationship with someone and they say, okay, we're thinking about moving our contract to you? I'm just trying to understand that market a little bit better.

Usually, Lisa, the GPO contracts are the three-year contracts with one-year extensions. The IDN contracts and I'm going to give you a very vague answer, because it is very vague. You might have a ten year deal with one customer. You might have a one year deal with another customer based on what you are trying to accomplish. And as I have said many times before, usually these larger systems are in it for the long haul. Now, that doesn't mean that in the middle of a contract they're unhappy with the service or perhaps strategically they want to go another direction. We think that we're very well placed strategically in terms of asset management, logistics, a lot of the things that these larger systems are looking for today.

But once you start to get into integrated service centers that we do for customers they are a little bit longer contracts. So I couldn't give you a pat answer. The pat answer is the GPOs, it's usual a three year deal with with extensions. The IDNs, they can be evergreen, they can be one year, they can be three years. I will say historically, in our larger healthcare systems, the average length of business relationship is somewhere around seven or eight years. So they have a tendency to stay with who they're with and the objectives are just totally different than price. You're looking for process improvement, you're looking for software support. You're looking for logistics. You're looking for a lot of different things. But those are clearly the ones that we're always trying to get.

Okay, that's very helpful. And then just one last follow-up is just around the new 3PL supplier relationships. What do you have in your guidance for 2010 as far as cost or any revenue as it is pertains to this initiative?

Yes, Lisa, we haven't broken that out separately at this point in time. I think the point we said at investor day that I reaffirm here is that our milestone benchmark is that we reach a revenue run rate in this business by the end of 2010 that is a breakeven amount and that's what we're looking to accomplish. Other than that, it is not material enough to breakout separately and we've chosen not to.

But is that impacting the SG&A in the earlier part of the year if you are going to have -- if this isn't going to breakeven until the end of the year, some of the costs associated with this?

It does have an impact, yes.

Okay, great, thank you very much. Yes. And there are no further questions at this time. I will now turn the call back over to Mr. Smith for his closing remarks.

Thank you, operator, and before we wrap up today, again, I just have to tell you that we are extremely pleased with the results with double-digit improvement in annual revenue and operating earnings, with strong operating cash flow, and we feel we've really made great progress on operational, financial, and strategic goals, and we clearly intend to remain focused on these goals. And we will continue to invest in making our business more effective and more efficient and thank you for your participation today. Operator.

Thank you for your participation in today's conference call. This concludes the Owens & Minor fourth quarter and full year 2009 earnings conference call. You may now disconnect. Good day.