CONMED Corporation

Good morning. This is Bob Yedid from ICR.

Before we begin, let me remind you that during this call CONMED’s management will be making comments and statements regarding their financial outlook, which represent forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities law.

The company’s actual results may differ materially from our current expectations. Please refer to the risk factors and other cautionary factors in today’s press release, as well as our SEC filings, for more details on factors that may cause actual results to differ materially.

You will also hear management refer to certain non-GAAP adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, the company’s management uses these figures to aid in monitoring the company’s ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis, and for benchmarking against other medical technology companies.

Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by management to be unusual or outside of the normal ongoing operations of the company. These unusual items are specified in the reconciliation in the press release issued this morning.

With these required announcements completed, I will call the -- I will turn the call over to Joe Corasanti, CONMED’s Chief Executive Officer and President, for his remarks. Joe?

Bob, thank you very much. Good morning, everyone.

I am pleased to report that we completed the third quarter of 2012 with solid operating results. The quarter’s highlights include sales increased 5.3% to $181.9 million over sales in the third quarter of 2011 and came in within our guidance for the quarter.

Adjusted earnings for the quarter were $0.43 per share and grew a robust 30% over the prior year period. Please note that we were able to resolve outstanding tax matters in a favorable way for the company, resulting in a lower than expected tax rate for the quarter.

The favorable income tax benefit helped CONMED’s bottom line by $1.5 million or about $0.05 per share. Even removing this benefit, we were able to deliver results consistent with our previous guidance for the quarter of $0.38 to $0.42.

On a GAAP basis, diluted EPS was $0.32, an increase of 10.3% over the third quarter of 2011.

Adjusted operating margin expanded to 10.2% of sales, an increase of 50 basis points over the third quarter of 2011, as we continue to execute on our program of plant consolidation and cost reduction across our business units.

Adjusted EBITDA margin expanded to 16.6%, an increase of 150 basis points over the prior year’s third quarter. Cash provided from operating activities was also strong in the quarter, amounting to $28 million with free cash flow of $23.6 million.

Our Board of Directors declared a quarterly cash dividend of $0.15 per share, which reflects the dividend first instituted by the Board of Directors earlier this year. Operationally, the third quarter performance reflected steady execution and resulted in sales that were within our previously guided range.

Gross and operating margins increased nicely and we delivered earnings per share that were in line with our expectations

While we continue to see pressure on healthcare utilization based on our discussions with customers, we are pleased that our capital equipment sales were flat for Q3 on a constant currency basis as compared to a decline in the first half 2012.

Now, on to business initiatives and operations. Before we get into our product line performance, I would like to update investors on a few of our initiatives.

First, we completed our acquisition of Viking Medical in the last week of the quarter. Viking’s line of 3D high-definition video surgical video products is a highly strategic addition to our general surgical imaging franchise.

This is an attractive tuck-in acquisition for CONMED since we’re taking a system that is on the forefront of three-dimensional HD surgical imaging and giving it to the larger worldwide marketing and sales teams at CONMED.

Viking’s lead product, the Viking 3DHD Vision System, is an advanced three-dimensional vision system which employs a flat screen monitor and passive glasses. It is used by surgeons during complex minimally invasive laparoscopic surgery, with applications in urologic, gynecologic, bariatric, cardiac, neurologic and general surgery.

We believe that the Viking system is the only standalone 3D laparoscopic vision system available today that is both FDA-cleared and CE-marked. Viking’s 3DHD system is uniquely positioned to fill the gap between conventional 2D-HD systems and expensive 3D-HD visualization systems that are available only as a part of high-priced robotic systems.

Second, we would like to provide an update -- or update each of you regarding our association with MTF. MTF, a non-profit organization, is the largest tissue bank in the country.

At the beginning of 2012, we became the exclusive worldwide marketing representative for MTF’s sports medicine allograft tissue. To date, the revenues associated with this arrangement are on track and we expect to deliver on the earnings accretion of approximately $0.15 to $0.18 per share in 2012 that we had forecasted earlier.

CONMED’s association with MTF, the industry leader for allograft sports medicine tissue, provides us with a complementary product offering in Sports Medicine and enhances our relationship with our physician customers.

first, the relocation of our video manufacturing unit from Santa Barbara, California to our existing plants in Mexico and Florida; and second, the consolidation of our Tampere, Finland manufacturing plant to our United States locations.

Rob will discuss these in greater detail, but it is important to consider that the potential cost savings of these 2 consolidations will start to help us in 2013 and beyond.

Turning now to our quarterly financial results, CONMED’s total sales for the quarter grew 5.3% over the third quarter of 2011. Excluding the revenue related to the MTF agreement and a small amount of revenue from Viking of less than $900,000, overall sales grew 1.2% more than that of the third quarter of 2011 on a reported basis, and 1.9% in constant currency.

Single-use products continued to significantly outperform capital goods, although capital goods sales were flat for Q3, which is an improvement from the first half of 2012. As was the case last quarter, our Sports Medicine arthroscopy line continued to perform well with reported growth of 10.4% for the third quarter and 13.2% year-to-date.

Organically, sales in the September quarter were flat excluding the MTF and Viking revenues. Within the segment, sales of single-use sports medicine arthroscopy products were up 12.1% for the quarter compared to the prior year and 16.6% for the 9 month period.

In the Powered Instrument product line, reported sales were up 3.7% for the third quarter and 0.6% for the year-to-date period. The improvement was driven principally by a modest increase in capital goods sales compared to a decline in the first 6 months of the year.

In Electrosurgery, sales decline by 3% for the third quarter and by 4.7% for the year-to-date period. While our single-use product sales were up nicely in Q3, we are experiencing lower sales of capital goods compared to last year.

On the topic of Electrosurgery, we wanted to provide an update on the Altrus vessel sealing instrument for open and minimally invasive surgery. Sales of the device came in at approximately $500,000 for the quarter, about the same as last quarter.

Clearly, the series of manufacturing delays in 2011 and in April 2012, as well as products -- prior product performance issues, have affected our sales force’s ability to launch the product effectively and build physician use over time.

Therefore, while we forecast that sales will continue to increase for Altrus, we now believe that the sales for Altrus in 2012 will be in the range of $2 million to $2.5 million. While Altrus has differentiated and superior product features compared to competing products, and therefore should be able penetrate this large and growing market over time, we think that it is prudent to be more conservative in our discussions of this product.

In the Endoscopic Technologies product line, we continue to make good progress with reported sales up 10.6% for the third quarter and 8.4% on a year-to-date period. We are very pleased with the sales performance of Endoscopic Technologies in 2012.

In EndoSurgery, sales were up 0.6% for the third quarter compared to a decline of 1.1% for the year-to-date period. Please remember that both EndoSurgery and Endoscopic Technologies product lines are comprised of single-use products, which is where we have successfully shifted our overall product mix over time.

In Patient Care, sales were down 0.7%, an improvement compared to the decline of 3.7% for the year-to-date period. Single-use surgical devices are the core of CONMED’s product offerings.

Accordingly, they now comprise 80% of our sales with gross margins on average higher than those of capital products.

As we have said previously, we are attempting to reduce our near term reliance on capital equipment sales, which have long sales cycles and are greatly impacted by global economic conditions.

As a result, much of our recent R&D activities have been focused on single-use categories. Although the Viking acquisition involves capital equipment, combining marketing programs of this enhanced surgical visualization equipment with our single-use surgery devices should facilitate the growth of all components of our business.

While sales of our current capital goods products fell 1.1% in Q3, it is encouraging to see that the rate of decline is slower than the 7.6% decline for the first 6 months of the year.

With 9 months of the year completed, we remain optimistic in our ability to deliver continued improving earnings and margin expansion and solid cash flow. With that context, the company is building shareholder value and will share that with shareholders by returning cash to shareholders through both dividends and share repurchases.

Earlier this year, our Board of Directors instituted a regular quarterly dividend which will provide, on an annualized basis, a $0.60 per share dividend to shareholders. The Board concluded that the dividend policy was justified based on CONMED’s cash flow, and that the payment of dividends was appropriate in order to ensure that shareholders are benefiting appropriately from our operational strength.

In addition, as announced in today’s press release, it is management’s intention, subject to market conditions and provisions of our credit agreement, to repurchase approximately $50 million of CONMED stock over the next 6 to 9 months as a further means of returning value to our shareholders. These repurchases will be made under previous board authorizations for share repurchases, which have over $100 million of availability remaining.

one, solid sales and earnings growth with sales up 4.9%, equal to 5.1% on a constant currency basis; two, adjusted operating margins up 50 basis points to 10.4%; three, adjusted EPS of 22%; and four, free cash flow of $46 million before acquisitions.

From an operational and financial basis, we remain extremely positive about the direction of CONMED. We will continue to focus on devices that improve patient outcomes and on controlling our costs to improve profitability and create long-term shareholder value.

So I would now like to turn the call over to Rob Shallish for a further review of the financials.

Thanks very much, Joe, and good morning, everyone. As Joe mentioned, the third quarter continued the strong earnings and cash flow trends seen in the first half of the year.

In the September 2012 quarter, sales grew 5.3%, 6% on a constant currency basis, while adjusted earnings per share increased a robust 30.3%. For the first 9 months of 2012, adjusted earnings per share grew 21.9% on sales growth of 4.9%.

That’s 5.1% on a constant currency basis.

The third quarter sales totaled $181.9 million compared to sales of $172.8 million in the third quarter last year. Excluding the $7.1 million of revenues from MTF and Viking, organic sales increased by 1.2% due to the continued solid increases in single-use products, along with a more modest decline in capital equipment sales in Q3 than the first half of 2012.

By geography, sales in the United States grew 4.8% on a reported basis, but excluding MTF, organic U.S. sales declined 3.3% primarily due to lower capital equipment sales.

As a reminder, almost all of the MTF revenue at this point is generated in the United States.

CONMED’s international sales grew 5.7%. Almost all of that was organic, and we are pleased with that solid performance.

International sales continue to make up about 1/2 of our business.

As we anticipated, CONMED’s adjusted gross margin expanded to 54.8%, a 150-point -- basis point improvement over that of the third quarter last year, primarily due to the MTF partnership and the improvement in manufacturing operations that we discussed on the last 2 conference calls. Our operations group has been focused on reducing inventory levels and improving manufacturing efficiency.

Selling, general and administrative expense increased to $74.1 million compared to $68.4 million in the third quarter last year. As a percentage of sales, SG&A was 40.7% of sales in this quarter compared to 39.5% last year, with the increase due to the MTF partnership.

Research and development spending of $7.1 million was consistent with the spending in the prior year period, but declined modestly as a percentage of sales to 3.9% of sales in this quarter as compared to 4.1% last year. Overall, as a result of the changes in gross margin, SG&A and R&D as a percentage of sales, the adjusted operating margin in the third quarter of 2012 grew approximately 50 basis points to 10.2% compared to 9.7% in last year’s third quarter.

On a year-to-date basis, the adjusted operating margin also has increased 50 basis points to 10.4%.

We forecast, for the full year 2012, the adjusted operating margin should increase 60 to 70 basis points. This is somewhat lower than the 100 basis point goal we previously estimated and is due to the sluggish worldwide economy’s effect on sales growth.

We continue to generate a solid improvement in the adjusted EBITDA margin. In the third quarter, adjusted EBITDA margin increased 150 basis points to 16.6% of sales compared to 15.1% in the third quarter last year.

GAAP EBITDA declined by 50 basis points to 14.1% of sales due to the additional restructuring and acquisition costs in 3Q 2012 compared to the third quarter last year.

We had previously discussed our expectations for achieving higher operating and EBITDA margins by continuing to leverage our infrastructure. Sales are expected to advance at a greater rate than cost increases due to the benefit of new products that should generally have gross margins greater than our company’s current average, as well as overall growth of our current products in our core markets.

Single-use products generally have higher gross margins than capital products, so the mix shift to a higher percentage of sales coming from single-use devices helps the expansion of margins. Further, we will continue to review our cost base to ensure the business is operating in the most efficient manner possible with regard to both the cost of manufacturing products and the SG&A line.

Turning now to efficiency matters, we have previously discussed 2 changes to our operations. First, we have completed relocating our manufacturing activities for our surgical video systems from Santa Barbara, California to our plants in Mexico and Florida.

Coincident with the Viking acquisition in September, we announced that the marketing and R&D activities located in Santa Barbara will be consolidated into the Viking group in Massachusetts.

Lastly, we are also consolidating the manufacturing operations from our Tampere, Finland location into our United States locations.

Restructuring activities for the Santa Barbara marketing and R&D departments and the Tampere plant have started and will extend for the next 12 to 15 months as we make an orderly transition. We anticipate that the Tampere consolidation will result in annual savings of approximately $4 million once complete.

For the third quarter of 2012, adjusted earnings per share were $0.43 per share compared to $0.33 per share in the third quarter of 2011, representing a year-over-year increase of 30%. EPS on a GAAP basis was $0.32 per share compared to $0.29 per share in the prior year period.

The adjustments for unusual items of $4.5 million in this third quarter are reconciled in the press release issued this morning and include costs associated with the ongoing manufacturing and administrative restructuring program at Santa Barbara and Tampere, as well as the acquisition costs related to Viking.

For the remainder of 2012, we expect to incur additional pre-tax restructuring costs of $4 million to $5 million as we complete the transition from the Santa Barbara location and continue the consolidation of the Tampere facility.

Turning now to cash flow. Cash provided by operations was $28 million in the third quarter.

As we expected, the operating cash flow in the third quarter was somewhat higher than in the second quarter. For the final quarter of 2012, we expect that operating cash flow will be even better than that of the third quarter due to the anticipated increasing income.

As of September 30, 2012, our cash balance stands at $19.8 million. Days in receivables are equal to 66 days, the same level as December last year, and improved from 69 days in September 2011.

Inventory declined $3.1 million compared to December 2011. Further, the days investment in inventory declined to 169 days compared to 173 days in December 2011.

Finally, as of September 30, 2012, the debt-to-book capitalization calculation was 22% as compared to 20% at December 2011, as a result of the borrowing associated with the MTF transaction in January and the Viking medical acquisition that closed in quarter 3 of this year.

Now let’s turn to guidance for the fourth quarter. Specifically, we expect sales will approximate $199 million to $204 million and an adjusted EPS range of $0.48 to $0.52 per share.

Based on this outlook for the fourth quarter, we are narrowing our guidance for the full year 2012, although it remains within the previously provided wider ranges. We now expect full year 2012 sales of $765 million to $770 million and adjusted dilutings -- diluted earnings per share of $1.76 to $1.80.

As we look forward to 2013, while we remain encouraged by our businesses, we are cognizant of a number of external headwinds for CONMED. First, we continue to see softness in the world economy and flat to only modest increases in healthcare utilization.

It is important to remember that CONMED generates almost 50% of its sales from international markets and we sell direct in 16 countries, so we are definitely affected by global trends.

Second, the imposition of the 2.3% excise tax on medical devices sold in the United States will cost the company about $6 million to $8 million pre-tax, or in the range of $0.12 to $0.16 per share for 2013.

Finally, foreign currency exchange rates are less favorable today than the FX rates at which we hedged our sales this year. Given the decline in the euro versus the dollar over the past year, the partial hedges that we have in place as of the end of September 2012 for calendar year 2013 are at approximately $1.30 to the euro as compared to hedges at $1.41 to the euro that were in effect for 2012.

Note that approximately 10% of our sales are based in euros.

While we believe we will be able to offset these external headwinds through growth of our core businesses, including the introduction of new products, the continuation of our cost reduction programs and through share buybacks, the anticipated earnings per share growth in 2013 is expected to be somewhat less than what we would normally expect without these factors.

Adjusted earnings per share for 2013 is expected to approximate $1.80 to $1.90, while 2013 sales are expected to be in the range of $785 million to $795 million. Effectively, these headwinds, especially driven principally by the medical device tax, are causing us to reset the base from which management will seek to grow earnings per share by approximately 15% annually, in line with our long-term strategic plan.

From the perspective of margins, the long-term goal of the company is to increase operating margins by approximately 100 basis points per year. However, given that we anticipate a lower rate of growth in healthcare utilization in 2013 due to the weak global economy, this translates into modest top-line growth for CONMED and makes it difficult for us to achieve this long-term objective next year.

introducing new products, making improvements in existing products, aggressively managing our cost base and taking advantage of what we hope will be a resumption of better economic growth in 2014.

Overall, we are pleased with the strong earnings growth and solid cash flow that CONMED delivered during the third quarter of 2012. Going forward, we will continue to improve the operational efficiency of our business and achieve higher margins in order to drive shareholder value.

With that, I will now turn the call back over to Joe Corasanti for final remarks before we open the line for questions. Joe?

Thanks, Rob. Before we get to the questions, I just wanted to make a quick comment about our strategy, our long-term goal and our track record of growing earnings at CONMED Corporation.

I’d like to remind everyone that CONMED was able to show EPS growth of 15% or greater in 2010, 2011 and the first 3 quarters of 2012 on low single-digit sales growth.

The impact of the medical device tax and changes in foreign exchange rates are difficult for us to overcome in 2013. However, looking forward to 2014, we believe that with modest sales growth and neutral foreign exchange, we expect to get back to our long-term goal of growing EPS 15% annually, as we did in 2010, 2011 and the first 3 quarters of 2012.

So at this point, I’d like to open up the call for questions.

First, I just want to make sure I got this right. Rob, did you say that the contribution -- the revenue contribution from MTF in the quarter was $7.1 million?

Well, the total revenue -- I’ll say it this way, Dalton. The total new revenue from acquisitions and our partnership was $7.1 million.

About $900,000 of that $7.1 million was with regard to Viking. So then it would mean that the MTF revenue was $6.2 million.

Okay. And so that would have been down about $1 million quarter-over-quarter.

Is that just seasonality?

That’s correct. We think that there is seasonality in their business just as we see it in the sale of medical devices.

Surgeons go on vacation. Patients want to go on vacation.

There is just a little less utilization in the summer months.

Okay. And so what would you expect the fourth quarter to look like?

Well, I think it would be more in line with what we saw in the first couple of quarters of this year, somewhere in the $7 million range, $7 million to $8 million.

Okay. And then just taking a look at your guidance, could you talk about what the underlying assumption is there for capital equipment versus single-use?

I am talking about 2013 here.

Sure. So for 2013, I think we will see capital equipment remain flat with, obviously, growth coming from our single-use products in the U.S.

and outside of the United States.

Okay. And just one last one on the calculation of your pro forma EPS.

Did you back out that $.05 tax benefit from that as well, or is that still in there?

Well, that’s still in there. We think that’s appropriate to include in the adjusted numbers.

So wanted to follow-up on -- you mentioned the trends in your capital business were good, flat but relative to expectations and trends going into the quarter, certainly better than expected. Can you talk a little bit about what's different, what changed maybe from the second quarter to the third quarter?

I recall that your outlook was not at all that optimistic, Rob, heading into the third quarter. What changed and do you think it’s sustainable here heading into the year end?

And then I have a couple of follow-ups.

Yes, what capital -- I mean, the trend actually hasn’t changed with Electrosurgery capital. Generators remain down significantly.

Unfortunately, the change really was an improvement in Powered Instrument sales and video, and I think it’s difficult for us to account for the improvement in Q3 versus Q1 and Q2. It is just, I think, the nature of our capital business.

It’s choppy, and we’ve talked about that in the past.

So if I interpret your comments, it’s that the order rates were difficult in Q2 and they got better in Q3, and not an awful lot of visibility as to why that happened with your customers.

Yes. I mean, that’s really the case for power, anyway.

It’s pretty choppy. Video systems seem to have stabilized.

They were down significantly on the first half of last year and they have seen -- the declines moderated there and it’s -- I mean, we’re just seeing a slower decline there. But electrosurgical generators are very difficult for us to predict.

We’ve got -- last year, we had growth in electrosurgical generators in the first half of 2011 and then now, for 3 quarters in 2012, we’re down 20% in each quarter. So we’re seeing a little bit of difficulty in Electrosurgery.

A lot of it's coming from our O.U.S. sales of generators, and that leads us to believe that it’s related mostly to the tenders that we see, there being less tenders outside the U.S., and then there's some [indiscernible].

Okay. But the change, the pickup in powered instruments, is predominately a U.S.

-- strapped [ph] into Q2 to Q3?

Well, powered instruments in the second quarter were $16 million of sales compared to $18.5 million of sales a year prior. So it’s a $2 million change.

In this third quarter, powered instruments were $16.4 million compared to $16.1 million, so a slight increase compared to the second quarter last year. But on a sequential basis, really, we had the same amount of hand piece sales and powered instruments in both the second and third quarters of this year.

I think the difference, Matt, frankly, is a more difficult comp in the second quarter of 2011, when we just had some good sales in that particular period. So I -- the percentages sound big, but in actual dollar terms, a few big orders can change the whole outlook here fairly quickly.

I think the trend is pretty much the same. Capital is more or less flat, continues to be flat, and a percentage point here or there probably doesn’t indicate there is any real change one way or the other.

And heading into Q4, sort of your best guess is sort of steady, or should we see a seasonal pickup, as we often do in Q4, for capital?

Yes, we would expect a pickup in the fourth quarter, as we always do. There is just more activity in the fourth quarter and that tends to help us.

Okay. And then a follow-up on just your procedure performance excluding MTF and some of the other -- I guess, yes, just excluding MTF, really.

Just trying to get a sense of your base Sports Medicine business in particular. I guess it was sort of roughly in line with our number, a number you sound like you are pleased with.

Would you look at the trends and say, "This looks like normal seasonality to me. This looks like secular kind of improvements need or the stability."

How would you characterize what you are seeing just in terms of historical performance of the market or what you view as market trend?

Well, I think that pretty much we were in line with our thoughts, with our expectations on single-use products, Matt. I think that where we may have been a little disappointed is with European Sports Medicine sales.

I think that there seems to be, in the third quarter, a little bit more of a deceleration in business in Europe than we saw in the first 6 months of the year. And we’ll see how that plays out here in the next -- in this quarter, but it seemed to us that Europe was under a little bit more pressure in the third quarter than what we saw earlier.

Okay. And then if I could, just one clarification on your comments on Altrus.

Joe, you mentioned -- I think I understand you are setting the tone for the rest of the year based on the run rate you’ve seen so far, but is the manufacturing issue -- and supply, I guess, yield issue that you had earlier in the year, is that resolved or is that something you carried over into third quarter? In other words, is the manufacturing challenges still in play, or is that behind you and now it’s just a matter of getting the sales force to sort of have more confidence and getting the product out there?

Yes, I think -- well, for the entirety of the third quarter, we did not have supply issues or yield issues, and product performance has been very, very good, and I think that the reason why we didn’t see an improvement in Q3 versus Q2 is because we had to pretty much reset everything with the sales force, get the sales force recalibrated, essentially, in many instances, retrained. And we have an ongoing effort right now to upgrade the sales force.

We’ve done -- we did a lot of that in Q3. So we’ve got some new faces in the sales force.

And I think we’re just resetting it all right now. Looking forward, we know what we have to do.

We’ve got a great product that performs really better than the competition, and we just started with O.U.S. sales that will help us pick things up a bit here.

And I think as we reach a certain level of penetration, we are going to have to start now to pay attention to GPO contracts. And let me explain that just a little bit further.

I think it’s pretty easy for us to get in and penetrate a hospital account with 1 or 2 surgeons and it kind of flies under the radar screen, but once you get beyond that level, the administration starts to take notice and asks if you have contracts. So I think that’s our next item of business, to go out and get the Altrus product put on a few contracts so we don’t run into any road blocks as we further penetrate into some of these hospital accounts.

So we’re very well positioned to start growing this. We’re disappointed that we had a -- that the product essentially has stalled Q3 versus Q2, especially when you have a product that we believe is superior to the competition.

You kind of expect it to just start flying and taking off quickly. It hasn’t happened, but we do believe we'll have very good penetration into this very large and growing market.

I appreciate the previous discussion on Altrus. Could you maybe talk about the arthroscopic market as far as some of your sales in the single-use area and talk about how you're seeing the macro environment for the market, as well as maybe talk about your products and if you are picking up share and what you are seeing out there in the general landscape?

Well, in arthroscopy, we are doing very well in the Shoulder segment. The SRS system continues to do well.

The Y-Knot that was launched at the midpoint of the year -- or at the end of Q1 is doing very well, and we expect that segment to continue to do well. We’ve got new products that will be coming out, as we do every year, and we would expect to continue to do well in Sports Medicine arthroscopy.

That’s a growth area for the company.

Okay. And could you talk about how are you going to be dealing with the excise tax as far as your income statement for 2013?

Will you be breaking that out as a separate item next to tax rates, or to be included in your tax rate for the quarters?

Well, Jeff, what we plan on doing is breaking that out as a separate line item in the P&L below operating income. So it will be in the same general area as interest expense and before pre-tax income.

I don’t know if the FASB is going to be issuing any pronouncement with regard to where this should be recorded, so I don’t know if anybody has any real guidance on this at this point. I know no one does, as a matter of fact.

So I think it will be up to individual companies to decide where they put it. But that’s our present intention, separate line item.

Okay. And one last one for you, in the -- are you seeing more or less or about the same kind of deals out there as far as acquisition opportunities or partnership opportunities?

Are you seeing the landscape changing at all throughout the past few months?

I think it’s a -- we are seeing about the same amount of opportunities and we're evaluating some at about the same pace. And they come in all different types of flavors, small technology plays and maybe some larger type of opportunities.

But if you are looking for an answer about a change or an increased frequency, we are not seeing anything like that.

So just a follow-up on the last question. It’s been several years since you guys did some deals, and then you did 2 in 2012, the MTF and the Viking deal.

Is there a change within the company with regard to acquisitions, or you more open to them at this point as a use of your cash flow?

Actually, no, the strategy has been the same. We’ve been looking at acquisitions.

We did -- we essentially kind of had a, I guess, maybe a bit of a dry spell between 2004 and 2012. But we were looking and we participated in some processes, and we just weren’t able to close or we couldn’t find exactly what we were looking for.

I mean, our strategy is pretty specific. We’re looking for tuck-in acquisitions that can be breakeven or accretive in the first 12 months.

So I guess we had been limiting ourselves. Now it just turns out that, in 2012, things that we had been working on in probably 2010 and ‘11 came to fruition in 2012.

So I think our -- and going forward, our strategy will remain the same.

All right. But there is no reason to think that because you did 2 in 2012 that you’re going to be on a 1 or 2 a year kind of pace at this point?

No, we’re still -- it’s just -- it's opportunistic. There is no way to, I think, for anybody to predict what we’re going to do in terms of acquisitions.

All right. And Rob, on the device tax, have you heard any inklings that maybe this gets delayed 6 months until the regulations get finalized, or do you expect this to kick in on January 1?

Well, our expectation is it’s still going to kick in on January 1. Certainly, there is a lot of discussion among a lot of people about what could happen.

But you are absolutely right, the regulations are not -- have not been issued by the IRS at this point. Our information is that it won’t be until mid-November before the IRS issues those regulations.

Congress could act to remove the tax before the end of the year or early next year. There is a lot still up in the air, but we’re planning that we’re going to have pay that medical device tax.

Okay. And then as far as consolidation is going, you do have the 2 plants that you are consolidating at this point.

Is this it for a while, or will there be additional consolidations in ‘13?

Well, I think that our operations group has a lot on their plate. So for now, this is what they’re going to be working on.

Okay. And can you just remind me, what was made in Finland?

Finland came to us through an acquisition of Bionics in 2004 -- 2003. And they had a plant in Finland that manufactured bioabsorbable suture anchors.

And so we’ve been manufacturing a good deal of our bioabsorbable shoulder anchors in that plant in Finland. So that’s going to be moving here to our U.S.

plants.

And will you make those yourself or will you outsource those?

We’ll make them ourselves.

A couple of questions. First, Rob, on the operating margin guidance for 2013, I thought you said it would be less than the 100 basis points that you would normally target in part because of the medical device excise tax, but the medical device excise tax, by your accounting, is going to be under the operating profit line.

Could you help me to reconcile that?

Yes, I may have misspoken there, Bob. You are right.

The medical device excise tax wouldn’t affect that 50 basis point improvement that we are expecting, so it’s really foreign currency as much as anything and the weaker outlook that we have relative to sales.

Okay. And then you spoke generally about Y-Knot and arthroscopy, but you’ve given us some numbers on the Sequent for the Meniscal Repair Device.

Can you give us some sense of how that’s doing and what your sales expectations for that are for the year? And would you be able to put any sort of sales expectation dollar number on Y-Knot for the year?

Well, the Sequent device is doing well. As you know, we now have a 2-stitch and a 3-stitch to complement what we originally launched, which was the 7-stitch.

And at this point, I think we’re going to start getting away from specific sales forecasts on a lot of these products. I think, just generally speaking, we expect growth, organic growth from new product sales, and we could tell you that they will be led by certain focus products, and Sequent and Y-Knot are those focused products, really, along with SRS, the Shoulder Restoration System, in the Sports Medicine franchise.

I think, because we’ve gone out with discussions about Altrus and sales forecasts, we’ll probably continue to do that for Altrus. But I think, at this point, we’re probably going to get away from that with some of these other smaller products.

It’s interesting, I mean, I’m saying smaller products. SRS is -- I mean, the last time we talked about it, it’s about a $30 million product line.

It’s done extremely well for us and it happened in just a little over about 1 year since the launch. So I think that’s how we’ll start reporting some of the new product launches here at the company.

All right. Then, Joe, in prior public commentary as far as your use of cash, I think you’d outlined it to be acquisition, dividends, share repurchases, in that order.

But it sure sounds to me, today, it’s sort of dividend, share repurchase, acquisitions, in that order. Can you speak to that?

Well, Bob, certainly, dividends would be the first on the list, because once we have gone down this path to pay a dividend, it’s certainly our intention to continue to pay a dividend, so that would be top on the list. With regard to acquisitions and share repurchases, we think that both are important for the return of value to shareholders.

I don’t know if I can rank one over the other. Certainly, we have to do each of those knowing the constraints that we have on our business, either as a result of our current cash flow or what the financing arrangements might be with regard to both of those items.

So I don’t know if I can rank one over the other. Certainly, we think both of those activities would be beneficial to our company and to shareholders.

And then, Rob, finally, and on the share repurchases, I think your press release says -- I don’t have it in front of me, but that you are going to repurchase about $50 million worth of shares in the 6 months to 9 months?

Yes.

How does that occur? Will it be just sort of a regular repurchase program, or will it be opportunistic based on price?

And within that timeframe of 6 to 9 months, will we enjoy any of that in 2012?

Well, I think that we’ll be opportunistic, but also I believe that we will have a somewhat of a regular program to repurchase shares. So to the extent that we can be more opportunistic, that’s fine, but I tend to think that over the next several months, even in the short-term here, that we would have a more regular program of repurchasing shares.

There are certain limits that the SEC has on us in terms of how many shares we can repurchase on a given day. So we are somewhat limited by that.

But I do think that we will have some of that repurchasing going on here in the fourth quarter.

Okay. There being no further questions, I would like to thank everyone for participating in CONMED Corporation’s third quarter earnings conference call, and we look forward to talking to you for the year-end and fourth quarter conference call in February of 2013.

Thank you very much.