Good day, everyone, and welcome to the Integra LifeSciences third quarter financial reporting conference call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mr. Stuart Essig, President and Chief Executive Officer. Please go ahead, Sir.

Thank you. Good morning, everyone, and thank you for joining us for the Integra LifeSciences third quarter 2008 earnings release conference call. I am Stuart Essig, President and Chief Executive Officer of Integra LifeSciences Holdings Corporation. Gerry Carlozzi, Chief Operating Officer, and Jack Henneman, Chief Financial Officer, join me today. Gerry is traveling abroad, and while he hasn’t dialed-in, if we have any technical difficulties, Jack or I will try to field any questions you may have for him. During this call, we will review our financial results for the third quarter of 2008 and our forward-looking guidance for the fourth quarter of 2008 and the full year 2009, which we released on Friday. At the conclusion of our prepared remarks, we will take questions from members of the telephonic audience. Before we begin, Jack will make some remarks regarding the content of this conference presentation.

This presentation is open to the general public and can be heard through telephone access or via live webcast. A replay of the conference call will be accessible starting one hour after the conclusion of the live event. Access to the replay is available through November 24, 2008 by dialing 719-457-0820, access code 8405173, or through the webcast accessible on the Investor Relations page of our website. Today's call is a proprietary presentation of Integra LifeSciences Holdings Corporation and is being recorded by Integra. No recording, reproduction, transcript, transmission or distribution of today's presentation is permitted without Integra's consent. Because the content of this call is time sensitive, the information provided is accurate only as of the date of this live broadcast, November 10, 2008. Unless otherwise posted or announced by Integra, the information on this call should not be relied upon beyond November 24, 2008, the last day that an archived replay of the call authorized by Integra will be available. Certain statements made during this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, among others, statements concerning management's expectations of future financial results, new product launches, regulatory approval and market acceptance of these new products, future product development programs and potential business acquisitions are forward-looking. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted results. For a discussion of such risks and uncertainties, please refer to the Risk Factors included in Item 1A of Integra's annual report on Form 10-K for the year ended December 31, 2007, and the information contained in our subsequent filings with the Securities and Exchange Commission. These forward-looking statements are made based upon our current expectations and we undertake no duty to update information provided during this call. Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is provided in the press release we issued Friday evening, which is available on our website in the press release section under Investor Relations. Additionally, in this press release and in the current report on Form 8-K that we filed on Friday, we provide explanations for why management believes that presentation of these non-GAAP financial measures provide useful information to investors regarding Integra's financial condition and results of operations, and the reasons for which Integra's management uses the non-GAAP financial measures. I will now turn the call over to Stuart to review the highlights of the quarter.

Thanks Jack. The business delivered a particularly strong performance this quarter with revenues well above our guidance and Street expectations. Total revenues in the third quarter of 2008 increased by $32 million to $167 million, a 24% increase over revenues of $135 million in the third quarter of 2007. This was $2 million above the high end of our guidance. Our organic revenue growth was more than 11% calculated the way we have done so historically. If you exclude the eliminated LXU distributed product lines that we discontinued because of their low margins, organic growth was about 13%. On Friday, we also announced the acquisition of our Australia/New Zealand distributor, which provides us with direct access to those significant markets and also the ability to provide service and support capabilities to other markets in Southeast Asia. Our Australia subsidiary will provide the base for future expansion in that part of the world. Integra's distributor for those markets has been providing top quality Integra and non-Integra products and superb service to hospitals for many years and has a long history of serving the surgical communities in Australia/New Zealand. We have worked together for the past seven years and they have been our primary representative in Australia and New Zealand for such products as DuraGen, Camino, CUSA EXcel, MAYFIELD and INTEGRA Dermal Regeneration Template. Starting this quarter, we will be reporting our revenues in three categories; Integra NeuroSciences, Integra Orthopedics and Integra Medical Instruments, and we've redesigned our website and other corporate communications to reflect these three market categories. I invite you to take a look, explore and discover the organizations and products that we offer across our companies. We will also be highlighting these new business units at our upcoming Investor Forum next Monday, November 17. I'm sure that many of…

Thank you, Stuart. I'll start by discussing Integra OrthoBiologics. It's been just over a year since we acquired IsoTis and formed Integra OrthoBiologics. Since then, Integra OrthoBiologics has completed a number of milestones, including the move to sustainable profitability. Additionally, we have completed a significant expansion and upgrade of our Irvine manufacturing facility with substantially capacity to continue growth. The R&D team continues to develop new products that fill the pipeline, such as the recently launched Evo3. The finance team has implemented new accounting and reporting systems. The marketing team has been integrated and continues to develop innovative ways to support the sales team in the field. With this, both sales teams have been combined to create a dedicated and expert group of professionals, supporting both domestic and international distributors. We've also just passed the three months anniversary of the acquisition of the Theken Company, now rebranded as Integra Spine and it has become an exciting new addition to our company. Theken required very little in the way of restructuring post-acquisition. We have integrated some financial reporting and regulatory functions necessary for them to operate as part of the larger Integra organization. There is much that can be done with the added resources and support Integra LifeSciences can provide to expand the sales reach of Integra Spine from a regional player to a national and international spine company. We are pleased with the progressing results to-date and look forward to the exciting opportunities provided by this high growth business. In the Extremity Reconstruction business, we continue to invest in the expansion of our direct sales organization. Over the next six months we will be expanding the sales organization from 75 direct sales people in the United States to over 105 people. This expansion will allow us to continue to expand our coverage of the extremity market and continue our growth in excess of 20%. Next Monday, on November 17, we will be hosting a three-hour Analyst Meeting where we will present additional highlights of the business.

Thank you, Gerry. International sales were 23% of the total this quarter compared to 24% of revenue in full year 2007. Foreign exchange had a favorable impact of $1.9 million. I'd like to make a short digression on the impact of exchange rates on our business. Since roughly 15% of our revenues are denominated in euros or British pounds, our top-line benefits from a weakening dollar and fights against the strengthening dollar. However, unlike most American medical device companies, we also manufacture or procure a significant percentage of our products in Europe. The result is that a strengthening dollar lowers our European period cost and eventually improves the gross margin of products that we make or procure there. The impact on gross margin is delayed, however, because the benefit first goes into inventory and is only realized in our profits when those products are sold. So, for example, next year our gross margins will realize the benefit of the recent sharp decline in Europe. Gross margin and total revenues in the third quarter of 2008 was 61.5%. This included the 1.6 percentage point impact of purchase accounting from the Theken acquisition. In 2009, we expect gross margins in the range of 63% to 64.5%, excluding the impact of purchase accounting. Research and development expenses in the quarter increased by $28.2 million to $34.7 million from the year ago quarter. This large number includes a $25.2 million in-process research and development charge for the Theken acquisition. In 2009, we anticipate R&D to be 5.5% to 6% of sales. Selling, general and administrative expenses increased by $31.5 million to $84.2 million or 50% of revenue. This increase in SG&A expense over last year was primarily a result of the equity compensation charge on the larger size of our sales and administrative organizations,…

Thank you, Jack. Our management team continues to seek out external opportunities for growth, and future acquisitions could affect our results going forward. However, the forward-looking guidance that we are providing does not reflect the impact of acquisitions or other strategic corporate transactions that have not yet closed. We have updated our 2008 annual revenue and adjusted earnings per share guidance to reflect actual results. We are also introducing 2009 guidance. Although we are not providing quarterly guidance, we do want to note that consistent with our historical seasonality, in the absence of acquisitions, we anticipate first quarter 2009 revenues to be sequentially lower than Q4 by about 3% to 5%, with the disproportionate impact on the bottom-line, and that the fourth quarter of 2009 will be the strongest quarter of the year. While we will likely have quarterly fluctuations in our performance versus our expectations, we believe that annual guidance remains the appropriate benchmark for our business. Longer term, we intend to drive internal revenue growth consistent with our target of 10% to 12%. That said, we do not believe that measuring our growth by excluding recently acquired revenues is useful or provides a true indication of the underlying performance of our business. The significant impact of new acquisitions and their growth, as well as the elimination of various product lines confounds previously provided measures. In the future, we will provide overall revenue guidance, still excluding any future acquisitions and focus on the performance of our business by the three categories, NeuroSciences, Orthopedics and Medical Instruments. We have also provided adjusted EPS guidance, which is adjusted to reflect the special charges that we anticipate occurring over the balance of this year and next. For those of you who are still tracking the impact of FAS 123(R), we expect the quarterly impact of share-based compensation expense to be approximately $0.08 per diluted share for the fourth quarter of 2008 and each quarter during 2009. We look forward to continuing to meet with investors and invite all of you to join us next Monday, November 17, for our Analyst Forum from 2 PM to 5 PM at the New York Marriott East Side Hotel or via the dial-in or webcast. This year we have invited divisional presidents to provide an overview of their divisions, and we also review the outlook for Integra as a whole and our strategy for the future. We hope that you can join us. Now, we will be happy to answer all of your questions. Operator, you may turn the call over to our participants. Question-and-Answer Session Operator ':

Hey how are you? Amit Hazan - Oppenheimer & Co.: Good morning. Can you hear me okay?

We can. There is an echo, but we can hear you. Amit Hazan - Oppenheimer & Co.: Okay, just a couple of question for me. First of all just to be clear on the SG&A expense in this quarter. It looked higher to us, and I am not sure I fully understand why that was versus the guidance you gave on your last quarter call. Can you speak specifically to this quarter and why SG&A expense was higher?

Yes. Let me start with the G&A. The good news is, G&A spending particularly in the finance organization, was improved as a percentage of revenues and in fact the use of consultants was down significantly enough to reduce outside spending by about $1 million to $1.5 million. Offsetting that, was the impact of our international operations, where spending on sales and marketing was in excess of expectations. Spending on Theken or Integra Spine, which has substantial, both gross margin but also SG&A spending, then finally, we continue the build out of our various sales and marketing organizations, in particular the orthopedic organization for the extremities. And so, we spent more than we anticipated in those areas. By the way while the SG&A was more than expected in the middle of our range, it certainly allowed us to still deliver an earnings per share within our initial guidance. Amit Hazan - Oppenheimer & Co.: Okay, then my second question is more on the discontinued product side. Just trying to really get a handle on where we are in that process. Can you give us a sense of how many more quarters we have like this one where it negatively impacts you by a few million i.e. kind of trying to figure out when this thing annualizes for you?

': ': ': ': ': ': Amit Hazan - Oppenheimer & Co.: Okay, last one for me. In the 10-Q, you made a couple of comments, I just want to get more color on, one was that upper extremity declines in the quarter, and the other was that Miltex declined in the quarter. Any color on that would be great. Thanks very much.

': ': ':

We go next to Matt Miksic with Piper Jaffray

Hey Matt.

Hi. Can you hear me okay?

We can.

Sorry for the background noise here. Couple of questions, one was, if you could, following up on this Miltex question. It would be curious to know, because some of that goes into, some of those sales go into sort of general physicians' offices and dental offices. If you could remind us to what degree you have procedure type exposure to those markets, in terms of the patients’ volumes, and to what degree is this sort of an instrument or equipment purchase, that goes on year-to-year for those kinds of businesses?

Okay. Well, in light of the economy and in light of reviewing other companies' earnings calls, we went out to all of our divisions and asked the question, what do they expect the impact of the economy to be? Keeping in mind, that the economy has been challenged for the first three quarters of the year, and will continue based on what economists are saying to be challenged for, at a minimum, another year. We’ve asked the questions and certainly built into our guidance, whatever impact we think the economy will have on the business. Indeed in Jack’s presentation, we went out of our way to highlight some of the areas that could be impacted by the economy, although we think it’s relatively little in terms of our overall business mix. We’ve focused on the potential impact on capital, which we call out on the order of $30 million to $40 million of revenue, which we call low ticket capital. Indeed much of it is not in capital budgets. We also talked about the fact that really, trivially, little of our business is impacted by aesthetics or cosmetics, or other very discretionary markets. In terms of Miltex in particular, indeed, I can tell you, we don’t believe either the third quarter or prior quarters have anything to do with the economy. Certainly, as we look forward, the dental area and veterinary can be impacted by the economy, but we think that's more offset by the activities of individual practitioners, who will therefore turn the mix of their business to non-discretionary activities, in particular, general surgery and other procedures. Again, none of it is capital in the Miltex business, in fact it’s typically a $50 to $150 ticket per unit sold, and again, putting it in context, if you add JARIT plus Miltex, you're talking about tens of millions of instruments sold a year. If you do the math on $180 million business, and 10 million instruments, you can come to the point that it's a very low ticket business. It's not like what you're hearing from some of the larger capital equipment companies, for example, the radiation therapy companies, or the imaging companies.

Okay. And one question on just the general -- could you share maybe some color around extremities, orthopedics in general. I think a lot of folks have looked at the hard joint space as potentially vulnerable, maybe because of some of the higher co-pays associates with the total knee or total hip. Anything you can tell us, could you give us an idea as to what does the patient profile look like in terms of cost of an extremities, orthopedic procedure if you can.

Well, in general, the cost of those procedures are a fraction of hips and knees. Again, our extremities business is generally ankles, hand, wrist, and those procedures tend to be both from a hospital cost or SurgiCenter cost, or patient co-pay cost well below a hip or a knee. Certainly patients are impacted by their co-pays. On the other hand, what we've seen in the past, and the two tend to confound each other, is while patients may postpone for a quarter or two, their choice of surgery, other patients in anticipation of losing health insurance in the face of significant layoffs often accelerate their surgical procedure. It's really hard to predict the impact in the short-term of what goes on in the economy. I'd also make the point, forget about aesthetics or cosmetics, it's not sport medicine either. Most of the patients are very sick. If you look at our Extremities business, a significant part of it is in the skin and wound care area where we are impacted by burns, which is a big part of our business and clearly nondiscretionary, diabetic foot ulcers, and then, in the case of the metal implants, they are usually in the face of some kind of degenerative disease or deformity, it's not that often that a patient is choosing that they want to simply not do it.

Thank you. That's helpful, mast question and I apologize if I missed it, but with the reduction in Luxtec lines around some of the distributed products, did you talk at all about what that impact has on the instrument business? You mentioned it's flat. You talked in total you're going to 13% organic growth, what does that do to the instrument line, if you can talk about that?

Yeah. One of the things that I would encourage you and other investors to do is go to our website and look at our new presentation of both the way we're showing the company in Neuro, Orthopedics and Medical Instruments, and also the historical numbers which we breakout for the last three years on a spreadsheet, so you can remodel them. On the spreadsheets we also provide details on the historical categories, so there's a pretty simple bridge from the old implant and MedSurg to the new Neuro, Orthopedic and Medical Instrument categories. Keep in mind, essentially Orthopedics is all implants and essentially Medical Instruments is all Med Surg. It's really just a question of extracting some dollars to put into the Neuro category from each of those and it's easy to bridge the model, and we've done it for you on the website. In terms of growth rates, we're going to actually at our Analyst Meeting next Monday go into some great detail on the markets that each of these businesses serve. We did summarize on this call what we believe at a long-term growth rate implicit in our business, and what we've said is 10% to 14% for Neuro, we said approximately 18% to 22% for the orthopedics, and then we've said 6% to 8% for the Medical Instruments business. You won't see 6% to 8% growth for Medical Instruments this year or for the next few quarters because we are fighting the discontinuation or the elimination of the various LXU product lines. But again, if you do the math on discontinuing 40% of a business, you have to conclude that the rest of the business is doing quite well to stay flat, and indeed, we had another strong Jarit quarter this quarter, Jarit being an important part of the Integra surgical instrument business.

Great. I think that's the nature of my question. It looks like that's a double-digit number against the 6% to 8% projected long run growth rate for that business if you exclude the ones that you've excluded. Is that right?

It's right and it's by design, because we say to the guys focus on the manufactured products. Indeed, the commissions are driven towards the manufactured products. You'll see their efforts going to driving the Luxtec manufactured and the Jarit manufactured products at the expense of the former distributed products. Indeed, most of those or many of those distributed products they are no longer commissioned on.

This is Jack. Friendly reminder for those of you who have been following the company a while, if you go back and look at the stuff we said when we actually bought LXU, we said that a business that had been running close to $50 million in 2006 would generate around $30 million in our hands. A year and a half ago, we anticipated this exercise and have been bringing down the business methodically since.

One of the challenge as a public company is analysts don't like that, but it doesn't change the fact that we said we were going to do it and we did it, and it is indeed the way to grow that franchise and grow the profitability of that business.

Great. Understood. Thanks for taking the questions.

Thanks, Matt.

We'll go next to Amit Bhalla with Citigroup.

Hi Amit.

Hi. Good morning. I wondered if you could start-off by just reviewing with us the sales force and distribution structure, given that you are now in the three separate segments. If you could just go through some of the numbers in the sales force, just talk to us about how they are distributed again, and I have a couple of others.

Okay, sure, indeed, for those of you who might find my description tedious, there will be a whole presentation posted next Monday on the Integra website, which goes into great detail on this. And it is indeed important to understand how the business in structured. We have put substantial effort in the last 18 months into building out our divisional organization structure, and indeed have in many cases either hired from outside or promoted inside divisional presidents. Overall, we're presenting our numbers and our businesses in three categories, Neurosurgery or NeuroSciences, Orthopedics and then Medical Instruments. The easiest one to follow is the Neurosurgery group or the NeuroSciences group, which is, for those of you who have been following our company for the last 10 years, what the company was build around. And that group is approximately 150 sales people in the United States of which 120 are reps and 30 are specialists. We've talked in the past about the ICU specialists, the OR specialists. It's a field force of about 150 in the United States. We haven't really grown that amount substantially in the last 12 months, its right sized and it indeed meets the needs of approximately 4,000 neurosurgeons in the United States. In Europe, we have a direct group of about 30 calling on neurosurgeons and neuro-nurses, and then in the rest of the world, we go through distributors. As I mentioned earlier today, we are also now direct in Canada and in Australia/New Zealand. And that's just part of the company maturing and wanting more direct access to our customers. All right. Let me turn the attention to Orthopedics, Orthopedics is a group of approximately $200 million run rate in revenue and there is three main sales organizations there. There is the extremity sales force, which…

Stuart, if I could just ask two other follow-ups. Can you put some goalposts around general gross margin ranges for the business segments, now that they've reshuffled a bit? Can you talk about Radionics, I know you mentioned earlier that there is not much in the way of capital exposure, but the Radionics business does expose, used to, the radiation oncology segments, talk about what's going on there. Thanks.

I'm sure. In reverse order, I think our total revenues that go to oncology from what we formerly called Radionics, maybe about $10 million. And if we sell three or four systems a year, at $300,000 to $400,000, that's a good year. Most of that business is software, repairing service, parts and equipment. I wish we had a business that was competitive with Varian or BrainLAB or one of the big players, but we really are servicing a historical customer base, what we acquired is part of the acquisition of the CUSA Ultrasonic Aspirator line. Now that doesn't mean we don't have a good product. We actually have an excellent product and particularly in price sensitive accounts, they will buy the XKnife. That being said, there is nothing about our business strategy that’s reliant on selling new capital in the radiation oncology area, and I think I have been consistent in saying that since we bought it. In terms of the margin structure of the new categories, let me start by saying as you look to our margins in the next few years, we actually expect a reasonable ramp in our gross margins, and Jack talked about next year in the 63% to 64.5% range, and we'll go into some more detail at the Investor Meeting in a week, about why we believe that it can grow into the high 60s, even in the longer run, into the 70s. We are a company that is increasingly in high margin orthopedic categories, that comes with a cost, and as we pointed earlier in the call, we have indeed increased the expectation for SG&A percentage by about a point to a point and a half, because of our presence in those markets. On the other hand, the gross margins for many of our orthopedic products can be in the 80% range. We're not going to break out gross margin by category, but I will remind people of what I've said in the past. The instrument gross margins have historically been in the 50s. We have some upside with the strengthening of the dollar versus the euro, although it will take six to nine months for that to turn. Neurosciences, we've generally said gross margins are roughly at the corporate gross margin. Clearly, orthopedic businesses have margins in excess of the average corporate gross margin. I think we don’t want to give out either competitive information or getting a habit of reporting that information. I think that gives you plenty of room to understand, roughly the structure, and again, I am repeating myself, one of the advantages of the medical instruments business, only growing at the 5 to 8% range, is that our lowest gross margin business is our slowest growing business, so just the mix, as we go forward, will improve our gross margins.

Thanks for the detail.

Thank you Operator We go next to Taylor Harris with JP Morgan.

Hey Taylor.

Hey guys, thanks a lot for taking the question. My first one is just on the neuroscience business, where you had a good quarter, growth above what you are talking about in terms of your long term expectation, any color on that phenomenon?

Well everything did great. If you heard Jack’s talk, we had double digit growth in almost every one of our major categories, whether it be duraplasty, ultrasonic aspiration, the ICU monitoring products. It was just a really good quarter. I think that’s a reflection of the tenure of our neurosciences team, the market share we’re able to take, the new products that we’ve been able to launch. 10 years we’ve been growing quite substantially well in excess of 30% a year, including the acquisition, and eventually, our customers have become aware that we are the major player in this market. If you recall last year, Q3 was a pretty tough quarter. I don’t want to overstate how well we’ve done, because we had a easy comparison versus the third quarter

Okay. Particularly on CUSA as I recall?

Yeah. Which was terrible last year and not dramatically great this year, but sort of now finally doing what it is supposed to do.

Okay. On the tax rate, is the 31% rate something we should look for in 2009, or is it going to pop back up into the mid thirties?

It's probably the hardest question we have to answer and our track record on this one hasn't been good. We are modeling in our forward-looking guidance, the midpoint of 30 and 35. So we are modeling 32.5. But I'm not sure that means we think it's going to be 32.5, we think it's going to vary between 30% and 35%. I wish, I hope as we start to have more experience and a lot of these acquisitions have anniversaried, and a lot of the tax planning that we did in the past, starts to mature that we will start to end up with a relatively fixed number throughout the year. One thing that's worth in the spirit of taking a victory lap, the maturity and improvement on our finance organization and tax organization, is finally letting us get some of the benefit from our historical tax planning activity. It is indeed nice to report a 31%, and it's a positive thing, and it is sort of back where we had hoped it would be a couple of years ago. It's going to bounce around and implicit in next year's earnings guidance, is the midpoint of 30 and 35.

Maybe I misunderstood some of the comments Jack made, but I thought that the reason it was at 31% this year, is just because of some of the one time charges that hit the US P&L, which is your highest tax jurisdiction. Is that right and if so are you expecting more of those charges next year that also keep it down in the lower thirties.

Jack's point was that indeed our GAAP rate for the year will be well below 31%. Based on the information we have right now, the GAAP rate is dramatically below 31%, and that's the impact of those one-time charges. So in detail, either Jack was not as clear as he could have been, or you missed it.

Okay. The 31% is the --

The 31% is indeed the adjusted rate, which reflects the current mix of businesses around the world, excluding the impact of the one-time charges.

Okay.

The 32.5 that we're talking about. I don’t have a pinpoint. The 30 to 35 that's implicit in next year's guidance. Again, it assumes we back out the impact any one-time charges. If you look in our reconciliation, in the back of our press release, we do indeed predict one-time charges next year, principally, purchase accounting for the Theken inventory, and a little bit for the Australia-New Zealand inventory.

Okay. On currency, I appreciate your comments on the effect at the gross margin line. What's the overall effect as the dollar strengthens in its comparisons next year, what's the overall drop through to the bottom line?

In the short-term, it's kind of negligible, it's definitely not bad. There's a number of companies who've said, the strengthening of dollar is really going to hurt their earnings in the next few quarters. It really doesn’t for us, because there is a reasonable offset between the negative impact on revenue, but the positive impact on our period expenses. As you look out six to nine months, we start to turn the inventory that we're making or buying now, at $1.30 or $1.28, and that will have a positive impact on gross margins in the middle to back end of next year. Was that clear?

It is. I guess the net effect at the gross profit line, so you have kits revenues, but gross margin is better, what's the net effect of the gross profit lines?

In the short-term, the net effect that gross profit line is marginally negative. It's marginally negative on the gross profit line in the short-term until we turn those inventories, in which case it will become positive. Our operating expenses in the short-term in Europe go down, which means the net impact on operating profit is essentially nil.

Okay. This is good news for you guys.

The strength of the dollar is unambiguously good news for Integra's bottom line.

Okay. Great, then, last question on your liquidity profile. I was hoping you could spend a couple of minutes just going through what are your possible obligations, when could the converts get put to you, the same thing with the Theken milestone, and just sort of lay us out a roadmap for liquidity over the next year or so.

Okay. Jack is going to cover it, but I just want to make a couple of points. $170 million cash last Friday. If there is any message to take away from our numbers, substantial cash on the balance sheet and year-to-date operating cash flow because we got bunch of questions last quarter and I am surprised I didn't get even at least a pat on the back for the $27 million of operating cash flow this quarter. Year-to-date cash flow over prior year up 40%. Jack talked about a little bit already, but he is going to give you sort of a prepared walkthrough of where we are on cash obligations over the next three years.

We have two major uses of funds really between now and all the way to the end of 2011, so it really is three years. In the fourth quarters of 2009 and 2010, we have taken purchase price to pay. That requires some guess as to where things go. We sort of assumed for our purposes that it will aggregate in the area of $50 million to $75 million. The other use is the repayment of the bonds due in June of 2010, and that has an aggregate principle amount of $165 million, assuming that those converts are out of the money, which we do assume because they struck in the mid 60s. We'll have to repay those with cash. So that's $165 million for the bonds and about $75 million for Theken. Our sources include $170 million in cash on our balance sheet today, another $40 million in capacity in our credit line. That gets you to $210 million essentially today. We're generating in the area of $15 to $20 million of cash per quarter on average. It bounces around a fair amount, but I think if you look at our performance this year and even last, that's a reasonable number to use over the next couple of years. If you add up the cash we have, the remaining capacity on our bank credit agreement and our quarterly cash flow, and even if you plug a conservative number for that, we're in excellent shape to meet all our obligations, and that means that our next real financing moment will be at the end of 2011 when we'll need to set up a new credit agreement with our banks. There's talk about these portable bonds, which ours are not.

Right. That's helpful. Stuart, I will congratulate you on the third quarter cash flow.

Somebody should. Thanks a lot.

It does sound like, just walking through that, you are fine from a liquidity point of view, although I would imagine that perhaps larger deals on the scale that you've done recently or probably off the table for a little while, is that a fair assumption?

It actually is. We are not either ignorant or insensitivity to the current credit environment or to investors' taste for debt to equity ratios or debt to interest ratios. I think you should take at that, over the next three quarters, our primary activities will indeed be either piling up cash or paying down debt. I think we're appropriately reactive to a more conservative profile. Witness though a small $5 million-ish acquisition, which is well within the tradition of Integra's typical deals which are $5 million to $20 million deal. I don't think we're in anyway saying that we can't or won't do smallish acquisitions. I think the $75 million to $100 million deals are going to be off the table for a while until the overall markets improve because clearly cost to capital in this market has gone up.

Okay. Thanks a lot.

We will go next to Joshua Zable with Natixis

Hi, guys. Thanks for taking my question here. Congrats on a great quarter.

Thank you

Just a couple of quick ones. Most of my questions have been complete. First of all, thanks for that revenue breakout. I know you guys have been talking about for a while, so we appreciate it. Is it safe to assume now given that you spend less money on consultants, and obviously you have the finance group, which is sort of up running and complete and ready to go, or are we still building that out.

I think it's in really good shape. I'll let Jack talk about it, but certainly we've reduced consultants in the US to essentially zero. Every company uses a small amount of consulting and I would put us in the same category now as most other companies. Internationally we got a little bit of work to go. I think before the year is out we are pretty much done. Jack and his team are to be congratulated for putting into place a really strong finance organization. I think it's costing us more than it was two or three years ago, but that's actually offsetting the substantial consulting that we were suffering with in terms of spending for the last year or two. Net-net, I feel like we've really made a lot of progress and we will start to get leverage off of the overall organization being able to grow on that backbone. That being said, I think we'll be appropriately conservative and make sure we've got good staffing indefinitely in the finance organization.

Yeah, I agree with. We have added a lot of good people. We've gotten enormously positive help from all around the company. I would say, as a team, the entire finance organization is both bigger and performing better than it was a year ago and all of that is very positive. We are and remain a complicated company. You're not going to see us as one of the first reporters in a quarter for quite some time. We've made really big improvements and we're all very happy about that.

Great. Congrats. Good work. I know it's been a challenge for you guys. Secondly, on the small acquisition, can you just talk about the timing? I mean maybe it could be just the weakening dollar over there or the strengthening dollar here. We've seen, obviously, if they are distributor, they've been distributing your products, they probably have other distributed products to the extent are you going to discontinue some lines over there, etcetera?

Let me put it into two pieces. First of all, they've been our distributor in Australia for seven or eight years. So we've known the people there for quite a long time. We actually train them, we participate in their meetings, they participate in many of ours. So it's a lot like the Canadian acquisition we did a few years ago, which, by the way, if my memory serves me right, since we've owned the Canadian company, we've either doubled 2.5 times their revenue in our hands, so owning these and being able to invest in the future is quite helpful. We were able to buy it cheaper than we expected to without hurting the seller because the deal was always negotiated in Australian dollars, so we did get the benefit of the run up in the US dollar against the Australian dollar. That all being said we're translating their revenues back in Australian dollars. So it doesn't really help in the short-term. Now if the Australian strengthens, because it really has gotten crushed, then we might get a windfall, but we didn't buy them because of the dollar or the currency, it's been on the plate for probably year at least, the acquisition. We closed late last week, and that again, it just happens to coincide with reporting of our numbers, but there was no particular strategy there. Just these things get done when they get done. It's a nice little acquisition, and it's not big in revenues, it’s a contributor in terms of overall gross margin., and again, it will drive our SG&A up a little bit, our gross margin up a little bit, but on the other hand, it's not a really significant impact. Oh yeah, they don’t sell much other than our products, it's sort of trivial.

Okay, great, hen you should have answered it there, but my follow-up to that would be, I know you guys have actually given -- talked about the currency here quite a bit. I'm just trying to understand, as far as your distributors go, are your contracts with them in dollar terms or their respective currency, and just trying to get and understand the extent of how it would affect sales?

Well, 15% of our overall revenues are euro or pound denominated, that’s the important thing to remember. So some of our distributors are in dollars, some of our distributors are in euro or yen or pound. It just depends on, to some extend history, the market, the way in which the dealer likes to work, but in general, if you just do the math on a 15% of our total revenues being in euro or pounds, and any other currencies are de minims.

Okay. That’s very helpful guys. Thanks very much.

We'll go next to Tao Levy with Deutsche Bank.

Hey good morning.

Hey how are you doing? So, looking at your medical, surgical, I know some folks asked this earlier on, but it's significantly better than expected. And I am using the older terminology, as I haven't had the time to adapt to the new way you are breaking things out. Was there any sort of one-timeish big orders that came in the quarter, that would affect Q4 or now that we’ve anniversaried sort of a tough year, for example, CUSA and other things that, you know, we should expect similar rates over the next few quarters?

There was nothing one time.

Okay.

We certainly benefitted from CUSA normalizing and Q3 of last year being particularly bad, but as I said in the neuro business, the monitoring was strong. That was an old MedSurg product, CUSA and other ablation tools were strong. That was an old MedSurg category. Jarit was particularly strong, that’s an instrument category. We said Miltex was flattish. So again these numbers bound-surround, and when we were showing the MedSurg for a couple of quarters of 0 to 1%, we said really it’s not that bad. 9% is probably not that good. It just depends on the anniversarying of various activities. The mix of the particular quarter, and again the biggest impact now, and that is in the MedSurg category, which we put in the back of our press release for those of you who just want to look at last year. That LXU discontinuation has been beating the hell out of that MedSurg category. We have to again for this quarter. We've reported really good growth in the MedSurg category, despite the 2 or 3% or whatever the total impact of discontinuing those product lines were. As we go forward, we will not be showing the old implant or MedSurg categories anymore. We're available --

(Inaudible).

Yeah, we are available to help you transition to the new categories, but we are not going to keep going back and forth. There is a great spreadsheet reconciliation, because we know it's painful to do this, up on our websites. Again, all you need to do is just pull some of the implants, and some of the MedSurg into the new neuro category, and what's left behind, is ortho, which is all implants, and instruments which is all MedSurg. It's not as daunting a modeling as it may seem.

Okay, and on the revenue guidance for the fourth quarter as you said, you guys did not change that. But obviously, the currencies have gone against you. You've talked about the currencies. I assume that's factored in, but you're okay. You know, again keeping Q4 numbers. I know a few other companies have lowered the outlook more recently just take into account the strengthening dollar.

Well, we did take into account, and our guidance, we feel good about it.

Okay.

I mean we did after all beat the high end of our range by $2 million this quarter and The Street by 6.

Yeah, and the flat growth in private label, it was a little bit lower than what you guys have previously reported. Is that just the timing issue?

Yeah. Again there's not much to read into it. You know, some of those private label products over the last year, have flattened out. You've read about, in particular, some of the orthopedic products that we OEM, their growth diminishing, so that's real, but it's not just Q3, again, we hadn't reported it for a while. Over the last six to nine months, some of those OEM or private label products have flattened out year-over-year, and again that’s implicit in our guidance going forward as well.

Is that the type of thing that bounces back with kind of like you know, CUSA wasn't doing well or Jarit wasn’t good, and then all of a sudden you get this growth, or is it…

The private label has historically bounced around. But again, there is a decent amount of it that is in the orthopedic market for some of our large orthopedic OEMs, and their product lines, they have said have started to grow less quickly.

Okay, great, and then on the tax assumption for the fourth quarter, you kind to have to get to a 24% range to get to your 30% full year? Is that right or something wrong about model?

Well, it's really complicated, and it will be very hard to do on this call, but implicit in our guidance, is an adjusted 31% for the fourth quarter, not 24, but it'd be easier to take offline to go through the detail. The way to think of about it is you every quarter have to reassess what the full year rate is, and we reassessed the full year rate in the third quarter and its 31%. The math for the fourth quarter is 31%, but adjusted, but the GAAP rate is well below that.

Okay. I think in the press release or in the Q, I think you talked about the 31% full year adjusted?

Correct.

Is that right? In the first half of the year it was north of 35 I think, and then this quarter was 31%, so now if you get to the 31 for the full year, the back half has to be or the fourth quarter has to be below that 31% --?

But again, you have to relook at that how year, and in fact if you look at our adjusted full year guidance for 2008, it's up. It’s up substantially, because we have adjust the first two quarters.

Okay. So you went back and--

No, trying to be intellectually honest. We did not take a victory lap for raising full year guidance this year, because the truth is, we did raise full year guidance, but it was mostly the impact that our first two quarters being adjusted down to 31.

Okay. Are those numbers on the website, or are they up for the --

They are in the press release.

We can talk about that offline.

And our IR team can walk you through it. But if you look at our new full year guidance, we actually raised it by about 7 or 8%, even though we left fourth quarter -- sorry not percent $0.07 or $0.08. Even though we left fourth quarter unchanged. And we were careful not to highlight it as raising the full year guidance, because the truth is, it’s sort of an anomaly of adjust in the first two quarters down to 31%. But the full year guidance did go up by, I forget exactly, but $0.06 or $0.07. But it really is just because of the estimate of the 31% rate. But we are not assuming fourth quarter as down at 24 for the adjusted. We are assuming 31, because we adjust the full year to 31.

Perfect. And then just my last question. On the convert side, you know there is obviously new accounting potentially ruled, so is that going to affect next year? What’s the impact for you guys on EPS?

We are going to give the GAAP, an adjusted guidance in the New Year. So we are going to give those numbers probably when we report, well some time in early 2009.

And your breakout, probably the convert.

I am sure, like other companies, will present GAAP and adjusted excluding the impact of the convert. That said, you can kind of do the math. We don’t want to do it, because we don’t want to give the forward-looking guidance yet you can do the math by taking a guess at our standalone borrowing rate when we did the convert, because you would do it based on when we did the convert and compare it to the cash rate of approximately two and three quarters, and you'd then apply that to the principal less the implicit value of the equity. I don't doubt you can get to that. We don't want to give it because we want to finalize the numbers and we want to kind of give the numbers when everybody else does and it's just a little bit early to be applying next year's accounting principles.

Okay. Thanks a lot.

We will go next to Jayson Bedford with Raymond James.

Hi, Jayson.

Hi, Stuart. Just a couple of quick questions here, just on the reconstruction group, are you seeing more bundling or cross-selling those skin products with the Extremity hardware? Is that still something you're looking to optimize?

Well, it's the same reps and there definitely is a co-point synergy. I would say it's been happening. I don't know that it's accelerating so much as what we've been doing for a while. It bears a lot of opportunity, particularly in the foot as it relates to a lot of orthopods doing wound care centers, and then in the hand, the synergy is between the upper Extremity products and the Nerve Guide products. We are seeing synergy in having launched our OrthoBiologics products. Recall, we launched a range of Integra OrthoBiologics products, both Mosaic and the former IsoTis products and the extremity sales force is selling that. Typically, if you're plating, you're going to put in some kind of OrthoBiologics. So there's definitely synergy there as well.

Okay. That's helpful. And what was taken in the quarter?

It's in the Q. I think I can give it out. It was $6.8 million I think and that number is in the Q, and then in the press release, it was taken plus the legacy IsoTis, which was I think about $17 million. It's in the press release, I can't flip to it right now, but they're both in there.

Friendly reminder, there is some acquired products in there as well

There is a little bit of other acquired, but also friendly reminder that the Theken number is basically two thirds of a quarter, so everyone remembers that. It was $15 million between IsoTis and Theken for the quarter.

Okay. It looks like IsoTis came down quarter-on-quarter. Is that just seasonality?

Sorry, it's more than 15. I'm sorry. We should probably take it off line. What were you saying?

I think it was $16.2 million with the combination, which implies that IsoTis kind of came down quarter-on-quarter. Is that just seasonality?

I think it's just nothing, I think its down from prior quarter by like $0.5 million. I wouldn't read any thing into it, except the randomness of the numbers quarter-to-quarter.

Okay, fair enough. Lastly, what is the organic growth assumed in the '09 revenue guidance?

Well, again, we're not giving out implicit organic growth, Jayson. Bottom-line is we continue to believe our long-term growth rate is double-digit. As I said in the call, we need to get our investors to appreciate that there is substantial growth in the things that we've acquired and I hope the new way we are presenting numbers will allow us to show, for example, that there is going to be substantial growth over the $34 million Theken number in 2009 and there is going to be substantial growth over the historical Integra OrthoBiologics numbers, even if we haven't reported them for several years. I'm going to continue to bang away against this idea that the way to measure our organic growth is based on things we haven't own for two years. I think you should look to 735 to 755 and try to look at how each of the businesses has grown. We will start to try to provide measures that help you understand how the acquired businesses have grown in the last year as well.

Fair enough, thanks.

(Operator Instructions). We'll go to David Roman with Morgan Stanley.

Good morning, everyone.

Hi David.

Thank you. Thanks for taking the question. I also want to thank you for all the detail on the website. It was very helpful to us over the weekend, but first, any benefits from the Federal R&D tax credit?

Not yet, no, that is going to be a fourth quarter event. We don't have an estimate for it yet because it was passed in the third quarter, it doesn't impact the third quarter, it will impact the fourth quarter.

Is that included in the guidance or not?

It's implicitly included although, again, that tax rate is a challenge. You should assume roughly the 31% adjusted tax rate.

Okay. On Theken, right around the time you acquired the business, there obviously was some M&A in the space. Have you been able to pick up any distributors given the recent movement specifically, Zimmer and Abbott?

Without talking about individual companies, the answer is yes. I don't want to give any indication as whose dealers are coming our way, but there is tremendous turmoil in the spine market right now, whether it be for mergers, companies choosing to go direct, companies having because of financial challenges to restructure the spine businesses, the larger companies changing their models. It's an exciting free-for-all in terms of representation in spine. If you keep in mind that Theken only covers less than half of the US with any sales people at all, I think you're going to see substantial organic growth in 2009 in our Integra Spine franchise.

Okay. Potentially we might see higher SG&A in near-term than higher sales looking farther out?

Not because of Theken. You will see the percentage go up, but the Integra Spine model is a small number of regional managers, so we're adding three or four next year at a cost of about $1 million for the year or $1 million in change. The rest is through dealers and the dealer SG&A is proportional. In other words, they generate $1 a sale because we ship to the hospital and we pay them X%. So that wouldn't drive a SG&A prior to revenues. Some of the things we're doing at the direct sales force, for example, adding 30 reps in Extremities, but really the guidance of 0.5 increase in SG&A has more to do with the percentage of sales that is spent to generate a dollar of Integra Spine revenue. So in that particular case, it's not spent ahead of revenues. With a direct sales force, you spend ahead of revenues. Do you follow me, David?

Yeah. That makes sense.

It will change the overall percentage because it just takes more SG&A to generate a dollar of revenue in spine than it does, in particular, with some of our more mature businesses like neuro or instruments.

Yeah, and there are a lot of good concepts there, where we see that, and last thing, the R&D number was very strong this quarter, and it looks like guidance you are giving for next year is slightly above at least from what we are looking at. Can you maybe highlight some of the sort of key projects that you're working, and I'm sure we will hear more about it next Monday? What are sort of the top few things we should be thinking about?

As far as you got to roll into your numbers. In Integra Spine business, that’s growing substantially year-over-year, that’s got Spine margins in line with other Spine companies that's got SG&A, actually better than most Spine companies, but certainly as a percent of sales, higher than Integra. They are spending 9% or 10% of sales on R&D, so they are averaging up our R&D spend as a percent of sales. As you look to our model going forward and we'll cover this in the Analyst Meeting, I think you'll see margin improvement in the gross margin line probably above what we historically have been talking about. Given some of that back in the SG&A as a percent of sales and the R&D, and we've always said, we hoped R&D would be between 5% and 6% and then delivered on a 5. Now in the quarter, we delivered on about 5.5%. In terms of the projects, there tend to be individual projects in the orthopedic categories, and it would be individual spine sets that Theken group is launching this year and next, it's individual extremities sets that the Integra extremity reconstruction group, and then its more the historical legacy activities in the rest of Integra. I can't really highlight one particular thing, because it's really the buildup of many-many projects. You are seeing overall an impact of the Integra DuraGen plus Adhesion Barrier trial, which is starting to roll into our numbers at increasing rates of expense, both because as patients move through the trial, it actually costs more and we accrue that based on, for example, them getting their first radiology exam, their second radiology exam. As we increase patients, the per patient fee of doing the surgery, but then you got a bigger install base of patients that are working their way through the clinical trial so the quarterly expense goes up incrementally each quarter. That’s an impact.

Okay, that’s all very helpful. Thank you

(Operator Instructions). We go to with Bill Plovanic with Canaccord Adams.

Hi Bill.

Great, thank you. Can you hear me okay Stuart?

We can.

Fantastic. Just three quick questions, the first how many patients have you enrolled or what percentage are you through the enrollment of the Adhesion Barrier trial?

We haven’t disclosed the numbers. We will do an update at the Analyst Meeting on the clinical trial though so we’ll be giving a little more insight next Monday on the overall trial. But enrollment is good and increasing on a monthly basis, and we continue to be very excited about the clinical trial. And obviously, we now have a chance to be first to market.

Yes, saw that. Secondly the acquired revenues, your 16.2 was IsoTis and Theken. What was the remaining 1.5 million, is that Precise Dental or--

It’s that little dental acquisition we did for Miltex about a year ago. That will anniversary maybe this quarter.

If we can know that's what it rolls into for the medical instrument at this point.

Yes.

Okay. and then the last question, just as you look at all the integration you've done, all the deals you've done, it seems like the IsoTis deal is done. The Theken deal, there's not a tremendous amount of integration and it's effectively already done. They're standalone operating. How many more charges? How much of more of this do we have to go or is this it was pretty much clean and we start to see the true benefits on the P&L moving forward.

Well, if you look at our forward-looking guidance for the fourth quarter and for next year, you have our guess at the charges, based on what we know now, and a vast majority of those are the purchase accounting for the Theken inventory. We did acquire a quite a bit of inventory. Normally we are able to push through the purchase accounting in a quarter or two. You can see in our forward-looking guidance, it's taking a longer than that. It's actually about four quarters and that's just because how much inventory they have carried historically, and the way in which you do the purchase accounting for that. If you look in our guidance for 2009, there's not huge numbers for the one time impact of these things. To your point, absent buying something new, and certainly Australia is not one of those things. There's not a huge amount of incremental purchase accounting or one time events that are anticipated at the moment.

And then last question. Was Australia, New Zealand (inaudible) distributor?

It was but it's not a big organization. Order of magnitude, if my memory is correct. Maybe it had $1 million of inventory.

Okay. Thanks. That's all I had. Thanks a lot.

If there are no other questions in queue I'd like to turn the call back to management for any additional or closing comments.

I'd like to each of you for participating in our quarterly earnings call and I hope you'll take the time to either meet with us next Monday at our Annual Analyst and Investor Meeting or dial in for the webcast or phone call. Thank you and look forward to seeing you next Monday.

And again, that concludes today's Integra LifeSciences third quarter financial reporting conference. Again, thank you for your participation. Have a good day.