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Zimmer Holdings (NYSE:ZMH)

Q2 2012 Earnings Call

July 26, 2012 8:00 am ET

Executives

Robert J. Marshall - Vice President of Investor Relations and Treasurer

David C. Dvorak - Chief Executive Officer, President and Director

James T. Crines - Chief Financial Officer and Executive Vice President of Finance

Analysts

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Matthew Taylor - Barclays Capital, Research Division

Matthew Keeler - Crédit Suisse AG, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Chris Hammond - Goldman Sachs Group Inc., Research Division

Steve Beuchaw - Morgan Stanley, Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Operator

Good morning. I would like to turn the call over to Bob Marshall, Vice President, Investor Relations and Treasurer. Mr. Marshall, you may begin your call.

Robert J. Marshall

Good morning, and welcome to Zimmer's Second Quarter 2012 Earnings Conference Call. I'm here with our CEO, David Dvorak; and our CFO, Jim Crines.

Before we start, I would like to remind you that our discussions during this call will include forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties. Please refer to our SEC filings for a detailed discussion of these risks and uncertainties.

Also, the discussions during this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the earnings release, which is available on our website at investor.zimmer.com.

With that, I'll now turn the call over to David Dvorak. David?

David C. Dvorak

Thank you, Bob. Good morning, everyone, and welcome to our earnings call for the second quarter of 2012. This morning, I'll review our second quarter financial results, providing commentary on the year's progress to date and highlights from our performance. Jim will then provide additional financial details. I'll state all sales in constant currency terms, and I'll discuss all earnings results on an adjusted basis.

Consolidated net sales for the quarter were $1,125,000,000, an increase of 1.8%. And our earnings per share were $1.34, an increase of 10.7% over the prior year period. In the second quarter and for the first half of 2012, Zimmer delivered improved operating margins and earnings growth. The company continued to make meaningful progress in our commercial and operational excellence programs, delivering savings in line with our long-term goals.

Compared to prior year, we experienced sales growth in all of our geographic segments in the quarter. Americas recorded sales growth of 1.2%; Europe, Middle East and Africa delivered growth of 3.2%; and Asia-Pacific sales grew by 1.6%. Although our Americas growth rate accelerated sequentially from 0.8% in the first quarter to 1.2% in the second quarter, this performance still fell short of our goal of growing all 3 of our geographies at above market rates.

Our ongoing commercial excellence efforts, however, are focused on raising the performance of certain territories in the United States to the level of the many others that continue to perform well and are growing above market. These efforts, coupled with the strength of our current and upcoming new product introductions, give us confidence that we will accelerate our Americas growth rate in the coming quarters.

Our international segments continued to deliver solid results, despite challenging prior year comparisons due to the company anniversarying out of large knee tender in Europe, Middle East and Africa, and the impact of the biannual price reductions in Japan, which became effective in the quarter.

Turning now to our product category results. Knee sales for the second quarter increased year-over-year 0.8%, reflecting positive volume and mix of 3.6%, a negative price of 2.8%. Once again, our international segments contributed solid performances, with Asia-Pacific delivering growth of 5.9% in the quarter.

Globally, we continue to benefit from increased utilization of Zimmer Patient Specific Instruments, for our NexGen and Natural-Knee systems, as well as the Zimmer Unicompartmental High Flex Knee System. These intelligent instrument offerings are competing effectively with other more capital-intensive navigation and robotic systems. We're also highly encouraged by the progress of the limited developer release of our Next Generation Knee System. We look forward to expanding the limited release of this system later this year, which we are confident will significantly accelerate our Knee growth rate moving into 2013.

Hip sales in the second quarter increased 1.9%, reflecting positive volume and mix of 4.6%, a negative price of 2.7%. Here, our Europe, Middle East and Africa segment outpaced the market with growth of 4.4%.

In the quarter, our Hip business once again benefited from strong sales of the Continuum Acetabular System, reflecting continued interest in this differentiated system, which incorporates our proprietary Trabecular Metal technology.

In the quarter, we received FDA clearance for VIVACIT-E, our new highly cross-linked polyethylene formulation, which incorporates Vitamin E technology.

Building on the long-term clinical success of our

longevity highly cross-linked polyethylene, VIVACIT-E is designed for long-lasting performance in patients with the most demanding lifestyles. We're excited to make this latest innovation available to customers in the United States and other key markets around the world.

The introduction of VIVACIT-E further reinforces the productivity of our research and development programs. The material represents a step forward in orthopaedic material science, offering unique anti-oxidant properties for superior wear resistance. We believe that VIVACIT-E will become another premium differentiated platform technology for Zimmer like our Trabecular Metal Technology.

In the second quarter, extremity sales increased 6.4%, including an impressive 21% sales growth in our Europe, Middle East and Africa segment. This improved performance included steady sales of Trabecular Metal products globally.

During the quarter, we introduced Sidus, a Stem-Free Shoulder System in Europe. We look forward to introducing a range of additional products to our extremities portfolio in the coming quarters, including systems for new anatomical sites.

Dental sales decreased by 5.1% in the quarter, while Americas sales increased by 3.6%. The overall performance of our dental franchise was impacted by several factors in the quarter, including softening in certain international markets. The business partially offset these challenges with strong sales of a range of new products, including the Trabecular Metal Dental Implant, the ingenious value line of synthetic bone graft and Zfx Digital Dentistry Solutions, which is now broadly available.

Also in the quarter, the company completed the acquisition of Exopro, a manufacturer of differentiated dental implant products and the P-I Brånemark Philosophy for the Brazilian market. This acquisition strengthens our position in this critically important emerging market.

In the second quarter, Zimmer's Trauma business again delivered above-market sales growth in all of our geographic segments. Sales increased 9.4% over the prior year period, building on a strong performance in 2011.

In the Europe, Middle East and Africa segment, the Trauma business recorded sales growth of 17.2%. Globally, the Cephalomedullary Nail from Zimmer's Natural Nail family continues to be a significant growth driver for the business. We recently expanded our rollout of this differentiated product into several Asia-Pacific markets.

We also recorded steady growth in External Fixation sales from Zimmer's XtraFix system, which is providing entry opportunities for new accounts. Building on the success of this system, Zimmer recently received FDA clearance for a second generation XtraFix system, which is MRI-compatible, an important differentiating feature.

We're confident that Zimmer's Trauma business will continue to build on this momentum, including further success with level 1 and 2 traumatology centers, where the company has been gaining traction.

Zimmer's Spine business reported a sales decrease of 4.5% in the quarter, consistent with a market that continues to face challenges related to reimbursement and pricing, particularly in the United States. However, new products contributed encouraging sales, including the TM-S Trabecular Metal Cervical Interbody fusion device and the InViZia Anterior Cervical Plate System.

We also received FDA clearance in the quarter for Zimmer's Trabecular Metal Ardis Interbody System, another critical piece of our innovative core fusion portfolio.

Zimmer's Surgical and Other Business category again delivered above market sales growth of 8% over the prior year period. Growth in the quarter was primarily driven by our universal power system of surgical power tools and Synvasive line of surgical blades. We've been pleased with clinical feedback from early evaluations of the Universal Power System in the United States, and we remain confident we will continue to gain share in this category. We also recorded impressive sales of wound debridement and bone cement products, and we introduced a new air dermatome system globally in the quarter.

Turning now from our product category results, I'll provide some commentary on the musculoskeletal market more broadly. Through the second quarter, volume trends in the reconstructive market remained relatively stable, with some apparent improvement in the United States, offset by modest weakness outside the United States.

These trends are consistent with our view that procedure deferrals will diminish slowly over time, and that growth rates will improve if they track more in line with historical usage rates among the aging global population.

Market growth dynamics will, however, remain under some pressure from global macroeconomic conditions. In any case, Zimmer is well positioned to take advantage of market opportunities, with recent and planned new product introductions across the portfolio.

We experienced price pressure of negative 2.1% in the second quarter, consistent with our expectations and guidance coming into the year. Recent trends reinforce our outlook that full year pricing will remain at or near negative 2%. However, ongoing financial discipline and progress in our transformation initiatives, coupled with the mix benefit of new product sales contributions, enable the company to expand margins, despite this price pressure.

More specifically, Zimmer continued to make progress on a number of operational excellence programs in the quarter, including consolidated sourcing activities and optimization of the global manufacturing network. Each of these activities targets increased efficiencies, reflecting our commitment to a performance-driven culture across all corporate, operational and commercial functions. The demonstrated savings from these programs validate our ability to expand margins, including more than 100 basis points of improvement in operating margin in the quarter.

Rigorous management of operations and disciplined deployment of capital have provided the opportunity for investment and strategic growth drivers and leverage in the P&L. In the quarter, we returned value to our stockholders through share repurchases and a dividend. We also invested capital in the acquisition of Exopro, and its differentiated dental implant portfolio. This transaction is representative of our strategy to pursue opportunistic acquisitions in existing and adjacent segments within the musculoskeletal sector.

With that, I'll ask Jim to provide further details of the second quarter and our guidance. Jim?

James T. Crines

Thanks, David. I will now review our second quarter performance in more detail, before providing an update regarding our third quarter and full year 2012 guidance.

Zimmer's total revenues for the second quarter were $1,125,000,000, a 1.8% constant currency increase compared with the second quarter of 2011. Net currency impact for the quarter was negative, decreasing revenues by an additional 2.9% or $33.1 million.

Favorable currency impact from our Japanese yen and Chinese RMB-denominated revenues were offset by unfavorable currency impact from our euro, Swiss franc and Australian dollar-denominated revenues.

For the quarter, our adjusted gross profit margin was 75%, which is flat, compared with the second quarter of 2011. Hedged gains offset the impact of price pressure on gross profit margins in the quarter. We expect our gross margin ratio for the third quarter to be in line with our full year guidance of approximately 75%, which is nearly a full point below the prior year third quarter.

The company's R&D expense constituted 5.1% of sales in the quarter, which represented a 0.5% increase when compared to the prior year. Product innovation across the portfolio was a key component of our growth strategy, and we expect to continue to invest in R&D in the range of 5% to 6% of sales for the full year.

Selling, general and administrative expenses were $453 million in the second quarter, a decrease of 3.5% on a reported basis. At 40.3% of sales, SG&A expenses were 100 basis points below prior year. This improvement was driven by the benefits realized from our commercial and operational excellence programs, offset by higher intangible amortization, resulting from our recent acquisition activity. The savings from our transformation and operational excellence programs remain on track to meet our long-term goals.

Consistent with our prior guidance, SG&A as a percentage of sales is expected to be approximately 40% for the full year, as our outlook is updated to reflect savings from our global transformation program. We expect SG&A expense to increase to around 42% to 42.5% of sales in the third quarter, due principally to seasonality. Consistent with prior years, slower procedure volumes related to summer holidays result in a higher expense ratio.

Special items amounted to $31 million in the quarter. The majority of these costs related to our global transformation program, including supply chain and quality initiatives, as well as integration costs associated with the Beijing Montagne Medical Device Co., SoPlus Power Equipment and Synvasive Technology transactions.

Adjusted operating profit in the quarter increased to $333.6 million, representing a profit margin ratio of 29.7%. This ratio is 100 basis points higher than the prior year second quarter, driven by SG&A favorability.

Net interest expense for the quarter totaled $14.4 million compared to $9.8 million in the second quarter of 2011. This increase resulted from the $550 million senior notes offering issued in November 2011.

Adjusted net earnings were $235.6 million for the second quarter, an increase of 1.4% compared to the prior year. Adjusted diluted earnings per share increased 11% to $1.34 on a 176.2 million average outstanding diluted shares. These adjusted earnings per share are inclusive of approximately $0.06 of share-based compensation, at $1.22. Reported diluted earnings per share increased 15.1% from the prior year second quarter reported EPS of $1.06. Reported diluted earnings per share for the second quarter included inventory step-up and special items.

Our adjusted effective tax rate for the second quarter was 26.4%, which is below our full year guidance and represents a decrease of 10 basis points from the second quarter of 2011. Our reported effective tax rate for the quarter was 25.6% and is below the adjusted rate due to the higher statutory rate associated with special items. Our guidance for the full year effective rate remains at 27%.

During the quarter, we repurchased 1.7 million shares at a total purchase price of $107 million. As of June 30, 2012, approximately $1,252,000,000 remained authorized under a $1.5 billion repurchase program, which expires at the end of 2014. The company had approximately 174.6 million shares of common stock outstanding as of June 30, 2012, down from 190.4 million as of June 30, 2011.

Operating cash flow for the quarter amounted to $232 million, down 8% from $251 million in the second quarter of 2011. The decrease in operating cash flow compared to the prior year was due to increased inventories, associated with ongoing new product introductions and an increase in accounts receivable. Adjusted inventory days on hand finished the quarter at 306 days, a decrease of 1 day from the second quarter of 2011 and an increase of 13 days over the first quarter 2012.

Days sales outstanding in the quarter were 72 days, an increase of 4 days over the prior year quarter. As noted in the first quarter, the increase in days sales outstanding is largely due to our diversified geographic mix of sales, as well as increases in certain Southern European hospital accounts.

We continue to monitor the financial crisis in the Eurozone and the indirect credit exposure we have to those governments through their public hospitals. Subsequent to the quarter, we received significant payments relating to Spanish public hospital receivables, which will be reflected in our third quarter 2012 cash flow statement.

Depreciation and amortization expense for the second quarter amounted to $93.4 million. Free cash flow in the second quarter was $164 million, $31 million lower than the second quarter of 2011. We define free cash flow as operating cash flow, less cash outflows for instruments and property plant and equipment. This change in free cash flow is a result of the increases in inventory and accounts receivable as noted earlier, as well as investments in the machinery and equipment required to support the impending launch of our new Knee System.

Capital expenditures for the quarter totaled $64 million, including $39 million for instruments and $25 million for property, plant and equipment. Cash outlays associated with investing activities during the quarter include $19 million for acquisitions, including Exopro.

I will now provide an update to our guidance for the third quarter and full year 2012. In our earnings release this morning, we announced that the company is updating its reported revenue guidance and narrowing its constant currency revenue and EPS guidance for full year 2012. We now expect full year revenues to increase between 2.5% and 3.5% in constant currency when compared to 2011.

Our sales guidance reflects an acceleration in constant currency growth in the second half, driven by ongoing new product introductions and new releases. Assuming currency rates remain at current levels, we anticipate foreign currency translation will decrease our reported 2012 revenues between 2% and 2.5%. On a reported basis, our revenues are now projected to be between 0% and 1.5% above 2011 results.

For purposes of updating your models, you should be aware that the anticipated effect of foreign currency translation on revenue is more pronounced in Q3, when we expect it to decrease revenues by 3.5%. In the fourth quarter, foreign currency translation is expected to decrease revenues by approximately 2%.

Additionally, when we factor in the timing of our new product instrument set releases and inventory deployments, as well as billing day differences in our largest geographic segment, we expect lower revenue growth in the third quarter compared to the fourth quarter.

Revenue growth on a constant currency basis is expected to be at the midpoint of our full year range in the third quarter and above the high end of the range in the fourth quarter. Taking these factors, in addition to seasonal revenue and expense patterns into account, diluted earnings per share for the third quarter are projected to be in a range of $1.10 to $1.15.

Full year 2012 adjusted diluted earnings per share are now projected to be in the range of $5.25 to $5.35. To arrive at GAAP earnings per share, you should subtract total charges for special items of $125 million pretax or approximately $0.50 per share.

Finally, please note that our guidance does not include any impact from potential acquisitions or other unforeseen events.

David, I'll turn the call back over to you.

David C. Dvorak

Thank you, Jim. Zimmer's second quarter performance demonstrated continued progress against our financial targets for the year, including expanded margins and earnings. As we move into the second half of the year, we're confident that ongoing new product introductions will help accelerate top line growth. We will continue to sustain our earnings growth through progress in our operational excellence programs, which to date, have generated savings that are on track with our long-term goal of $400 million by 2016. These activities will continue to support our commitment to provide increased value to our stockholders through progressive industry-leading operating margins and financial leverage in 2012 and beyond.

And now, I'd like to ask Christie to begin the Q&A portion of our call.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Mike Weinstein with JPMorgan.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

It's Kim Gailun in for Mike. The first one for us is on the guidance. So you are calling for an organic growth pickup here in the back half of the year. And as we look at the model, your comps eased a little bit, but it's really not significant. So I think it'd be helpful if you could walk through some of the products that you really think can drive that organic growth acceleration in the back half. It sounds like it's particularly in the fourth quarter. So maybe with that, with the impact of -- I think you cited extra selling day or days in the fourth quarter.

David C. Dvorak

Yes. I think that there's a mix of selling day changes within the third quarter, where we pick up outside the U.S. and lose a day within the US. And I think that we're in a pretty steady state in the fourth quarter, with respect to selling days, Kim. But for us, in the second half, it is about executing the opportunities that we have on the new products. And some of the drivers for that will include, on the Knee side, the intelligent instruments. We continue to have nice traction with our PSI technologies for our Total Knee Systems, as well as for our Uni Knee System Zuck [ph]. We're doing really well with the eLIBRA Knee Balancing System as another interoperative intelligent instrument. And then if we get to the back half of the year, the back quarter, Q4 that is, we'll start to see some initial traction from our Next Generation Knee System that's going to become meaningful in 2013, but we look to get a bit of a lift in Q4 from the beginnings of a fuller launch of the Next Generation Knee System. On the Hip side, VIVACIT-E, the cross-linked polyethylene that I described, is a big opportunity for us. We think that this is a differentiated technology that will become a platform technology. And we're really excited about the testing and the initial receptivity to that technology that we'll be leveraging across our portfolio, in time. Extremities, the Sidus Stem-Free Shoulder is going to drive nice growth outside the US marketplace. Trauma, Next Generation External Fixation System, XtraFix, is going to help on that side. We continue to do very well with our ZNN family of nails, as well as our NCB Periprosthetic plating system in Trauma. Spine, the InViZia Cervical Plate is showing nicely. We continue to do well with our MIS applications of the Pathfinder NXT. And then most recently, the clearances of a couple of different lines for different anatomical sites of the TM Interbody systems are diving nice growth, and that's a differentiated inner body technology as part of our core fusion offering. Dental, we are now at a broad rollout of the Zfx Digital Dentistry Solution, and we're moving to a broader rollout of the TM Dental Implant, that's the Trabecular Metal Technology incorporated into a premium dental implant. And then finally, on the Surgical side, the SoPlus line of power tools and the Synvasive line of blade technologies. So all of these products are cleared and in the process of being launched. And I would tell you that we're hitting our milestones. That we're part of the plan coming into the year. So we feel really good about the projection that we provided at the beginning of the year, that we would be able to launch these new systems, build the inventory and the instruments necessary and begin to see top line growth acceleration, driven by these product launches in the second half of the year.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Okay. Great. And just to be clear, the -- so what you're saying on the selling days is there's actually not a difference in the third quarter, but there's a mix difference, where you pick up one day o U.S., you lose a day in the U.S., and the fourth quarter is steady state.

David C. Dvorak

That's really true, overall.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Okay. And then just a follow up in terms of your intelligent instruments. Can you confirm -- have those been approved then for both Knees and Hips? And what's the launch timing on those?

David C. Dvorak

The intelligent instruments are primarily focused at this point on the Knee category. So both the PSI technologies and the eLIBRA that is a Knee Balancing System. So, focused on knees, but you should expect to see other applications of those intelligent instrument technologies across various anatomical sites coming from us before too much more time passes.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Okay. Yes, so I was referring to those smart tools that you showcased at AAOS.

David C. Dvorak

Yes. Smart tools were in a limited release phase. And in some instances, those are o U.S. releases. But again, you'll be seeing those in the coming quarters for sure within the United States market.

Operator

Your next question comes from the line of Bob Hopkins of Bank of America.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So 2 questions. First, on U.S. recon. Your results here were a little bit lower than I thought they were going to be in the terms of the organic constant currency gross rates, based primarily on what we saw from Biomet, J&J and Stryker. So I just wondered if you could give us a little more color on the U.S. Hip and Knee results. And do you think you're losing a little bit of share? Was there something going on in the quarter that was unique? Just flesh that out a little bit more for us.

David C. Dvorak

Sure, Bob. We're very pleased with the performance of many of our sales territories in the United States. They're growing at or above market rates and have been doing that consistently. I would tell you that there are certain other territories that are lagging market growth, and we've already made some changes in those markets, including in instances, leadership changes or allocating more resources. So some of that involves disruption, when you make those changes. But we're very focused on ensuring that we're well positioned across that entire channel, Bob, to exploit these new product introductions. And so, we've been aggressive about driving the performance standard at a very high level. And in an instance where we didn't think we're going to get what we need to get out of those territories, we changed our leadership and made adjustments as necessary. So that'll take some time, but those are actions that have been ongoing. And I would expect to start to see some improvements maybe not so much in Q3, but in Q4, certainly, in those underperforming territories. And outside the United States, we feel really good about what's happening and the job that our leadership is doing to take advantage of growth opportunities or to find growth opportunities in markets that are struggling, frankly, including throughout Europe, Middle East and Africa.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

The leadership changes in the U.S., could you just -- I mean, if you're willing to provide any more detail there, that would be helpful, like when did those take place? And did you make distributor changes, or are these just individual field leadership changes? Just any more detail there would be helpful.

David C. Dvorak

Yes, Bob. I mean, we're not going to go into a lot of granularity with that, but it's a combination. I mean, these are -- this is part of the ongoing management of the business. And so, some of these changes would date back a year, some of them more recently. The model structure varies depending upon the opportunities and the talent that we have in a particular jurisdiction, so it's a mix of timing and approaches. But the consistent denominators across all those channels is it's going to be a performance-based structure. And we expect to drive growth at or above market in each of these territories. And if we don't see the right things happening to achieve that goal, then we're going to figure out what adjustments need to be made to get there. And I'm very confident that we're going to be able to drive improvement. And I know that the new product introductions are going to enhance the pace of the improvement.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Great. And then just Jim, can you give us a little more color on the Q3 to Q4 EPS mix? Listening to a couple of different things, I think you gave EPS guidance for Q3 that's a little bit below what's in our current model. And just if you could provide a little more detail to get us comfortable with the shifting around of earnings between Q3 and Q4.

James T. Crines

Sure. With reference to what's out there in first call. I understand the guidance, we'd give $1.10 to $1.15 for Q3 is a bit below. But frankly, if you go back over the past couple of years, it's typically the case that the analyst community understates seasonality. We have significant market share in Europe. And we have -- we see significant seasonality in the business in that particular geographic segment that leads to much higher SG&A ratios in the third quarter relative to what we're projecting for the full year that often gets kind of understated in the analyst projections, since we're not giving quarterly guidance at the begin of the year. And then the other thing I would just highlight is if you look at the guidance that we've provided throughout the year on gross margin, we hit a high-water mark in the third quarter of last year on gross margin at 75.8%. So a combination of maybe the analyst models understating seasonality and that -- the headwind on gross margin, with respect to what we're forecasting, what we have been guiding to this year, relative to what we saw in the third quarter of last year. Is what leads us to provide that more specific guidance that we provided here on this call.

Operator

Your next question comes from the line Joanne Wuensch with BMO Capital Markets.

Joanne K. Wuensch - BMO Capital Markets U.S.

Could you please tease out a little bit what's happening in the international market, particularly in Europe? Between austerity measures, broader European slowdown and the euro?

David C. Dvorak

You're asking us to solve a problem that a lot of smart people have been focused on for some time. I would tell you that as all those macroeconomic conditions impact our business, there are a lot of developed markets throughout Europe, Middle East and Africa that are tough markets right now. I think, among the largest developed markets in the EMEA segment, probably the UK is the only jurisdiction where I think we're seeing positive growth on the large joint side. Market-wise, we're driving growth in markets that are flat or slightly negative throughout those developed markets in Europe, Joanne. So it's a tough market. You're going to have a lot of dynamics going on, as they attempt to address the debt crisis that they're operating under. And so there are pullbacks and procedures, there's, obviously, price pressure that comes along with the austerity measures that they're looking to drive. But I feel absolutely terrific about the job that our team is doing there. We have really good momentum in those businesses. And so that team is to-date, able to go find growth where the market is not handing it to them. And we want to continue to support them and keep that momentum going, because those are complicated markets. There's a consistency, obviously, in language and otherwise across the market like the US. Not that all territories are the same, but you get into the complexities of a European set of businesses, and each of those markets is different and the languages and the cultures, obviously are different. And the job that our team is doing there to pull all that together and drive the growth that they are is really commendable.

Operator

Your next question comes from the line of Matthew Taylor with Barclays.

Matthew Taylor - Barclays Capital, Research Division

Just wanted to hit on pricing quickly. I appreciate the color that you gave. Can you parse out how much Japan impacted pricing in the quarter? And give a little color for Hips and knees in developed markets versus the rest of the business.

David C. Dvorak

So the step down in Asia-Pacific that is principally driven by Japan sequentially was from Q1. We had negative price of 0.7 to Q2, negative 2.8. And then some of that decline in price in Asia-Pacific that was driven by the biannual price adjustment in Japan, Raj [ph], was offset by modest improvement in both the Americas and the European segment.

Matthew Taylor - Barclays Capital, Research Division

Great. And just on your operating margin improvement, with the ongoing restructuring. Can you help us in terms of how you think about your programs offsetting price and some other headwinds going forward in terms of the improvement we could can see through the rest of the year? And if you want to give any color on future periods, that'd be great.

James T. Crines

Yes. Without, Matt, getting into guidance for 2013, I'll share with you what we have provided publicly at this point on the restructuring and transformation programs, I think as many know, is coming into the year. We talked about an expectation that what we'll get done this year will drive about $80 million in annualized pretax savings with $30 million to $40 million of that to be realized this year. We expect those benefits to be somewhat evenly distributed between cost of goods and SG&A. The -- we've targeted $400 million by 2016, as David indicated. And as I indicated in my -- in our remarks, we're on track. We believe with what we've achieved to-date, and what we have visibility to going forward to achieve that. Those savings do build somewhat evenly over time. We've said that in the near term. And again, the $400 million of savings is calculated off of 2010 base. And we said that again, the savings would build evenly over time. In the short term, say 2011, maybe the first quarter of 2012, those savings were getting reinvested at a perhaps a higher pace than what we're likely to see going forward. Going forward, the only other thing I would mention is that we understand that we have to fully -- we're going to have to use these savings to fully offset the medical device tax in 2013. So the opportunity, if you will, to drive positive leverage in operating earnings is not going to be as great in 2013, given the fact that we're going to have to use the savings to offset the medical device tax.

Operator

Your next question comes from the line of Bruce Nudell with Credit Suisse.

Matthew Keeler - Crédit Suisse AG, Research Division

This is Matt in for Bruce. So, I guess, just to follow up on the market share gains that you've seen in EMEA in Hips and Knees. I mean, do you have a sense of what specifically is driving that outperformance? And was there any benefit in the quarter, either in EMEA or Asia, Hips and Knees from distributor acquisitions?

David C. Dvorak

The answer is no to the last part of your question, Matt. And this is an execution game. It's the same generally product portfolio that is available across our global markets. And our o U.S. teams, as I've said, have good momentum, are executing very well. These are very experienced sales teams. And I'll tell you, we've been focused on continuing to make investments and grow our market share in the developed markets. We've taken advantage of some product opportunities that we've had and done very well on the commercial side in those instances. And then where there's been disruption within the marketplace, those teams have been in a position to identify those opportunities early and seize the opportunities. And so it really is a commercial execution story.

Matthew Keeler - Crédit Suisse AG, Research Division

Okay. And then can you give us a sense of the contribution from mix in Hips and Knees in the U.S. and EMEA?

James T. Crines

We don't break the Hip mix apart. We -- I think David referenced if you go back to the script, he comments with the combination of volume mix. Contributions were by franchise, so that, of course, it's data that we provide with you on the call, we'll provide in our periodic filing. What I will say is we know if you look across the franchises, the mix benefit reflected in our large joint categories is perhaps more modest than what you may be seeing relative to some of our competitors, just given where we are with some of these new product launches. That changes going forward and is one of the things that leads us to have the confidence that David expressed in the acceleration of growth in future quarters. Particularly, as we get into the launch of the new Knee System, the launch of the new Vitamin E technology in Hips.

Operator

Your next question comes from the line of Matt Miksic with Piper Jaffray.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

So I wanted to comment just, I guess, some of the cost controls in the quarter. Jim, you talked about -- at least relative to our estimates, you mentioned the top line, I think you mentioned EPS, sort of some color and directional guidance here for Q3 and Q4. How much of these -- and I guess, what should we expect in terms of movement, if there is to be any movement between Q3 and Q4 around the SG&A line, for example, or maybe R&D?

James T. Crines

Sure. I would focus on the SG&A line, because not only is it affected by the savings that we're driving for the programs, but it's also affected in a very significant way by seasonality in the third quarter. We -- I think I gave guidance in my scripted comments on third quarter SG&A, an expectation that -- which should be somewhere in the range of 42% to 42.5% in the third quarter, which is still well below what we experienced in the third quarter of last year. I haven't given -- and then the other guidance we have provided and consistent with what we said and going back to the first quarter is that our -- we have an expectation that SG&A for the full year will come in around 40% of sales. So what we've already reported for the first half of the year, the guidance we've given for the third quarter. You can figure out what that translates into in terms of a fourth quarter expectation. I think what you'll find is, again, a significant step down in spending as a percentage of revenue relative to the prior year.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Okay. That's helpful. And then I guess, you talked, David, a bit about your expectation that deferrals will continue to decline here in the Ortho market, Hips and Knees recon, generally. Maybe -- what gives you the confidence? Or what are you seeing -- you've mentioned some sequential improvement in Q2. So what gives you the confidence? And then also, maybe if you could give a sense of where the -- sort of where this run rate can go back to? Where do volumes go back to? So if we think about, maybe volumes x price and mix, where the market could go to over the next -- I don't know, however long as you like to give.

David C. Dvorak

Okay, Matt. Sure. I think that what you see, even in these challenging economic times, is that demand is still out there at the patient level, right? And so we've seen some ups and downs in the last 3 years across different geographies as national health care systems or unemployment and access to private insurance regulate the ability for patients that are in need, because they're in the advanced stage of osteoarthritis for a joint replacement to get access to that care. But the thing that doesn't change is the aging population and the fundamental need, and frankly, trust in these solutions. So this particular quarter, that is Q2, it's pretty apparent that the U.S. large joint market stepped up sequentially from Q1. And we noted the improvement on the Knee side in Q1 sequentially off of Q4 of 2011 when we spoke last quarter. At the same time, though, it looks like, to us, the o U.S. markets, not our performance, but the markets, stepped down. So I think that, that's what happened -- is o U.S. stepped down a bit, U.S. stepped up a bit and ends up being sort of a wash. I think that's what we should expect to see is that different points in time across the global marketplace, there are going to be some recovery periods, and then there could be some retreats from those recoveries, because we're continuing to operate in a pretty unstable economic period. As far as the long-term growth prospects, again, I think that this is a 3% to 5% procedure growth market on a more normalized basis. And those numbers are really just driven by the aging patient population. So -- I think that it's going to continue to be a market with some ups and downs, but it's going to wash out across the global market. The opportunity is out there, and at some point in the future, you know the world better than we do on the economic side. There will be a stabilization, and we'll get back to a more consistent, normalized procedural growth rate.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

That's very helpful. And then if I could, just one -- I've been hopping back and forth between the calls here. I wasn't sure if anyone asked this, but Kinectiv and the modular stem, there was a recall. One of your competitors asked some questions in that past month. Maybe, is this a category issue? Are there charges related to these category stems? If you can maybe talk a little bit about -- if you haven't already, and I apologize if you have -- how you're different and whether you see kind of any splash over of that event into your Kinectiv line?

David C. Dvorak

This is technology that we worked a long time to develop. And we do believe that the Kinectiv Technology is unique in its ability to perform well as a modular neck solution. So some of the areas, features, differentiators that we believe people ought to focus on are in the context of the Kinectiv System. The necks are titanium and are only used on titanium stems. These necks also have specific unique design features that reduce stresses and lower the likelihood of fracture. These are also systems that have been tested under standards that we've used for a long time, and those standards, we believe are very clinically relevant, and frankly more stringent than the ASTM or ISO requirements. There's a proprietary surface treatment that we think is beneficial to the effects on strength, as well as biological interaction. And then design -- and the design and testing of that system going back a number of years, we drew a line and made sure that extreme sizes were not developed into that system, because we weren't comfortable that at some extreme level the stresses wouldn't compromise the performance of the system. So we think that this is a project that long ago we got right. And in fact, we documented a lot of this clinical work in a white paper that was authored, I don't know, 5-or-so years ago and republished more recently. And that is a paper that's available on our website, and it's entitled Performance Evaluation of Kinectiv Technology. That's where you can find the information on the website. So we've seen good performance with this system, believe in the technology, think we got the design and the development right. Obviously, with any of these systems, we're going to be very active about monitoring the continued performance. But at this point in time, we continue to trust in the performance and clinical efficacy of the system.

Operator

Your next question comes from the line of Derrick Sung with Sanford Bernstein.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

David, I just wanted to follow up on the last comment that you made first on procedural growth being, in your opinion, kind of normalized in that 3% to 5% range over the long term. If I think about that, and I think about pricing kind of a net negative 2% to 3% range, that puts overall market growth in kind of that flat to low single-digit range, that's what we saw in Q1 already. So I guess, my question is are you sort of implying that -- or would your comments imply that we're kind of already at that normalized growth rate? Or how do I think about that?

David C. Dvorak

I think you're at a -- on a global basis, probably at the low end of a range of what normalized growth rate would look like. I think that the opportunity, dependent upon where different companies are and product release cycles, is mix on top of that. And that's going to be dependent in the coming years as to how good of a job all the companies in this space do with respect to innovation and ensuring that we're providing better patient solutions and yet addressing some of the cost pressures that the customers are going to continue to be under as more and more patients come through their system and any funding mechanism whether it's national or private pay is trying to shoulder the burden of the aging population and the healthcare reform drivers that are going to come along with that. So like I said, I think it's a 3% to 5% range. I don't think that we're completely at a normalized level even for procedure rates across the globe. I think that can tick up, but I also think that there's more mix out there with the right innovation.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay. that's helpful. And maybe if I could just spend a little bit time following up on pricing as well. I understand that we can see that pricing was relatively consistent on a total company basis between Q1 and Q2, and you mentioned the impact of Japan. But when we specifically look at Hip and Knee pricing, we did see sort of pricing pressures increase by 30 to 40 bps in both Knees and Hips. Could you maybe specifically talk about what's driving that increased pricing pressure in Hips and Knees? Is it just Japan, or is there something more beyond that?

David C. Dvorak

It's Japan

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

And so in the U.S. and Europe, pricing in Hips and Knees is essentially constant?

James T. Crines

Derrick, this is Jim. In actual fact, the price declines moderated somewhat in Hips, specifically the U.S. in the second quarter. That's clearly getting masked by the increased pressure with the reductions in reimbursement prices that took place in Japan on April 1. So all in all, as David said, the trends we're seeing are very consistent with our expectations coming into the year, notwithstanding the fact that the Japan price cuts were a bit more severe than we expected. But again, there were some positive developments in the second quarter, relative to the core large joint franchises.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And if I could just sneak in one quick one. Can you give an update on your total ankle replacement and the timing of that launch? I didn't hear you mention that in your update on sort of the extremities products moving forward.

David C. Dvorak

Yes. It has not been cleared at this point in time, but when we talk about offerings within Extremities that are upcoming, including addressing some needs in other anatomical sites, that's part of what we're referring to. So more to come on that.

Operator

Your next question comes from the line of David Roman with Goldman Sachs.

Chris Hammond - Goldman Sachs Group Inc., Research Division

This is Chris in for David. Thank you for taking the questions. My first question stems from kind of a high-level strategy standpoint. I was hoping that you could just give us -- well, given the current market share trajectory, I was hoping that you would be able to reconcile some of your thought processes first on the commitments that you've made to cutting costs and generating operating leverage versus the need to invest more in sales and marketing and reinvigorate the top line. Just kind of your thought process on how we should think about that going forward.

David C. Dvorak

We think we can do both. The areas that we're focused on for transformation principally start with strategic sourcing in our manufacturing operations, Chris. And there are significant opportunities in those areas. So we're going to be able to repurpose dollars through savings that are -- the flow from those transformation initiatives and continue to make the right investments in the research and development, as well as expanding our global footprint on the sales side. And I think what you'll start to see in the second half of the year is that those strategies come together, and you will see accelerated top line performance and disciplined management of SG&A at the same time as we start to get payback from some of the past investments that we've made in that regard. So right now, those transformation effort benefits are getting reinvested in those strategic growth drivers. But as Jim has said, over time, we're going to be able to drop more of those things to the bottom line in the course of that 5-year program. So we're going to be able to do both, accelerate the top line and show you better leverage in our P&L.

Chris Hammond - Goldman Sachs Group Inc., Research Division

Right, certainly. Given the timeline for a lot of these products rolling out in the second quarter, do you -- do we think that we see more spending coming sooner before cuts come in? I guess, walking -- total expense is higher in the near term before we start to see some of the leverage coming towards the end of the program?

David C. Dvorak

No. I think that if you focus on SG&A and the guidance that Jim has already spoken to this morning, we're talking about -- at this point in time, is about 100 basis points of improvement in SG&A. And we look to continue to provide that 100 basis point benefit, while we're accelerating the growth and making the right investment to fully exploit the opportunities that we have with the new products.

Chris Hammond - Goldman Sachs Group Inc., Research Division

Okay, great. And if I could just get one more quick one. My second -- the question's on Dental, and I was actually curious if we could get a little bit more granularity on what you guys have seen in the U.S. implant market. I think the total market was up low single digits for the period that you guys, obviously, weren't at that level. Just curious on your thoughts of what's happening there. And if you could get a little more specific on the U.S. versus o U.S. as far as growth rate.

David C. Dvorak

Yes. I think our growth rate within the United States was around 5.8% and in the Americas was a couple of hundred basis points lower than that. So our story in the quarter was really all o U.S., and it was a combination of softening markets, o U.S. and then some Zimmer-specific order patterns, with respect to truly independent distributors in those o U.S. markets. And so we look to correct out some of that, continue to push forward with nice growth in the United States market and do a better job in some jurisdictions o U.S.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley.

Steve Beuchaw - Morgan Stanley, Research Division

It's Steve Beuchaw here for David. One, on your focus on returning cash. Historically, you've had that focus in the form of a buyback. But I wonder, going forward, with improving margins and execution over time on the restructuring, you get to a position where you more and more have cash flow beyond where you need to support the buyback. Could we see more of a shift in favor of dividends? And could you speak to the timing, if that is the right way to go? Could that be a 2013 event, or is it more likely for 2014, given the med tech tax?

James T. Crines

This is Jim. I would tell you that at this point, it's tough to predict what that return is going to look like 2, 3 years down the road. What I will say is we're aware of the fact that we have announced that we have a share repurchase authorization currently in place. That amounts to a total authorization of $1.5 billion and extends out through 2014. We're now paying a dividend that represents somewhere in the order of 15%, let's say, of our earnings. It's getting returned through the dividend on an annual basis. You combine the dividend with the share repurchase program, and we are already returning up to 2/3 of our net income, which really is a proxy for free cash flow to shareholders on an annual basis. We talked about how we intend to manage and run the business in a way where -- expect we're going to be able to continue to do that. Will that mix change? Somewhere down the road, it very well could. But there's a number of conversations, obviously, that would have to take place in the coming years with the board as we consider whether or not we want to change the mix as between share repurchases and a dividend. And to some degree, that may be impacted in the future by tax reform here in the U.S.. We'd want to understand how that -- what the implications of changing the mix would be on shareholders. And it's anyone's guess to how -- as to how that's going to play out in the coming years.

Steve Beuchaw - Morgan Stanley, Research Division

Okay. David, you have a competitor in the U.S. that now has a bigger footprint across Trauma and Spine that complement their solid Hip and Knee franchises. They'll, no doubt, look to leverage that scale and hospital tenders. Can you speak to how you're preparing strategically for this change to the competitive environment? And then I'll drop.

David C. Dvorak

Yes. We're going to make sure that we have the right market strategy on the sales side there. And we think that we're well positioned with the musculoskeletal portfolio to be able to have those enterprise-wide discussions across that portfolio. It's one of the reasons that going back 1/2 dozen years, we thought that it was important to continue to invest in building out our product portfolio on the Trauma side, for instance. It's one of the reasons that we continue to do what we're doing on the Spine side even. So again, the musculoskeletal world is going to be our focus. And we feel like we're very well-positioned with our current products and the upcoming launches within our pipeline to be able to have really intelligent discussions with hospitals, systems, IDNs in the U.S.. And we're going to organize our sales structure to be able to provide those solutions with the lowest cost of care approach to those customers, so that at the same time, we're addressing patient needs in a very efficacious manner. We're also addressing those customers cost needs by bringing more value through different strategic programs that we can offer with that bundle. So I'm really optimistic about our ability to compete in that market, and I'm glad that we made the decisions that we made going back 1/2 dozen years to end up with the portfolio that we have.

Operator

Your next question comes from the line of Rajeev Jashnani with UBS.

Rajeev Jashnani - UBS Investment Bank, Research Division

First question was just on the U.S. market. It seems like the US market's kind of gone from minus 2% last year, major joints, to maybe something like plus 2% this year. And I -- this is kind of a tough question, but maybe you could just comment on what is your outlook for sustainability in the growth rate that we're seeing in the U.S. right now?

James T. Crines

I think that -- I don't think that this is a bolus, but I think that's going to be dependent upon what happens within the broader economic environment within the United States. I mean, if you look at it, going back, say, 3 quarters prior to Q2, it looks like it's bumping around 1% and now up to 2.5%. So it could step back to 1% or 1.5% level, depending upon what happens environmentally. I don't know that anytime soon it's going to drop below that. I think that there's probably an opportunity. And then this is dollar-growth-driven procedure that I'm talking about. There's probably opportunity for us to pick up on a dollar-growth basis, depending upon what companies are doing on innovation and mix. So I think you have to look at this as a more normalized market than the second half of 2011. But as the tone of your question included, it's tough to make a call from quarter-to-quarter.

Rajeev Jashnani - UBS Investment Bank, Research Division

Yes, I know. I appreciate your perspective on it though. And I did have one follow up for Jim, probably. SG&A was down 3.5%. That was pretty good, I thought. Could you maybe just talk about what the FX component of that decline was? And it looks like the full year guidance is baking in at about a similar level of decline for the rest of the year. And I just wanted to maybe understand, I guess, what the FX contribution is for the full year as well.

James T. Crines

Sure. The best way to figure that -- we don't have the precise numbers in front of me. But if you look at that -- the effect of foreign currency translation on the top line, what that was, as a percentage, and take somewhere in the order of 1/2 of our total SG&A and apply that percentage. And I think you'll get a sense -- a rough sense of what impacts currency translation is having on SG&A.

Rajeev Jashnani - UBS Investment Bank, Research Division

And I guess, maybe get greedy here, if we take that underlying rate of SG&A decline, should we think of that as something that can accelerate into '13, given the med tech tax, and given some of the initiatives that you guys are taking to deal with that?

James T. Crines

I would tell you, at 100 basis points, we feel very good about the progress we're making on our operational excellence initiatives. I don't know that I would tell you to model makes any increase beyond what we're currently seeing. We've talked about the target that we have in there, you get a $400 million. We've communicated that about 60% of that is expected to show up in cost of goods in the balance in SG&A. We've also acknowledged that while we're going to continue to make progress on SG&A in 2013, the step down of FDA back in the medical device tax is going to have to be more modest, just given the pressure that, that's going to put on SG&A in 2013.

Operator

Your next question comes from the line of Richard Newitter with Leerink Swann.

Richard Newitter - Leerink Swann LLC, Research Division

Just 2 really quick ones. On your pricing commentary in the U.S., I was just wondering, can you -- you say it was a slight improvement in your large joint business. One of your competitors made a similar comment and saw a very slight sequential uptick in pure price. Can you give a little more context to that?

James T. Crines

Sure. We talked over the past couple of years. As we were beginning to see average selling prices in the U.S. decline, we talked quite a bit about the notion that there are thousands of accounts in the U.S. hospital accounts. Many of those accounts, when we look at our price curves would acknowledge that there, in the past, there's been a fair amount of dispersion in pricing across those thousands of accounts. And when the pressure hit,we sort of disaggregated where we were seeing the pressure. It was clearly coming from any of those accounts that were at the high end of our price curves. So we we've been working through that issue over the past couple of years. At some point, as -- those accounts get -- pricing in those accounts gets more in line with our mean average selling prices. We would hope to see that pressure moderate somewhat. And in fact, that's exactly what we saw in the second quarter, specifically on Hips in the U.S., not as much on Knee.

Richard Newitter - Leerink Swann LLC, Research Division

And just if I could just ask more on mix. I want to make sure I got your commentary correctly. It sounded like you were saying, generally, the industry's been seeing maybe a little bit more of a mix tickup than you have, but your new product flow which is pretty significant in the back half should enable you to really reaccelerate your mix kind of gains either up to or above market levels. Is that the correct takeaway?

David C. Dvorak

Yes. That is the correct takeaway. And you know, it will begin in the second half of this year, but then continue on and accelerate into 2013.

Operator

Your final question comes from the line of Larry Biegelsen with Wells Fargo.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Quickly, some of the companies were saying that there were 2 less selling days in Europe this quarter. Was that the case for you? And did it have an impact?

David C. Dvorak

There were not in Q2. And I'm glad you asked that question, because earlier, Kim had asked some specific questions for the second half of the year on selling days, and I'll come back to that. But Larry, the -- it was not a factor in our results. I think on a selling day basis, Europe was generally flat across the major markets year-over-year in Q2. Going forward, in Q3, we pick up a day or so in Europe and lose about a day in the Americas businesses, that is Q3. And then in Q4, we lose a day or so in Europe and steady-state essentially in the Americas.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Perfect. And then on the guidance, Q3, I think you said the midpoint of the 2.5% to 3.5%, if I heard correctly. And then Q4 above the end of the range, which is, obviously, very encouraging. How should we think about that run rate heading into 2013, even just directionally recognizing that you're not giving 2013 guidance today. And I also just wanted to squeeze one in on your new Knee system. I think you said it's a -- there's a limited launch going on. Last call, you weren't willing to talk about how it differentiated from currently available products on the market. Are you willing to say a little bit more about the new Knee today?

David C. Dvorak

Sure, Larry. Let me respond to the questions. I think that the acceleration that we're projecting in the second half of the year, sequentially from Q3 to Q4. Q4's performance, it's appropriate to think of that. It's the jump-off point going into 2013. Let us come back to you at the appropriate time and give you more specific guidance, but there's no reason in our view that the acceleration of those new products and our commercial excellence efforts won't set us up well to make the second half of this year the beginning of a stronger 2013. With respect to the new Knee system, we still are not at a point where we're talking with specificity about the benefits of that system. There are some pretty transformational elements of that broad system. I would say that it's the largest development project that this company has ever undertaken. It will be the largest launch when we get to the general launch point that the company has ever overseen and affected. So we're tremendously excited about that, but let us come back to you in future periods, when it's more appropriate to talk with specificity about the benefits of that system, Larry.

Operator

That does conclude our question-and-answer session for today.

David C. Dvorak

Great. I'd like to thank everyone for joining the call and for your continued interest and support for Zimmer. We look forward to speaking to you on our third quarter conference call at 8:00 a.m. on October 25, 2012. With that, I'll turn the call back to you, Christie.

Operator

Thank you again for participating in today's conference call. You may now disconnect.

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