Nov 4, 2007
Executives
Michael Kilpatric - VP, Corporate & IR R. David Yost - President and CFO Michael D.
DiCandilo - EVP and CFO
Analysts
Robert Willoughby - Banc of America Securities Charles Boorady - Citigroup Steven Postal - Lehman Brothers Tom Galluci - Merrill Lynch Ricky Goldwasser - UBS Lisa Gill - JP Morgan
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the AmerisourceBergen Fourth Quarter Earnings Conference Call.
At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time.
[Operator Instructions] I'll now like to turn the conference over to our host, Mr. Michael Kilpatric.
Please go ahead.
Michael Kilpatric - Vice President, Corporate & Investor Relations
Good morning everybody and welcome to AmerisourceBergen's conference call covering fiscal 2007 fourth quarter and year-end result. I am Mike Kilpatric, Vice President, Corporate & Investor Relations.
And joining me today are David Yost, AmerisourceBergen President and CEO; and Mike DiCandilo, Executive Vice President and Chief Financial Officer. During the conference call today, we will make some forward-looking statements about our business prospects and financial expectations.
We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations. For a discussion of some key risk factors, we refer you to our SEC filings including our 10-K report for fiscal 2006.
Also AmerisourceBergen assumes no obligation to update the matters discussed in this conference call, and this call cannot be taped without the express permission of the company. As always those connected by telephone will have an opportunity to ask questions after our opening comments.
And here is Dave Yost, AmeriSourceBergen's President and CEO to begin our remarks.
R. David Yost - President and Chief Executive Officer
Good morning and thank you for joining us. We reported strong fiscal '07 earnings this morning, in spite of the inventory writedown in the quarter.
Operating revenues were up 4.5% for the quarter and 9% for the year to almost $62 billion. Operating expenses, as a percent of revenue, continued their downward trend for the year and operating margin in the Pharmaceutical Distribution segment was up 5 basis points for the year.
We generated $128 million of cash in the quarter and $1.2 billion for the year. Diluted EPS from continuing operations was $0.63 for the quarter and $2.63 for the year, up 16% on a GAAP basis with a lot of moving parts that Mike will detail.
We have grown our EPS from continuing operations at a compounded growth rate of 16% since our merger six years ago. Our performance this year exceeded the guidance we announced this time last year.
We have laid a strong foundation for FY '08 and beyond. I want to spend a bulk of my time focusing on FY '08, but first a few comments about the just completed quarter.
Our fourth quarter featured a very large vaccine inventory write off and a relatively large bad debt charge. It is very important to put the vaccine issue in the context of the strong performance of our specialty group over the last five years.
With historic 30% revenue increases and strong EBIT performance, our specialty group has been extremely innovative and creative as this has gone to market and on occasion taken calculated risks involving markets. Last year, our specialty group made a commitment to purchase a large quantity of tetanus-diphtheria vaccine, a product we did not have direct access to previously.
In the simplest of terms, it was a bad deal. We have implemented steps to increase focus on the risk in this business, including reporting relationship changes and greater control and visibility to mitigate it happening again.
Also, we had an unusually high bad debt expense primarily due to a single regional chain on the West Coast that defrauded both us and a bank. I think it's very important that these events do not overshadow our outstanding performance this year in the distribution segment.
The drug company had a blowout quarter and an exceptional year exceeding all our internal expectations. Our fee-for-service execution was excellent.
Our ability to capture generics profitability not only through new introductions but also through expanding our ProGenerics program and driving compliance were big contributors to the year. This was our first year with our fully completed distribution network and the lower expenses and increased productivity were contributors that we should continue to see expanding in FY '08.
Our packaging group, especially Anderson Packaging, although small, continued to deliver strong performance in FY '07. We will complete a major new addition at Anderson this spring, which will allow us to deliver on what we think is one of the largest contract packaging transactions ever awarded by a top 20 branded pharmaceutical company.
With a strong pipeline at Anderson, there is more to come in 2008. Specialty Group despite some headwinds contributed a strong 23% increase in revenue and solid EBIT for the year.
As expected, we anniverseried the semi exclusive distribution contract we signed last year with a large biotech manufacturer as well as the introduction of new physician administered ophthalmology products. Sales of anemia drugs within the Specialty Group were down 40% compared to last year's quarter.
In total for AmerisourceBergen in the quarter, anemia drugs represented 5% sales and were down 26% compared to last year and were down 15% sequentially. In addition to the anemia drugs situation, the Specialty Group's revenues will be impacted in fiscal '08 by the acquisition of OTN by a competitor.
OTN represented approximately $800 million in revenue last year and is expected to give notice shortly. The combination of the OTN acquisition impact and the expected year-to-year decline in anemia drug sales will significantly lower the Specialty Group's revenue growth outlook in fiscal '08 to a range of flat to down 5%.
We expect this slowdown to be only an FY '08 issue and expect to return to mid teens growth in this area in FY '09 as the pipeline in specialty space continues to be strong. It is important to note the commanding position our Specialty Group has in this space and how excited we continue to be about its future.
The Specialty Group revenues crossed the $12 billion threshold this year. They are the clear market leader in sales of products and services to division in several key disease categories, especially oncology and have the most comprehensive and robust offering of related services for physicians and manufacturers in the market, providing a unique blend of product and service.
We have provided more commercialization services to start-up companies than any of our peers. Very significantly, we are uniquely positioned for new product offerings in the future.
Turning to the other segment, formerly labeled PharMerica. PMSI had a disappointing quarter with performance less than our reduced expectation.
PMSI struggled with the loss of a key account and high cost structure as we continue to build out our IT infrastructure and customer facing solution. Expense controls have been implemented.
I continue to have a great deal of confidence in the current management team who has begun implementing an aggressive turnaround plan. However, this performance obviously warrants higher management attention and it is receiving exactly that.
Now some more about FY '08. First, we begin FY '08 with a streamlined organizational structure within ABC, which will be more efficient and focused on the future needs of our business and most importantly our customers.
The position of Chief Operating Officer has been eliminated and we are moving from a holding company model to an operating company model with greater integration and enhanced control and visibility. I had made very clear to management and all of our ABC associates that we must focus on two critical principles going forward, working smarter and working together.
Working smarter means eliminating duplication of work, prioritizing and focusing on what really needs to be done and eliminating work not focused on the customer. Working together means capitalizing on opportunities across our businesses deciding how to provide integrated solutions for customers, both dispensers and manufacturers.
To facilitate this change, I've taken on direct responsibility for the drug company. Steve Collis, who now reports directly to me has been promoted to Executive Vice President with clear responsibility not only to continue to lead the specialty group around the two principles noted above, but also to see greater integration opportunities across the distribution segments.
Mike DiCandilo, Executive Vice President and Chief Financial Officer has taken on added responsibilities in packaging, PMSI and drug company financial operations and IT, again with a view to integrating the company and driving operational excellence. To further integrate our operations and improve our efficiencies and to better position ABC to meet the future requirements of our customers, we will move forward with an ERP implementation to transform our business processes.
Terry Haas, previously President of AmerisourceBergen drug company, has taken on the new role of Executive Vice President and Chief Integration Officer reporting to me. And he will directly supervise the design and execution of the new ERP system and business processes with the assistant of Tom Murphy, our Chief Information Officer among others.
Terry is eminently qualified to lead a task of this magnitude. He has not only led the successful performance of the drug company most recently, but also you'll recall Terry was in charge of the integration that created AmerisourceBergen, the largest and most successful integration ever done in our industry.
We will use the same discipline, customer first integration model we used to create AmerisourceBergen to successfully add a system and processes that will be the foundation of our future. This is a strong indication that we are prepared to invest in our future.
We will do our ERP project within our current expense and capital structure and we do not anticipate any unusual or significant charges. We began FY '08 on a very positive note by completing our largest acquisition ever, Bellco Health on October 2 for about $190 million.
To refresh your memory, Bellco has revenue of over $2 billion and is a great fit for ABC. Bellco was strong in the New York metro market, the largest market for independent drug stores in the country and services that market with an excellent facility in Amityville along Long Island, which we will continue to operate enhancing our traditional drug company.
Bellco has a strong dialysis business and a well-developed generic telemarketing operation in Florida enhancing our total generic offer. We are especially excited about delivering two Bellco customers the opportunity to participate in ABC's leading programs for independent community pharmacies including Good Neighbor Pharmacy, now 2800 stores strong, GNP Provider Network, the third largest managed care network in the country with approximately 5000 stores and our ProGenerics proprietary generics formulary.
The first few weeks with Bellco have been super. The Bellco culture of customer focus and service fits nicely into the ABC culture and the Bellco associates.
Many of whom I've known for some time are among the industryís finest. We could not be more excited about Bellco.
We expect FY '08 performance to be in line with our long-term guidance, which is EPS growth of approximately 15% [ph] driven by revenue growth with the market expanding Distribution segment operating margin by single-digit basis points and reinvestment of our free cash flow. We expect free cash flow to approximate net income and Mike will provide more details on FY '08.
Generics continue to represent a great opportunity for AmerisourceBergen, where we provide strong value to both our suppliers and customers. It will be hard to match the exceptional growth of FY '07 in this area from a revenue perspective, but the profitability opportunities in generics continue to be robust.
We expect both our improved generic compliance and a new generic contracting strategy to make strong additions in this area. Our strong independent and regional chain business enhance our generic opportunities.
We will continue to leverage our expenses in FY'08 as we continue to benefit from the investments we've made in our physical distribution facilities. Our operating margins are expected to improve even as we gear up our ERP project mentioned previously.
Our guidance reflects no acquisitions other than Bellco and we will not or contemplate at this time. We will continue to evaluate opportunities in our space when available.
During the six-year history of ABC, we have spent over $1 billion on acquisitions with our most recent Bellco being our largest. Before I turn the floor over to Mike, let me emphasize my enthusiasm for the industry we are in and the role ABC plays in it.
The fundamentals of our industry continue to be very, very strong. We begin FY'08 with a new streamlined organizational structure, the largest acquisition we've ever made and the light market segments to capitalize on generic opportunities and capitalize on new products entering the market.
We are very excited to continue our history of strong financial and operational performance. Now here is Mike to provide some detail, and we will then open the floor up for questions.
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
Thanks Dave and good morning everyone. I am very pleased to present our fourth quarter and fiscal year results, and I will also give some additional color around our fiscal 2008 guidance.
Before I get to our quarterly results, which have a lot of moving parts, I think it is important to review our fiscal year 2007 performance against our original 2007 guidance that I discussed last November. We have truly had outstanding financial and operational performance on a consolidated basis in 2007, and despite a number of unanticipated hurdles, we met or exceeded each of the financial targets we set out at the beginning of the year, which continues to validate our long-term financial model.
Our model is based on solid market revenue growth, operating margin expansion and significant cash generation, all of which are designed to generate annual EPS growth of approximately 15%. Our original operating revenue guidance for fiscal 2007 was 7% to 9% and we finished at the high-end of that guidance despite the unanticipated market events with anemia drugs.
We expected to have operating margin expansion in our Pharmaceutical Distribution segment and we ended the year with healthy expansion of 5 basis points, which helped drive operating income growth within the segment to an impressive 14% increase over the prior year. Our free cash flow of more than $1 billion more than doubled our expectation of $425 million to $500 million and far exceeded that income as our inventory productivity resulting from the first full year of operations under our completed distribution network was even better than we expected.
That strong cash flow allowed us to far exceed our expected returns to shareholders through our share repurchase programs and all of the above factors contributed to a GAAP EPS from continuing operations of $2.63 per share, $2.54 excluding a $0.09 benefit from special items which is on the high-end of $2.40 to $2.55 range we gave at the beginning of the year and represents a 16% year-over-year increase. Before turning to the quarterly results, I'll spend a minute discussing the accounting classification of our former long-term care business units' financial results.
As we stated in an October press release and 8-K, we anticipated that the historical results of that business would be reflected as a discontinued operation. However, due to the significance under the accounting rules of our continuing supply contract with PharMerica LTC, it was determined that our historical results for long-term care will continue to be classified as continuing operations.
So, starting with our current September quarter results and for the next four quarters, we will have an apples-to-oranges comparison to historical results which we will highlight and clarify each quarter. Now moving to our quarterly results.
The majority of my discussion will focus on continuing operations but note that as we disclosed during the quarter, we had a $25 million loss from discontinued operations due to an adverse decision and litigation related to the contingent earnout provisions within the acquisition agreement for our former Bridge Medical business which was sold in fiscal 2005. We strongly disagree with the decision and have appealed.
On a consolidated basis in the quarter, operating revenues of $15.3 billion were up 4.5% driven by the 5% growth in our pharmaceutical distribution segment. Operating income was down 7% due to the vaccine write-down and a decline in the other segment, where PMSI operating income was down substantially from last year and the current year quarter only included one month of LTC results.
We also had significant increases in bad debt expense in both segments that I'll discuss in my segment comments. Special items in the quarter included on the facility consolidation employee severance and other lines were a benefit of $7.6 million relating to a favorable ruling on appeal in the employment case of a former Bergen CEO, who was terminated prior to the creation of ABC.
This allowed us to reduce our reserve for that case by $10.4 million in the quarter, which offsets special charges of $2.8 million in the quarter relating primarily to the closing of the long-term care transaction. In the prior year quarter special charges of $7.8 million were more than offset by antitrust litigation recoveries of $8.9 million netting out to $1 million of net benefits from special items.
Net interest expense of $7.9 million in the quarter increased as expected versus the prior year due to the cash used for our significant share repurchases during the year. Our effective tax rate for the quarter was 35.6%, down from last year's 37.6% as we benefited during the quarter from the resolution of certain tax audits among other adjustments.
We continue to expect our tax rate to be in the 37% to 38% range going forward. Our diluted EPS from continuing operations in the quarter was $0.63, up 3% compared to the prior year and included a net $0.03 benefit from the special items mentioned earlier.
The one-month of long-term care results contributed $0.01 to the current-year quarter EPS compared to $0.03 in the prior-year quarter and the current year quarter again was obviously impacted by our vaccine inventory write down of $28 million which reduced September '07 earnings per share by $0.10. Average diluted shares outstanding in the quarter were $176.9 million, down a significant 25 million shares or 12% from last year reflecting significant share repurchases over the last 12 months.
Outstanding shares at the end of the quarter were $169.5 million. Now taking a closer look at the Pharmaceutical Distribution segment.
Revenues were up 5% as the drug company grew 4% and the Specialty Group grew 7% in the quarter. The Specialty Group's growth rate in the quarter was less than the 23% growth rate for the year as expected for the [inaudible].
Going forward, the combination of the OTN acquisition impact and the expected year-to-year decline in anemia drug sales will significantly lower the Specialty Group revenue growth outlook in fiscal '08 to a range of flat-to-down 5%. We expect the slowdown to be a fiscal '08 issue and expect to return to mid-teens growth in this area in fiscal '09 as the pipeline in the Specialty area continues to be strong and our unique combination of distribution scale, customer service excellence and our broad array of commercialization services will enable us to take advantage of new product introductions.
Drug company growth was 4% for the quarter and 6% for the year with quarterly growth driven by the institutional segment as retail sales were flat as a result of its decision earlier in the fiscal year to discontinue servicing a large retail chain. We would expect drug company growth to be in the mid-single digits in fiscal '08 in line with the market excluding the impact of the Bellco acquisition.
Our packaging group, while very small in relation to our overall segment results continues to have excellent momentum driven by outstanding results in Anderson Packaging and continues to be the leader in innovative compliance packaging and quality performance. Gross profit in the quarter grew 3%, a very strong price appreciation quarter as expected and good performance under our fee-for-service agreement was offset impart by the $28 million inventory write-down in the Specialty Group.
Excluding the impact of this item, gross profit for the quarter would have increased over 9%, significantly above our 5% sales growth. We had a LIFO credit in the quarter of $4.9 million compared to a $15 million credit in the prior year and for the year had a charge of $2.2 million, compared to a credit of $1 million in fiscal '06.
The LIFO credit in the quarter was driven by a combination of generic price decreases and a reduction in inventory, which offset strong brand name drug price increases. Operating expenses in the quarter were up 7% compared to last year and as a percentage of revenue were 201 basis points, up 4 basis points.
This increase was largely due to a $13 million increase in bad debt expense, primarily due to a regional chain in our West region. Bad debt expense in this segment for the quarter was $17 million and was $31 million for the year compared to $4 million in the fourth quarter of last year and $21 million in fiscal '06.
Net of the impact of bad debt expenses, the decline in our expense ratio was driven by continued operating leverage in the drug company, which offset the higher expense ratio from our current year service acquisitions in the specialty group. Operating margin in the quarter was 110 basis points, down 10 basis points from the prior year, again reflecting the 18 basis point impact of the vaccine write down as well as higher than normal bad debt expense.
For the year, operating margins expanded by a solid 5 basis points and operating income grew a very strong 14%. Now turning to the other segment formerly known as PharMerica.
As mentioned previously, this segmentís September quarter results include one month of results from our former long-term care business. PMSI our workers compensation business, which represents the remainder of this segment, saw its revenues decline 4% to $112 million due to a significant customer loss.
Operating income fell by $9 million to $4.1 million with $6.5 million of the $9 million decline due to a swing in bad debt expenses; prior year bad debt recoveries were not repeated in fiscal 2007. The remaining decrease was due to the cost of our IT and customer projects.
And while significant progress continues to be made with the IT infrastructure and customer software initiatives, we are disappointed that PMSI's results fell short of our reduced expectations. Significant management effort is currently focused on expense reduction in turnaround plans to enable this business to return to operating margins in the 7% to 9% range.
Now, let's turn to our consolidated cash flows in the balance sheet where we continue to exceed our expectations. Cash generated from operations in the September quarter was $128 million bringing our full-year cash-generation to $1.2 billion, well above the $800 million we generated last year.
Our free cash flow which we defined as operating cash flow less capital expenditures was just under $1.1 billion and well ahead of our range of $750 million to $825 million which we revised upward twice during the year. While we have some favorable timing impacts from our working capital at the end of September, the majority of our excess cash generation has come from excellent inventory management and the impact of having a stable distribution network for the first full year after 5 years of facility consolidations and building new distribution centers.
The safety stock inventory we expected to come out of our system has come out and we are very happy with the results. Inventory days on hand during the quarter were 26, down 4 days from last September.
DSOs in the quarter were 19.5 compared to last yearís 19 days reflecting our growth in specialty and DPOs were up one-day reflecting timing. Our gross debt to total capital ratio at the end of September was 28.4%, up from 21% last year and is just under our target range of 30% to 35%.
Our strong cash generation during the year allowed us to repurchase significantly more stock than expected and we did purchase 1.4 billion of our stock in fiscal '07 and have now bought back more than $3 billion of our stock or over 30% of our shares since our first program was announced in August 2004. Including share repurchases and dividends, we returned 135% of our free cash flow to our shareholders in fiscal 2007.
Our cash and short-term investments totaled $1.1 billion at the end of September and after subtracting out our maintenance cash level and adjusting for working capital timing, we have approximately $700 million of cash to deploy. Approximately $190 million of that $700 million was used to pay for Bellco at the beginning of October and another $197 million will be used to complete our current $850 million share repurchase program.
We continue to have strong financial flexibility. Now turning to our fiscal 2008 guidance.
Because of the PharMerica Long-Term Care spend, I wanted to find what our base fiscal 2007 EPS from continuing operations number should be for comparative purposes. The 2007 base should be the reported $2.63, less $0.09 of benefit from special items and less the $0.08 contribution from PharMerica LTC or $2.46 per share.
Our fiscal 2008 guidance for earnings per share is a range of $2.77 to $2.95 per share or EPS growth of 13% to 20%. While our range of earnings guidance has increased to $0.18 from $0.15 last year, keep in mind that our outstanding shares are down significantly, meaning our dollar range has not increased.
The $0.18 range is only $25 million of income on either side of the midpoint by far the narrowest dollar range in the industry. The assumptions behind our guidance include revenue growth of 5% to 7%, operating margin expansion in the single-digit basis point range in Pharmaceutical Distribution, free cash flow approximating net income in a range of $450 million to $525 million and share repurchases in the $400 million to $500 million range subject to Board approval and market conditions.
Capital expenditures, which were $118 million in fiscal ë07, are expected to be in the $125 million range in fiscal '08. As I mentioned in my previous comments, the revenue growth target reflects mid-single digit growth for the drug company, flat to 5% negative growth for the Specialty Group and the Bellco acquisition, which is expected to contribute 3% of our revenue growth in fiscal '08.
While we do not give quarterly guidance, our toughest comparison from a topline standpoint will be our first or December quarter where we had extraordinary performance last year and we will have a difficult comparison due to the anemia drug situation, the OTN acquisition and the retail chain relationship we exited in January of 2007. As a result, we would expect that our first quarter operating revenue growth will be below the low-end of our annual range.
Operating margin expansion will come from all business units except PMSI, which will be flat-to-down. Net interest expense will increase significantly based upon actual fiscal '07 and anticipated fiscal '08 share repurchases driving down average cash on-hand.
However, the increased interest expense will be more than offset by the reduction in average outstanding diluted shares, which should be down in the 10% range. In conclusion, fiscal '07 was another outstanding year with 16% EPS growth from continuing operations in line with our EPS growth rate since the creation of ABC.
We expect another strong year in fiscal '08 where our expected EPS growth rate is in line with our past performance and long-term goals. Now, I'll turn it over to Mike Kilpatric for Q&A.
Michael N. Kilpatric - Vice President, Corporate & Investor Relations
Thank you Mike. We'll now open the call for questions.
I would ask you to limit yourself on the time that you spend on questions until others have had an opportunity, and if there is time, we'll be able to come back to you. So, go ahead Julie.
Question and Answer
Operator
Thank you. [Operator Instructions] And our first question comes from Robert Willoughby with Banc of America Securities.
Please go ahead.
Robert Willoughby - Banc of America Securities
Thank you. Dave or Mike, why wouldn't we be more worried about some of the bad debt issues with the retail customers, some of these smaller guys.
Shouldn't view this as kind of the tip of the iceberg in terms of pressure on some of those business models?
R. David Yost - President and Chief Executive Officer
I don't think so Bob. I will tell you.
You know, the bad debt experience we had this quarter was primarily a regional chain in California. The independence has been very resilient.
I mean they have continued to do very, very well. So, I don't think that, that is a big cause for concern.
Again it is a one by one situation any way where individual account by individual account. But I would say the independence as a whole is handling or hanging in there very, very well.
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
Yes. Bob I'd just add to that.
Keep in mind our DSOs on average were in the 19.5 day range, but that includes the impact of longer terms with our physicians in the specialty group. If you just look at the drug company itself, our DSOs are in the 13 to 14 day range.
So, It's an area we focus on very closely, and we've had a great experience over a long period of time.
Robert Willoughby - Banc of America Securities
Thanks.
R. David Yost - President and Chief Executive Officer
Thanks Bob.
Operator
Thank you. We'll go to line of Charles Boorady with Citigroup.
Please go ahead.
Charles Boorady - Citigroup
Thanks. Good morning.
I'm wondering with respect to generics, if you can elaborate on your prepared comments regarding a new contracting strategy, and if you can just tell us more about that strategy and whether you've had any new customer wins or losses recently in your generics program?
R. David Yost - President and Chief Executive Officer
The big change in our generic strategy, Charles, has really come from the fact that we used be on pretty much a the three-year cycle, where we would go out to market every three years and let new contracts. We'd make changes from time-to-time based on market conditions, but it was really a three-year cycle.
We have come to the conclusion because the generic business is changing so quickly and because the data associated with that changes so quickly that the manufacturers and our customers would be best served if we had a more iterative process and a more interactive process and did not rely on big contracts at the end of every three years. So, that's really what our new contracting policy is...
and that is away from these once every three year shoes deals and reiterative contracts as we go along with a heavy emphasis on data being provided back to the manufacturer.
Charles Boorady - Citigroup
And new wins or losses in your generic program?
R. David Yost - President and Chief Executive Officer
We continue to do very, very well in our generic program. We think it is one of the reasons that our regional business and independent business continues to be strong.
We think we got the most comprehensive offering in the marketplace, but a little uncomfortable talking about any specific customers that we win or lose.
Charles Boorady - Citigroup
Then, just last question on customers, just in terms of your largest ones, Longs and Medco and Longs has beenÖ speculation about what their next step might be, and I'm wondering if you could remind us what the duration on that contract is, any change of control, and with Medco just update on how that renewal process may be going?
R. David Yost - President and Chief Executive Officer
Right, we're a little uncomfortable talking about specific customers. Since Medco is our largest customer disclosed in our public documents, I will comment on that one and simply say we continue to have, of course, great respect for the Medco operation as you would expect given their continued success in the marketplace.
They are currently... our contract with them is currently up in Spring.
The end of March they are currently in an RFP process and we are participating in both [inaudible] net RFP process.
Charles Boorady - Citigroup
Great. Thank you.
R. David Yost - President and Chief Executive Officer
Thank you.
Operator
Thank you. We will go to the line of Larry Marsh with Lehman Brothers.
Please go ahead.
Steven Postal - Lehman Brothers
Thanks and this is Steven Postal for Larry. You have already alluded to some of this on the call, and I know that over the past couple of years you have talked about contract compliance, and as I recall couple of years ago, you initiated a customer program called Transform.
And I am wondering if you could talk about how that problem has evolved over the past few years, and how you would grade the company's performance in achieving its goals in both contract compliance and some of your other customer initiatives?
R. David Yost - President and Chief Executive Officer
Well, Steven, first of all I would say, I think we've done a good job in our compliance and I think we also have continued opportunities going forward. And part of that is because the market key is expanding in generics and so whatever you set the bar at today, you need to sell a little bit higher going forward.
One of the things that we're excited about with the acquisition we made with Bellco, today they have a generic telemarketing operation in Florida. And what we look to do is to use that to enhance our compliance program, that is identify the generic opportunities we have within individual customers and allow our telemarketing, our new telemarketing operation to kind of fill that gap and provide that communication.
So, I would rank our compliance program as good, but I would also say we have some more upside as we go forward.
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
Just to add to that Steven, I think the proof is in the numbers. And during the fiscal year, our proprietary generic program grew its top line over 27% ahead of the overall market, so I think that's a good indication of where our compliance is heading.
Steven Postal - Lehman Brothers
Mike, I don't know if you mentioned this, what was the impact from currency in the quarter?
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
It was minimal. Again our Canadian operation is really a small part of our overall results being well less than 2%.
So, the currency impacts were minimal and are part of the other income line.
Steven Postal - Lehman Brothers
Okay. Thanks a lot.
R. David Yost - President and Chief Executive Officer
Thank you Steven.
Operator
Thank you. We will go to line of Tom Gallucci with Merrill Lynch.
Please go ahead.
Tom Gallucci - Merrill Lynch
Thanks. First off all, good morning.
First of all I guess on the anemia-related business. Obviously sequentially the hit was a lot worse.
Can you give any color sort of on the intra-quarter trend, is this a good run rate to be thinking about or this will sort of progressively worse as we sort of think about how we move forward?
R. David Yost - President and Chief Executive Officer
No, Tom, it's kind of tough to judge how we're doing on an interim quarter basis month end and quarter-end. It could have a pretty big impact.
But there is no question that the [inaudible] business is a challenged business right now.
Tom Gallucci - Merrill Lynch
Okay. And then, I guess on the guidance, it seems to be sort of a fairly wide range out there.
Can you just let us... give us a little insight on what you think sort of the variables are in terms of the lower-end and higher-end of that range?
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
Yes. One of the comments I made on the call Tom is that we've $0.18 range of guidance.
But I think one of the things you've got to keep in perspective is that our outstanding share base is significantly less than the share-base of our competitors. We've got an outstanding share base in the $170 million range compared to $300 million at McKesson and $400 million at Cardinal.
So each penny for us is less absolute dollars. And again when we've got a range of $25 million of income on either side of the mid point of our guidance range, that is by far the narrowest range in our industry.
So, I don't look at the range as a very wide range.
Tom Gallucci - Merrill Lynch
I understand the EPS calculation. I guess maybe I [inaudible] incorrectly, but I guess what are your key variables you think sort of at the high end and the low-end as you think about the $25 million or so that you mentioned?
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
No, I think, you know, again some of the issues that we've talked aboutÖ certainly the anemia drug situation, depending upon where those results come out, the Specialty Group, we gave a range of flat to down 5%. And certainly the closer they are to the top end of the range, the better it will be.
Certainly timing of generic introductions can have a big impact within that range. We had a very strong price increase environment in the fourth quarter of this year and really a pretty fair price increase environment for the year, for brand name drugs.
And again fluctuations in that can have some impact on LIFO. We ended the year with a small charge for the year of $2 million.
We expect that charge to be in the $10 million range for next year and again that's something that can have some fluctuations. But we feel pretty good about our prospects next year and we think the range is adequate.
Tom Gallucci - Merrill Lynch
Okay. Thanks a lot Mike.
Michael N. Kilpatric - Vice President, Corporate & Investor Relations
Thanks Tom.
Operator
Thank you. We'll go to the line of Ricky Goldwasser with UBS.
Please go ahead.
Ricky Goldwasser - UBS
Hi. Can you just give us a little bit more color on whether in your fiscal year guidance, you're including any potential impacts from AMP.
And also I think that you touched upon it, but just want to clarify if there is any impact from continued deterioration on the anemia drug side?
R. David Yost - President and Chief Executive Officer
On the AMP issue, Ricky, we do not have any negative impact that reflected there. The AMP issue continues to be a moving target.
We are not assuring you how it's going to shape out. But one of the things I'll say about the AMP market, the AMP situation regarding the independent retailer and the regional change.
It has been a very resilient group and much like Bob's question earlier about the receivables issues, this is the group that has really found the way to compete in the market. So I take great comfort in the fact that they have had a great history of doing that.
So I think we'll... the AMP thing will be taken in the stride when we finally figure out what it is for them.
I forgot the second question.
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
The second question was, how we factored in the anemia drug situation. I think the answer is yes, I mean that is why ex the anemia drug situation and ex the acquisition of OTN by a competitor, we would expect that business to be growing in the mid-teen range.
So, by coming down to flat to minus 5% growth, that factors in the anemia situation.
R. David Yost - President and Chief Executive Officer
And again as Mike pointed out in his comments and I did as well, this is an FY '08 phenomena. We do not expect it to be an FY '09, because Specialty Group is so well positioned to get new products coming into the market.
Ricky Goldwasser - UBS
Thank you.
R. David Yost - President and Chief Executive Officer
Thanks you.
Operator
Thank you. We will go to the line of Lisa Gill with JP Morgan.
Please go ahead.
Lisa Gill - JP Morgan
Hi. Thank you and good morning.
Dave, as you look at what IMS has been saying around script trends, what we have seen both you and the customer report, it doesn't seem to correlate very well and I know John talked a little bit about this on their call. But can you give me your insights as to why on an annual basis you think that IMS trends against what we see in the distribution model, but on any given segment or period of time, it doesn't really make sense?
And then secondly as we start to think about overall trends, clearly this year was a good year for price increases for the manufacturers. How do you think that that will line up going into 2008 being a big election year?
Do you think the manufacturers will take same level of price increases, do you think that they'll try to push them all forward in anticipation of no matter, with a changing administration in '09, if you could give me your thoughts on that, that'd be great?
R. David Yost - President and Chief Executive Officer
Okay. Thanks Lisa.
I think John did a nice job of really explaining in an [inaudible]. I mean, first of all, we look at this thing on a yearly basis, not a quarterly basis.
You can get fluctuations from month-to-month, quarter-to-quarter, but don't have that much of an impact on a yearly basis. The second thing is the size of the prescription is a big deal to us.
Whether it's a 90-day prescription on whether it's a 30-day prescription it makes a big difference to us as we're tracking dollars. So, we have just found over time not a good correlation between script counts and our total revenue.
The other issue with revenue is that different scripts make a big difference with the generics script versus brand name script 30 days, 90 days. We have just not found a very good correlation between the two results of that.
You don't watch the script trends very, very closely. In terms of price increase, Lisa, I will tell you we are not anticipating dramatic changes as we go forward.
We have a full-time lobbyist who lives in Washington, walks the halls on a daily basis. I am down there every six, eight weeks.
And I will tell you we are not hearing anything on an anecdotal basis that gives us great cause for concern at this point. I think it is going to be pretty much steady as she goes.
From a political standpoint, I will tell you that most of the people that we talk to clearly understand that pharmaceuticals are part of the solution to the healthcare issue here and that the issue is getting more prescriptions dispensed and utilized and keeping people out of the emergency rooms and out of hospitals. So, I will tell you we are not...
at this point, Lisa, we do not have a great cause for concern on a political front.
Lisa Gill - JP Morgan
Can you just tell a number around that? Do you expect to continue to be around 5% price increase range?
Michael D. DiCandilo - Executive Vice President and Chief Financial Officer
Yes. I think it's a fair approximation, Lisa.
I mean I think it's important also to remember, although our contracts differ from manufacturer to manufacturer, I mean in total about 80% of our gross profit from brand name manufacturers is not subject to price increase volatility under our fee-for-service contracts. So again, we've positioned ourselves very well going forward from significant changes in the overall price increase arena.
Lisa Gill - JP Morgan
But the industry primarily is based on revenue for that manufacturer. So, it will depend on price increases as well, just so we understand that, right?
R. David Yost - President and Chief Executive Officer
Well, absolutely. The revenue growth rate isÖ you know the drug price increases have an impact on that overall revenue growth rate.
Lisa Gill - JP Morgan
Okay. Thank you.
R. David Yost - President and Chief Executive Officer
Thanks Lisa.
Michael Kilpatric - Vice President, Corporate & Investor Relations
Thank you everybody for joining us today. Before Dave makes some final remarks, I just wanted to invite all those who would like to know more about the ABC story to...
that we'll be at the Credit Suisse Health Care Conference in Phoenix on November the 14th and then on December the 13... 11, we'll host our Annual Investors Day meeting in New York at the Grand Hyatt, tentatively between about noon and 3 pm including lunch.
And we'll be putting out more information on that as we go forward. And now here is David, who would like to make some final remarks.
R. David Yost - President and Chief Executive Officer
I would justÖit is my strong close just to say that we are very, very excited about our FY '07 operating results, another year of 16% EPS growth, which has been in line with where the company has grown for the last six years. We expect another strong performance in FY '08, and we look forward to seeing you in New York at our Investor Conference and appreciate your participation in the call today.
Thank you very much.
Operator
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