Welcome to the STERIS Fiscal 2013 Third Quarter Conference Call. [Operator Instructions] At the request of STERIS, today’s call will be recorded for instant replay. I’d now like to introduce today’s host, Julie Winter, Director, Investor Relations. Ma’am, you may begin.

Thank you, Angie, and good morning, everyone. It’s my pleasure to welcome you to STERIS’s Fiscal 2013 Third Quarter Conference Call. Thank you for taking the time to join us this morning. As usual, participating in the call are Walt Rosebrough, our President and CEO; and Mike Tokich, our Senior Vice President and CFO. Now just a few words of caution before we begin. This webcast contains time sensitive information that is accurate only as of today, February 6, 2013. Any redistribution, retransmission or rebroadcast of this call without the express written consent of STERIS is strictly prohibited. I would also like to remind you that this discussion may contain forward-looking statements related to the company, its performance or its industry, that are intended to qualify for protection under the Private Securities Litigation Reform Act of 1995. No assurance can be given as to any future financial results. Actual results could differ materially from those in the forward-looking statements. The company does not undertake to update or revise these forward-looking statements, even if events make it clear that any projected results, expressed or implied, in this or other company statements will not be realized. Investors are further cautioned not to place undue reliance on any forward-looking statements. These statements involve risks and uncertainties, many of which are beyond the company’s control. Additional information concerning factors that could cause actual results to differ materially is contained in today’s earnings release. As a reminder, during the call we may refer to non-GAAP measures such as adjusted earnings, free cash flow, backlog, debt-to-capital and days sales outstanding, all of which are defined and reconciled as appropriate in today’s press release or our most recent 10-K filings, both of which can be found at steris-ir.com. With those cautions, I’ll turn the call over to Mike.

Thank you, Julie, and good morning, everyone. Thank you for taking the time to join us today. I want to point out that with several items impacting our reported results all of which are excluded from our adjusted net income and adjusted diluted earnings per share. As you saw in our earnings announcement, during the quarter, we reversed a portion of our original SYSTEM 1 class action settlement liability at the deadline for claims submission was December 31, 2012. The total pre-tax reversal was $15.8 million. The remaining liability on the balance sheet for both the SYSTEM 1 class action settlement and the SYSTEM 1 Rebate Program is now $5.5 million. Looking back our original pre-tax charge for both the SYSTEM 1 class action settlement and the SYSTEM 1 Rebate Program totaled $129.8 million. At the end of the day it turns out, the customers have utilized or have committed to utilize approximately $75 million of the $129.8 million pre-tax charge. Also during the quarter, we recorded a tax benefit associated with the deduction for U.S. tax purposes related to our European restructuring effort. This deduction is based upon the closing of our Swiss manufacturing facility back in the fall of 2011. As a result, we recorded an $8.1 million benefit through our tax provision during the quarter. And finally, we have expenses related to our acquisitions impacting the P&L. During the quarter, we recorded pre-tax expenses of $4 million for intangible amortization, $2.1 million for acquisition and integration costs, and $700,000 for inventories step up to fair value. Please see our earnings release for full reconciliation of as reported to adjusted earnings. With that, I will now begin with a review of our third quarter income statement. Total revenue increased 7% during the third quarter, driven by a 10%…

Thanks, Michael, and good morning, everyone. Appreciate you taking the time to join us this morning. As you’ve heard from Mike, we had a good quarter. Our growth strategies are beginning to show in our results and we are pleased with our acquired and base businesses. In fact, our overall company performance to date has exceeded our expectations somewhat, resulting in positive changes in our outlook. Let me spend a few minutes on several highlights before I discuss our revised outlook for the year. Starting with healthcare, we said in our last call that we continue to see solid trends for our capital equipment business in the U.S. offset somewhat by international weakness. Consistent with last quarter’s comments, we had flat shipment performance in the U.S. compared to a strong third quarter last year and international declines. But our overall capital order pipeline was strong and remains so to this day. We continue to believe the overall trend is solid and the shipments are a matter of timing given our order rate, which resulted in a strong backlog at the end of the quarter. On a year-to-date global basis, we are pleased that we’ve been able to grow capital equipment organically in the low single digits, excluding the impact of SYSTEM 1E in the U.S. Beyond capital equipment, our consumable and service revenue in healthcare is performing well. Our recently acquired businesses, U.S. Endoscopy, Spectrum and TRE are contributing nicely. Combined these 3 businesses added about $35 million to our revenue in the quarter, performing a bit better than our expectation. As an aside, we have decided to brand the 2 acquired specialty service businesses under the Spectrum brand. So that is how we will refer to the combined Spectrum and TRE going forward. In addition to the acquired businesses,…

Thank you, Walt and Mike for your comments. We’re now ready to begin the Q&A session. So Angie, would you please give the instructions and we’ll get started.

[Operator Instructions] Our first question is from that Ms. Erin Wilson of Bank of America.

Apologies if I missed this, but did you quantify the contribution from U.S. Endoscopy, specifically in the quarter and its integration on track and now you started to see some maybe greater clarity on the potential synergies there and when we should start to see those materialize?

Erin, we did breakout the revenue growth from the 3 units to combine. It’s about $35 million. We are not breaking out the individual units and both acquisitions, or all 3 acquisitions I should say are tracking as we expected, slightly better actually than we expected but not materially different than our feelings or expectations. You recall that U.S. Endoscopy is not primarily a cost reduction kind of acquisition. We thought that was a good growing business. We do think there is some long-term revenue synergies, but we feel no differently about that acquisition than we have been discussing from the beginning.

Okay. And then I guess in light of your recent deal activity, which are kind of capacity here for incremental acquisitions and how should we think about your, I guess capital deployment strategy going forward as it relates out to share repurchases and the dividend?

Sure. First of all, I would say our general strategy on capital deployment has not changed at all. We are first -- first place, we wanted to deploy capital is in the businesses that we already own and run, because we think that’s the safest and best spending as long as there is good places to do it. And as you know this year, we are spending a pretty good chunk of money doing that. Our second is looking at growth opportunities through acquisition and we would continue to do that. We clearly intend our dividend to -- we’ve been on a path to grow our dividends and we expect to do that going forward and then the last alternative is share buyback. When I say last alternative, obviously is we are looking at acquisitions. We compare those acquisitions to doing share buybacks. So it sets a standard for us, but generally speaking we would work to spend money to grow as oppose to work to spend for share buyback. To the extent, we think it’s a more attractive opportunity. In terms of integration, we are busy with integration right now, but it’s now been several months since the U.S. Endoscopy acquisition and really it’s just been a blessing. We talked about the fact that they are geographically close to us. It is remarkable how much easier it makes that work when you just walk across the parking lot as opposed to having to fly across the countries. So that is going I think exceedingly well. The other 2 companies, one is also only about an hour from us and the other one is not that far. It’s in Pennsylvania. So we think those are going nicely. But those are in earlier phase of the transition. We would not feel constrained in the next few months doing something else that we saw as appropriate opportunity. And certainly in the businesses to non-healthcare businesses, Isomedix and Life Science we would feel not constrained at all.

Okay. And then just quick one on Isomedix that you mentioned it. I think Cardinal Health mentioned last week that they were divesting their sterilization business in EL Paso. I know you have a business also in EL Paso, and they said that they are going to contact with the third party, and then the third party would retain I guess its facilities and its sort of infrastructure I guess down there. I guess you are a logical sort of partner for that business. Can you kind of quantify that opportunity and is that incorporated into your guidance?

We don’t quantify any activities for individual customers or individual accounts and we let them speak for themselves about what they’re going to do. So our growth forecasts include all the known customers that we know and we tend to do long-term contracts. But we don’t comment on any specific ones.

Larry Keusch of Raymond James.

So Walt, a couple of questions. First, if you could just talk little bit about the environment and specifically you mentioned in the prepared comments that the U.S. feels like it is pretty good. But if you could just give us some sense of what you think it’s -- or happening out there with hospital capital spending, and where it’s been deployed that would be helpful and then I have 2 others for you?

Sure. In general, hospital capital spending seems to be holding up. It’s not huge increase but it seems to be holding up. Clearly, as I think many people were reporting and talking about, they are spending an awful lot of money as it relates to their electronic medical record or their IT funding. So that’s absorbing a good piece of capital spending. Clearly they are also spending, what I call strategic spending in physician office area or physician area as well as outsourcing of their facilities. So those are, I think probably there are 2 top of mind capital spends. Having said that, we do feel somewhat fortunate in our space, which is the operating room and things what support the operating room on the capital side is an area that is a revenue generation area in the short-term and a place where people want to capture strategically in the longer-term. So we do think, relative to maybe some other things, we might be in a slightly better space for capital spending. But every capital dollar is scarce these days, particularly given the fact that the significant spending in the IT literate medical record side. So it’s not what we would call a robust growth area, but it seems to be solid.

Okay. And just along that, Walt, if you just look back over the last 3, 4, 5 months and you want to look at the sort of second derivative out there. Is it flat or is it actually, do you feel like it may even be getting a little bit better?

We’ve been saying kind of now for 6 months or so that our pipeline has been pretty steady and it’s varied. The makeup of the pipeline has bounced around, which it has a habit of doing. At the beginning of the year, we were clearly seeing more what we would call one-off replacement business as opposed to large projects. So our pipeline was more full of that than -- more full of replacement type business than the large projects. We’ve seen large projects. In total, if you look at kind of the full pipeline you are looking at a year or 2, that pipeline has stayed fairly stable. It moves between few very big projects and lots of medium-size project and that’s kind of moved in a wave around. But if you put it altogether, it’s just been what I would call kind of steady, steady to maybe slightly up.

Okay. Perfect. And then the other the other 2 questions is I recognized you are not prepared to give ‘14 guidance on this call. But I wonder if you can just help us think about as we do look forward sort of what we should be thinking for the headwinds and tailwinds sort of that puts and takes, as we just begin to think about next year. And then the second question and you partially answered this, but in terms of your capital allocation if you were to go through a period of time where there was no meaningful deal activity, would you be willing to essentially return more cash to shareholders in those periods where there is less usage of the capital for M&A?

Let me start with the first. I think 2 general questions. One is you are well spoken to recognize that we’ve not given next year’s guidance now, because we are not. But at the highest level I would say clearly everyone in the industry, at least our side of the industry faces a medical device tax for the full year. So that’s clearly something that is just front center for everybody. The other things are things that we’ve been talking about a long time. Again, the pipeline right now we think seems fairly stable out there, to the extent that stays that way we will be pleased. We’ve clearly have done some things through business development to acquire things to grow our business and we continued to do product development. And then we discussed I think a fair amount about some of the capital spending we are doing in order to, A, bringing new products and B, do some in-sourcing. So at a high level that’s what we’re doing. We don’t have any further guidance on that than we’ve already provided. Now the second question relates to shares, I think share buyback? And as we said, we rank those things as we’ve described and just described, share buyback -- share buyback is clearly something that we consider. We in the board look at those things and to the extent we see a longer, if you will dry spell then we would clearly be looking at share buybacks. Any given month or any given quarter of that that’s not going to cause us to make significant fluctuations in share buybacks. And we do have authorization and we have bought back in recent past and we would certainly consider doing so in the future.

Jose Haresco from JMP Securities.

A couple of questions here, so let’s start with on the recurring revenue side of the healthcare business and the SYSTEM 1? Are we at a point now where S20 is not a drag on the S40 or is that business still, say, essentially negative growth?

I would say that we’ve actually crossed the point where actually S40 is actually overtaken from a volume perspective S20 and that was probably a quarter ago or so. But we still have as you know, we still have through August of next year, the deadline for SYSTEM 1, transition was August 2. So we still have a few more months into this year -- the next quarter and handful months into next year from a comparability standpoint. So we will continue to you see some pressure, but obviously the volume of that pressures is actually reduced.

Jose, the real question is, whether you are talking sequentially or year-over-year and Mike answered it correct, absolutely correctly on the year-over-year and effectively sequentially that is, sequentially we are not seeing those kinds of declines.

Okay. Good. I’m sorry, if I missed this, did you tell us how many system and how many SYSTEM 1 units were placed it all in the quarter, are we replacing?

No. We are out of the, we’re through that phase in our history and we are going to be treating SYSTEM 1E just like we do with the other product, we don’t give product specific items. But just as an aside, you would not find them material.

Okay. The U.S. Endoscopy, when you look at the growth in the reimbursement, sorry, I may miss this, the recurring revenue in the quarter 37%, how much of that was U.S. Endoscopy, how much of that was everything else?

Well, again, the splits that we are going to give, is the total revenue from the 3 acquisitions, which we said about $35 million in the quarter. Almost, virtually all of that, not all of that is recurring revenue either service or recurring medical devices, so that splits we are giving. We are not going to break those out further, it’s part of the healthcare group, except. Mike, does have one additional comment that may help.

Yes. In total and I’ll give you just a little bit of background from the breakout for the consumables and service, from an organics standpoint it was about mid single digits for both the consumable and service in the quarter.

Including healthcare.

Okay. And again, now on U.S. Endoscopy, are you at the point where you have a view and how we should think about that business for next year and kind of the organic growth in that business, number one? And number two, if not quite logistic in the sense that you are not reducing that channel in terms of the headcount. So have you thought ahead to what you might be bringing into that channel and when we might start to see that level or that type of activity?

Again, I think, going back to our comments, when we did the deal, would probably be the best guidance that I would give you, because we just don’t feel any differently about it today than we did 3 months ago, 4 months ago. It’s on track with what we thought and what we said, so that's what the long and short of it is. And in general this has been a nicely growing business in the low double digits and we don’t have any reason at this moment to feel differently about that, we are not -- again, we are not doing a forecast today. But we don’t feel any differently than we did 3, 4 months ago.

Okay. And I guess lastly, do you have perhaps a longer term view on what the impact on the operating profit for healthcare could be as not just U.S. Endoscopy but perhaps other types of products like can take you from where we are today? And I’m thinking and I’m give yourself enough time, time not 12 months something like 3 to 5 years, how that change or think about the long-term profitability of that business?

Again, at this point, we have no reason to view the long-term profit of healthcare to be significantly different from kind of our previous conversations. So now we are in the 10%, 12%, 13% -- 11%, 12%, 13% range, we can be kind of bouncing around those kinds of numbers. We like seeing our income being in the 15% or better range. So that’s what we would be targeting over the long-term. We clearly -- we clearly have said that we expect to grow our business in total in terms of profitability in the low double digits and that’s clearly what our goals and intentions are. Exactly how that works out from year-to-year and month-to-month, we’ll bounce around, but that’s our goal. The -- and we don’t see the reason to vary that goal. This short-term headwind of the medical devices tax is not trivial, and so that will have to sort of sought out and play itself out. So that would be I would say from all the activity put it all together, that headwind is not trivial. And we’ll sought that through and talk about it in our guidance when we do it in the coming quarter.

Chris Cooley from Stephens Incorporated.

Let me start off, just talk, I mean a little about into balance of the year, you raised guidance here for the full year, but your core business ex-acquisition was down 3% roughly in the quarter? I just want to make sure I understand really what’s driving that step up. Is it better growth then you had anticipated within the 3 recent acquisitions or are you, when you think about when guidance was set for the start of this calendar year, I mean, fiscal year, excuse me, you were looking for flattish growth on an organic basis pre-U.S. Endoscopy? Do you think you are going to get back to that kind of level? I’m just trying to think about the puts and takes there for the top line and I have a quick follow up?

Yes. Chris, let me, again, let me step back, and as we’ve said before, the sequential SYSTEM 1 issue is over in our view, but the year-to-year comparisons are not. And in the quarter, I recall about a $20 million differential in SYSTEM 1E. So if we had that $20 million back it would be very different looking quarter. So if -- when we think organically now, we are thinking that kind of organic. So that’s the -- I call it Q3 over Q3 question I think that you are raising. We also have particularly strong Q3 last year in capital shipments too. So if you -- we were little stronger this year in the first and second quarter, and relatively a little weaker but, when you kind of put it all together that evens it out, and we still have significant SYSTEM 1E revenue degradation on a year-over-year basis, even though again sequentially we are not seeing that. So I think that gets to the answer your first question. Second question, you kind of just step back and say what’s happened overall over the course of the year, clearly the acquisitions brought growth. But secondly, if you look across each of the business we look at, what our expectations were when we started and how they’re working right now, cumulative year-to-date plus what we expect in the next quarter, it’s just one of those years where everybody is either on plan or slightly ahead. So it’s not anyone big thing. It is just often times, if you have several businesses and units within those businesses, somebody has a particularly difficult year and somebody has a great year and the math works out. In this case, relative to our plans, kind of, overall those businesses, everybody is, kind of, on plan or a little ahead. So when you add it all together, we’re a little ahead of where we expected to be. I will say clearly been like almost everyone in the business who has reported in the last 6 months or so, everybody is seeing pressure in Europe. Latin America is not super strong. The Asian market has been strong for us. A specific market has been strong for us. I think that’s consistent and in North America, we’ve been solid. And so that’s, kind of -- on a geographic basis, that’s kind of a wrap-up.

Okay. That’s helpful. And could you just maybe, I apologize, if you told this at the start as I was hopping between earnings calls for this morning. But Life Sciences was particularly strong here in the quarter relative to our expectations. Could you maybe just, kind of, characterize what you were seeing there in terms of trends during the quarter and how we should think about that in terms of the backlog going forward?

Sure, Chris. Again, in the Life Sciences business, Mike mentioned we’ve, kind of, had bouncy quarters if you will, which is not atypical particular in capital. So we had a particularly strong first quarter, not such a strong second quarter -- and talking year-over-year particularly and then a strong third quarter. So it’s mainly the timing of capital, if you’re even all-out, it’s just about what we expected. They do have a nice backlog. So we expect to have -- have them finished the year about as we expected. So just solid, no significant change in our view on that.

Robert Goldman from C.L. King.

Couple of questions on the acquisition and then some on the cash flow or acquisitions. I understand Walt that the rationale for the acquisition was not a cost-cutting synergy rationale. But could you take us through how you see this synergies having worked so far. Clearly, you are looking for revenue synergies, so perhaps you can give us some even anecdotal look of how essentially 1 plus 1 equals 3. In other words, you were able to get some core STERIS sales having made those acquisitions or those companies were able to leverage the STERIS product line? And then I’ll ask the cash flow question thereafter.

Sure. Look, first, Bob, as again as I mentioned in both cases or all the cases, this was not “significant cost synergy” set of acquisitions, but as is often the case we do find cost synergies when we do these things. So we have been fortunate. We’re a little ahead of where we thought we would be there and it’s what I will call for lack of better terms routine back-office kind of things or purchasing and supply kind of things. So we are a little ahead there than what we expected in the businesses. And in terms of what I’ll call the sale synergies, I think those are longer-term kind of issues. But in both cases, it’s not so much that the products overlap, it’s of the customers overlap. And so we clearly wanted to be stronger in GI, a procedural area that has nice growth and nice opportunities. And we were pretty much only in the -- for lack of better terms again the back office of the GI where they are cleaning things and not in the action part, where they are doing things. As opposed to our other business where we are both in SSD and surgical suite, so do think those will have a longer-term product development and revenue/sale synergies. We would have going forward been investing more money to grow sales force more specific to G.I., had we not done this deal. So there is a longer-term sale synergy there. But we have had some successes, I don’t think we’ll go in into individual ones for people recognize that, "Gee, you have STERIS person here and a person from one of the acquisitions," and it is helpful for them to be able to cross those things and we think we’ll see more of that. But it really is continuing to fill those areas in the hospital or in the GI suites where we are -- where we already had presence and we’re growing that presence.

Okay. Then on the cash flow, I have questions on that. The improvement in the inventory and the days receivable, Mike, could we attribute that to improvement in core STERIS or was there sort of some low hanging fruit in the acquired company that you’re able to affect the quick working capital fix to improve the DSO in the inventory turn?

Yes. Most of that, Bob, was attributed to core STERIS and if you look at our working capital improvements, the one thing I would definitely highlight is our DSOs. We’ve done a very nice job of reducing our DSOs. And if you remember, we talked about some large collections that we had in Spain during the first quarter that improved our European collection efforts and then also within the U.S. as we gotten through a lot of the SYSTEM 1E issues, our collection efforts have definitely improved. So we really haven’t seen much improvement on the acquired businesses at this point in time, although their collection efforts are good. They have not really shown much benefit to us to dramatically change. So it’s more core STERIS. And then on the inventory standpoint, we did take in about $15 million of inventory from the acquired businesses. But really the benefit that we’ve been given is as you recall during the transition of SYSTEM 1 and 1E, we chose to build inventory for more safety stock, if you will, to make sure that we were not hold up as we delivered SYSTEM 1E units to our customers. So that has been brought down significantly. So the combination of those 2 have really help improved our free cash flow for the year.

And as we think about and I understand, that so you’re not making projections beyond fiscal ‘13, but you presented 2 free cash flow numbers and both are accurate for 2013, one without the Rebate program in the tax and the other with? As we think about how you might grow free cash flow from 2013, which of those numbers, which was the base that they you want us to focus on?

Well, obviously we presented both numbers because there is such a large, almost a $17 million impact on our free cash flow because of the payments we are making from both the Rebate program and the class action settlements. So we wanted to specifically bifurcate those and show everybody the impact. So I would say, if you look at those excluding the SYSTEM 1 Rebate and class action, that’s what I would be focusing more on and that’s the $133 million that we have provided in our comments or my comments.

And then one final question on the cash flow, you’re recognizing, what look to be a very impressive improvement in the working capital. Are you at a point of that momentum where the improvements can sort of repeat themselves or you’re going to have an equal improvement beyond this year or whether some quick things that could be fixed are fixed and that makes the further improvement bit more difficult for next year?

Obviously the 2 improvements I talked about the DSO and the SYSTEM IE inventory. I wouldn’t call them quick fixes by any means. We’ve been working very hard at both -- driving both of those improvements. But obviously we do have some further improvements, as we look to next year as our in-sourcing comes on hand and we have the opportunity to potentially further reduce our inventory. And then obviously with the acquisitions, hopefully, we will be able to aid them in improving their cash collection efforts. So I would think that there is still some improvements. Now again, it will vary quarter-to-quarter but looking longer-term, we feel very good about our ability to generate free cash flow.

And I would add. We have discussed kind of a longer-term view of that, and we said that we are kind of targeting in the $125 million to $150 million range of free cash flow. If you exclude these kinds of -- I hate to call things one time, but discrete -- let’s call them events. But if you separate that out we are thinking at $125 million to $150 million range. We do think -- firstly, on the DSO side we are pretty attractive DSO and we operate in some places where that’s not normal. And so, I think our opportunities on the DSO side were probably not as great as potential opportunities on the inventory side as you look at those things. But we keep working everything down, that’s part of the objective.

And then just one final question. Just remind us where the medical device excise tax is included? Is that SG&A?

We have chosen to include the medical device tax in our cost of goods sold, and it will be represented in the fourth quarter and going forward in cost of goods sold.

Greg Halter from Great Lake Review.

We got to add an "s" to those lakes. Just wondered if you could comment on your facility down in Mexico and what’s going on there and what you see going forward from that plant?

There is not a great deal to comment on. Those are operating well. I would not characterize anything radically different from that plant to our other factories. So it’s been about 5 years now basically since we cranked it up. And as you know we had some start-up issues 5 years ago. But since certainly in last 3.5 years, that’s been a very stable environment. Things are going well, no issues. Every plant has its day and one operating issue -- one operating issue good or one operation issue bad. But there is nothing really to speak up on that plant that I would differ from the others.

All right. And as you elaborated, your capital spending will be up this year. I think you said $95 million is the plan for the year, which is somewhat above what you’ve done historically. Just wondered if we can expect -- I know you are not going to give guidance, but going forward if that number is something -- and I know you have the acquisition as well. But is that 95 number a new base to build off of or it’s just an unusually high year?

I hope it is because those investments that we are making are we think good money-making investments. We are doing several things simultaneously. I think it’s probably unlikely that we would have every year at that level. But where we do any acquisitions, we’ll add obviously some capital spending. That’s probably -- at a steady state basis that maybe a little high. But we continue to push our guys to look for opportunities to invest in the business first. And to the extent they do that. I would be thrilled to spend $95 or $100 million every year as long as we get the returns on it that we expect. And I suspect that might be a little high.

Okay. That certainly sounds good, especially with the low-cost of borrowing these days. One last one for you. Definitely, I have to give you congratulations on the fortitude in the Life Science business. I think there was a time 5 to 7 years ago when pieces of that were sold, and I think you were trying to sell other pieces from that. But wondered if relative to Life Science and the other 2 divisions, if you can give your -- what you see happening there maybe over the next 3 to 5 years for each one of those business and I think you touched on them briefly. But just wondered if you could the elaborate on where you see those 3 businesses going.

I assume you are saying, Life Science, Healthcare and Isomedix.

That is correct.

Yes. I think I have touched on Healthcare pretty much, but obviously there is a reasonable amount of uncertainty and turmoil in the Healthcare business, not our business but the healthcare business broadly as everyone tries to figure out exactly how the Affordable Care Act is going to -- Accountable Care Act, excuse me, is going to affect the system. And so as a general statement if you watch the hospitals and the surgery centers, so go they, we will tend to go slowly because we serve them and we are at their pleasure and at their leisure. And it’s our hope that they will do well and find ways to do well. We think they will and we will follow them. There is no question in my mind that the next 10 to 15 years there will be significant demand pressure on the system. And we think demand pressure on the system is good for us and now I’ll speak broadly about all 3 businesses. It’s good for all 3 businesses. Isomedix serves largely speaking the medical device industry and the volume of medical devices and procedures is what drives their business. If you go deep in the fundamental level, that’s what drives that business. My personal view is that volume is going to be strong. People like myself, who were kind of in the middle of the baby boom age are entering the time when we spend lot of money on things like implants and stents and various others fantastic devices that our compatriots make and we sterilize for them. So we see that demand not letting up. I fully expect to be price pressure in those arenas. We with everybody else will have to work on those price pressures. But there has been price pressures for a…

[Operator Instructions] Mitra Ramgopal from Sidoti.

Just a couple of quick questions. First on the medical device tax, I think annualized it looks like it’s going to be about $0.12. I was just wondering if there is anything you can do to help maybe mitigate some of the impact. I know we’ve been hearing about some manufacturers try to implement price increases for one, I don’t know if that’s an option available to you?

I’ll step up back in the device tax and generally, you know from our previous comments and we think that tax is bad policy. We have been working with Advumen [ph] from time zero, as well as other organizations who view this as bad policy. We are still hopeful that we’ll wake up and realize that someday, and reverse that policy. But at this point, we are in the mix and we’re paying it and away we go. That is a cost like every other cost in our business. And when we wake up one morning and one of our, price of screws go up, it’s kind of hard to run your customer and say, "Gosh, the price of screws went up, we want to raise our prices." They are resistant to price increases and many of our products we have long-term contracts. So quite clearly when, again, one of our component cost goes up, we are -- we would love to be able to just say, "Hey, why don’t we just pass that straight through to the end user." But they appropriately think that it’s our job to try to mitigate that cost at other places. So -- and I don’t see a line item, "Oh, gee I’m going to send you a 2% price increase" happening in this business in general or with us specifically. So we will be doing the same things. I think virtually everybody is doing. We look more carefully at our costs. We will be considering our hiring programs. We are considering other ways to make our businesses more efficient. We’ll be considering investing in and growing in places that do not have a device tax, which means outside the United States, and we will be looking at our long-term pricing, all things together. So I think, that’s unfortunate for the industry for the business and my personal view is, it’s not good tax policy. I think, clearly the industry feels that way. But we will do all the things one normally does when a component of its cost rises.

This is very helpful. And quickly on acquisitions, I know 3 you did recently. You’ve been working out very well? As you look at the potential pipeline going forward? I just wondering if the focus is pretty much going to be in U.S. and also if it’s going to be more case of tuck-in acquisitions in terms of your existing lines or you’re going to potentially consider entering new areas?

Yes. I think, I have been fairly consistent on what I call acquisition policy. We certainly not limited to the U.S. You may recall we bought a business in Brazil about 1.5 years ago, or 2 years ago, maybe. So we clearly are looking outside the U.S. we continue to. Because we are at this time 75% of our business roughly is in the U.S. and when you’re looking for things that are tangential or where you have a channel and you want to put another product into that channel or those kinds of things, it’s obviously easier to find those where you already are. But you are also looking for extensions into other places. So -- when I'm saying other places, meaning geographic extensions and so we could easily do things outside the U.S. At the highest level, it is highly unlikely that we will go off and do something with a bunch of customers we don’t know, with the product we don’t know. We will be far more interested in doing something where we know the customers, know the space and then are bringing new products, or different product or added products, I want to say that to that space. If we have other ways to where we can move our current products into a different channel, we do that, that Life Sciences is the classic example there. So the general answer is, we will continue to look at tuck-in kind of acquisitions and acquisitions where there are things where we are applying something we already know and not trying to learn something absolutely new.

I show no other questions at this time. I’ll turn the call back for any closing remarks.

This concludes our call for this morning. Thanks everybody for joining us and we’ll talk to you again next quarter.

Thank you for participating. You may now disconnect.