Nov 9, 2007

Integra LifeSciences Reports Third Quarter 2007 Financial Results

Revenues for the Third Quarter Increase 16 Percent to $135 Million

PLAINSBORO, N.J., Nov 9, 2007 (PrimeNewswire via COMTEX News Network) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its financial results for the third quarter ending September 30, 2007. Total revenues in the third quarter of 2007 were $135.0 million, reflecting an increase of $18.4 million, or 16%, over the third quarter of 2006. Revenues from products acquired since the second quarter of 2006 were $14.6 million for the third quarter of 2007, compared to $1.8 million in the third quarter of 2006.

The company reported GAAP net income of $9.7 million, or $0.33 per diluted share, for the third quarter of 2007, compared to GAAP net income of $2.6 million, or $0.09 per diluted share, in the third quarter of 2006.

"We achieved record revenues in the third quarter," said Stuart Essig, Integra's President and Chief Executive Officer. "When taken together with the first half's very strong top-line performance, year-to-date we are ahead of our annual revenue guidance. We remain pleased with the underlying strength of our business and its continued ability to generate double-digit revenue growth, excluding acquisitions."

"During the quarter, we announced the IsoTis acquisition, which closed October 29, and began planning for the integration of that business into Integra," Mr. Essig continued. "In addition, both the Integra NeuroSciences and Integra Extremity Reconstruction selling organizations demonstrated continued progress in new product launches. These include DuraGen XS(TM), the latest generation in Integra's duraplasty line, and the AEON(TM) Memory Staple."

Operating income for the third quarter of 2007 was $18.3 million, a 55% increase over the prior year period. Integra generated approximately $10.7 million in cash flows from operations in the quarter.

In addition to GAAP results, Integra reports adjusted net income and adjusted diluted earnings per share. A further discussion of these non-GAAP financial measures can be found below, and reconciliations of GAAP net income to adjusted net income and GAAP diluted earnings per share to adjusted diluted earnings per share for the quarters ended September 30, 2007 and 2006 appear in the financial statements attached to this release. Integra's adjusted net income and adjusted diluted earnings per share for these periods are not adjusted for share-based compensation expense associated with FAS 123R.

Adjusted net income for the third quarter of 2007, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $11.3 million, or $0.39 per diluted share. In the third quarter of 2006, adjusted net income, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $11.1 million, or $0.36 per diluted share.

Integra LifeSciences presents its revenues in two categories: a) Medical Surgical Equipment and b) Neurosurgical and Orthopedic Implants.

The company's revenues for the periods were as follows:



                                                Three Months
                                             Ended September 30,
                                            2007           2006
                                           ------         ------
 Revenue: ($ in thousands)
 Medical Surgical Equipment and other     $ 85,873       $ 73,511
 Neurosurgical and Orthopedic Implants      49,142         43,136
                                            ------         ------
     Total Revenue                        $135,015       $116,647

In the Medical Surgical Equipment category, acquired products accounted for the majority of the increase in revenue. Mayfield(R)(1) and Miltex(R) product lines led internally generated growth. Mayfield posted its fourth consecutive quarter of double-digit growth. Strong growth in these product lines was significantly offset by a decrease in ultrasonic aspirator revenues of approximately $3.7 million. Ultrasonic aspirator product sales were unusually high in the third quarter of 2006 because of initial stocking orders from certain foreign distributors, which took over distribution from Tyco affiliates as part of the acquisition transition. Sales of product lines acquired after the second quarter of 2006 contributed $12.1 million of equipment product revenues during the third quarter of 2007.

Once again, sales of our bone growth products, DuraGen(R) family of products and extremity reconstruction implants led revenue growth in the Neurosurgical and Orthopedic Implants category. Sales of product lines acquired subsequent to the second quarter of 2006 contributed $2.5 million of implant product revenues during the third quarter of 2007 and $1.8 million in category revenue during the third quarter of 2006.

Gross margin on total revenues in the third quarter of 2007 was 62%. "We are pleased to report the third straight quarter of increasing gross margin percentage," said Jack Henneman, Integra's Executive Vice President, Chief Administrative Officer and Acting Chief Financial Officer. "In the absence of acquisitions, we expect that the faster growth of our higher margin implant products will work to increase our consolidated gross margins." Cost of goods sold included $1.2 million of inventory fair value purchase accounting charges from the LXU Healthcare acquisition. These charges adversely affected the gross margin by nearly 1 percentage point.

Research and development expense was $6.5 million in the third quarter of 2007 as compared to $11 million in the year ago period. Research and development expense in the third quarter of 2006 included a $5.6 million in-process research and development charge. In 2007, Integra increased spending on its biomaterial product development programs, including the adhesion barrier clinical trial and the further development of Integra MOZAIK(TM) Osteoconductive Scaffold and DuraGen XS(TM) Dural Regeneration Matrix.

Selling, general and administrative expense increased to $56.2 million in the third quarter of 2007, or 42% of revenue, compared to $43.4 million, or 37% of revenue, in the third quarter of 2006. The increase in selling, general and administrative expense over the prior year arose because of substantial increases in the size of our selling organizations, particularly for spine and extremity reconstruction, and higher expenses for corporate staff and consulting. As we gain more leverage from our larger selling organizations and decrease our reliance on outside consultants, we expect selling, general and administrative expenses to decrease to between 38% and 40% of revenue in 2008.

We reported a $1.6 million decrease in net interest expense to $2.3 million for the third quarter of 2007, primarily from the pay down of our line of credit and a higher cash balance offset by the interest expense on the $330 million in convertible notes issued in the second quarter.

We reported an effective income tax rate of 38% for the third quarter of 2007, which included the cumulative impact of changes in state and foreign income tax rates and certain other infrequently occurring items on the 2007 reported tax rate. We expect our effective income tax rate for the full year 2008 to be 34%.

At September 30, 2007, our cash totaled $129.5 million and we had no outstanding borrowings under our credit facility. In March 2008, our $120 million contingent convertible subordinated notes will mature.

We are updating our guidance for the full year 2007 and 2008. We are also providing guidance for each quarterly period in 2007 and 2008. Our estimates assume foreign currency exchange rates remain unchanged throughout 2007 and 2008. In accordance with our usual practice, our expectations for 2007 and 2008 financial performance do not include the impact of acquisitions or strategic corporate transactions that have not yet closed.

The acquisition of IsoTis, which we closed last week, is included in our guidance. We expect this acquisition to increase our revenues in the fourth quarter of 2007 by approximately $5 million and in 2008 by approximately $35 million. We anticipate the transaction to be 10 cents dilutive to earnings per share in the fourth quarter of 2007 and for the full year 2008 and accretive thereafter.

We estimate that we will incur approximately $1 million of inventory purchase accounting charges and $2 million of acquisition and integration related costs during the fourth quarter of 2007 related to the integration of IsoTis. In the first two quarters of 2008, we anticipate approximately $2 million per quarter in inventory purchase accounting and integration related costs related to the IsoTis acquisition. The company is finalizing the purchase price allocation for the IsoTis transaction and expects to record an in-process research and development charge in the fourth quarter of 2007.

In the future we may record, or expect to record, certain additional revenues, gains, expenses or charges (such as acquisition-related charges, facility consolidation, manufacturing transfer and system integration charges, and certain employee termination and related costs) that we will exclude in the calculation of adjusted earnings per share for historical periods and in providing adjusted earnings per share guidance.

Our quarterly and full-year revenue and earnings per share expectations are as follows:



                         Revenue           GAAP            Adjusted
                        Guidance        Earnings Per       Earnings
      Period          (in millions)        Share           Per Share
                                         Guidance          Guidance
 ------------------   --------------  --------------    --------------
 Fourth Quarter 2007  $150 - $155     $0.38 - $0.43     $0.45 - $0.50

 First Quarter 2008   $150 - $155     $0.35 - $0.37     $0.39 - $0.42
 Second Quarter 2008  $159 - $164     $0.40 - $0.44     $0.45 - $0.48
 Third Quarter 2008   $159 - $164     $0.51 - $0.55      same as GAAP
 Fourth Quarter 2008  $167 - $172     $0.65 - $0.70      same as GAAP


 2007                 $543 - $548     $1.33 - $1.38      $1.57- $1.62

 2008                 $635 - $655     $1.92 - $2.06     $2.00 - $2.15

On a quarterly basis, we expect to incur approximately $3.8 million, or $0.08 per share, of share-based compensation expense associated with FAS 123R in 2007 and 2008. This non-cash compensation expense is included in both the GAAP and adjusted earnings per share guidance for 2007 and 2008 provided above.

In July 2007, the Financial Accounting Standards Board (FASB) issued a proposed FASB Staff Position (FSP) on the accounting treatment for certain convertible debt instruments that may be settled entirely or partially in cash upon conversion. As publicly discussed by the FASB to date, the proposed FSP would require the proceeds from the issuance of such convertible debt instruments to be allocated between a liability component and an equity component. The resulting debt discount would be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The change in accounting treatment would be effective for fiscal years beginning after December 15, 2007, and applied retrospectively to prior periods. If adopted and issued as publicly discussed, this FSP would change the accounting treatment for our outstanding convertible notes. The impact of this new accounting treatment could be significant and result in an increase to non-cash interest expense beginning in fiscal year 2008 for financial statements covering past and future periods. Until the final FSP is ultimately adopted and issued by the FASB, we cannot determine the exact impact of this potential accounting change.

On October 30, 2007, our Board of Directors authorized $75 million for repurchases under a new share repurchase authorization, which will expire on December 31, 2008.

We have scheduled a conference call for 9:00 AM EST Friday, November 9, 2007, to discuss the financial results for the third quarter of 2007 and forward-looking financial guidance. The call is open to all listeners and will be followed by a question and answer session. Access to the live call is available by dialing 913-981-5592 or through a listen-only webcast via a link provided on the Investor Relations homepage of Integra's website at www.Integra-LS.com. A replay of the conference call will be accessible starting one hour following the live event. Access to the replay is available through November 23, 2007 by dialing 719-457-0820 (access code 5571094) or through the webcast accessible on our home page.

Integra LifeSciences Holdings Corporation, a world leader in regenerative medicine, is dedicated to improving the quality of life for patients through the development, manufacturing, and marketing of cost-effective surgical implants and medical instruments. Our products, used primarily in neurosurgery, extremity reconstruction, orthopedics and general surgery, are used to treat millions of patients every year. Integra's headquarters are in Plainsboro, New Jersey, and we have research and manufacturing facilities throughout the world. Please visit our website at (http://www.Integra-LS.com).

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements concerning future financial performance, including projections for revenues, selling, general and administrative expenses, GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, acquisition and integration related costs and non-cash compensation expense associated with FAS 123R. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted or expected results. Among other things, our ability to maintain relationships with customers of acquired entities, physicians' willingness to adopt our recently launched and planned products, third-party payors' willingness to provide reimbursement for these products, initiatives launched by our competitors, our ability to secure regulatory approval for products in development and our ability to comply with recently enacted regulations regarding products containing materials derived from animal sources may adversely affect our future product revenues; our ability to integrate acquired businesses and to leverage our existing selling organizations and administrative infrastructure may affect our future selling, general and administrative expenses, the timing of and our ability to integrate acquired businesses, increase product sales and gross margins, and control non-product costs may affect our net income and earnings per share; the amount and timing of acquisition and integration related costs; and the timing and amount of share-based awards granted to employees may affect the amount of non-cash compensation expense associated with FAS 123R. In addition, the economic, competitive, governmental, technological and other factors identified under the heading "Risk Factors" included in Item 1A of Integra's Annual Report on Form 10-K for the year ended December 31, 2006 and information contained in subsequent filings with the Securities and Exchange Commission could affect actual results.

Discussion of Adjusted Financial Measures

Adjusted net income consists of net income excluding (i) acquisition-related charges, (ii) facility consolidation, manufacturing transfer and system integration charges, (iii) certain employee termination and related costs, (iv) charges associated with discontinued or withdrawn product lines, (v) intangible assets impairment charges, (vi) charges related to restructuring our legal entities in Europe, (vii) charges or gains related to litigation matters or disputes, and (viii) the income tax expense/benefit related to these adjustments and the cumulative impact of changes in income tax rates and certain other infrequently occurring items that affected the reported income tax rate for the quarter. Adjusted earnings per diluted share are calculated by dividing adjusted net income for diluted earnings per share by diluted weighted average shares outstanding.

Integra believes that the presentation of adjusted net income and adjusted earnings per diluted share provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. For further information regarding why Integra believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this earnings press release filed today with the Securities and Exchange Commission. This Current Report on Form 8-K is available on the SEC's website at www.sec.gov or on our website at www.Integra-LS.com.

(1) "MAYFIELD" is a registered trademark of SM USA, Inc., a wholly owned subsidiary of Schaerer Mayfield USA, Inc.



                    INTEGRA LIFESCIENCES HOLDINGS CORPORATION
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (UNAUDITED)

 (In thousands, except per share amounts)
                                                Three Months Ended
                                                     September
                                                        30,
                                              2007              2006
 TOTAL REVENUE                             $135,015           $116,647

 COSTS AND EXPENSES
 Cost of product revenues                    50,863             47,559
 Research and development                     6,546             10,991
 Selling, general and administrative         56,241             43,431
 Intangible asset amortization                3,029              2,852
                                              -----              -----
     Total costs and expenses               116,679            104,833

 Operating income                            18,336             11,814

 Interest income                              1,518                375
 Interest expense                            (3,863)            (4,362)
 Other income (expense), net                   (325)            (1,765)
                                              -----            -------

 Income before income taxes                  15,666              6,062

 Income tax expense                           5,993              3,468
                                              -----              -----

 Net income                                   9,673              2,594

 Add back of after tax interest expense           3                 --
                                                  -                 --

 Net income for diluted earnings per share    9,676              2,594

 Diluted net income per share                  0.33               0.09

 Weighted average common shares
  outstanding for diluted net income
  per share                                  29,314             29,867

Listed below are the items included in net income that management excludes in computing the adjusted financial measures referred to in the text of this press release and further described under Discussion of Adjusted Financial Measures.



                                               Three Months Ended
                                                  September 30,
                                          ----------------------------
                                              2007            2006
                                          ------------    ------------

 Acquisition-related charges                    $1,239          $6,999

 Charges associated with convertible debt
  exchange offer                                    --           1,792

 Charges associated with termination of
  interest rate swap                                --           1,425


 Employee termination and related costs            130              --

 Facility consolidation, manufacturing transfer
  and system integration charges                    93              --

 Charges related to litigation matters or
  disputes                                         138              --

 Income tax expense (benefit) related to
  above adjustments                               (608)         (1,757)

 Quarterly adjustment to income tax expense
  related to the cumulative impact of the
  changes in tax rates and certain
  infrequently occurring items (1)                 667              --

(1) The above $667 reduction to income tax expense during the third quarter of 2007 was made to reflect what the income tax expense would have been based upon a 34% effective income tax rate. The adjusted 34% effective income tax rate for the third quarter of 2007 approximates the effective income tax rate that would have been reported for the quarter after excluding the cumulative impact of changes in state and foreign income tax rates and certain infrequently occurring items on the 2007 reported tax rate.



               INTEGRA LIFESCIENCES HOLDINGS CORPORATION
           RECONCILIATION OF NON-GAAP ADJUSTMENTS - HISTORICAL
                               (UNAUDITED)

 (In thousands, except per share amounts)
                                                    Three Months Ended
                                                      September 30,
                                                    2007         2006
                                                  -------      -------
 GAAP net income
                                                  $ 9,673      $ 2,594
 Non-GAAP adjustments:

   Acquisition-related charges (a)                  1,239        6,999

   Charges associated with convertible debt
    exchange offer (b)                                 --        1,792

   Charges associated with termination of
    interest rate swap (c)                             --        1,425

   Employee termination and related costs (d)         130           --

 Facility consolidation, manufacturing
  transfer and system integration charges (e)          93           --

 Charges related to litigation matters
  or disputes (f)                                     138           --

 Income tax expense (benefit) related to
  above adjustments                                  (608)      (1,757)

 Quarterly adjustment to income tax expense
  related to the cumulative impact of the
  changes in tax rates and certain
  infrequently occurring items                        667           --
                                                  -------      -------

     Total of non-GAAP adjustments                  1,659        8,459
                                                  -------      -------

 Adjusted net income                               11,332       11,053
 Add back of after tax interest expense (g)             3          755
                                                  -------      -------
 Adjusted net income for diluted earnings
  per share                                        11,335       11,808
                                                  =======      =======

 Weighted average common shares outstanding
  for diluted net income per share                 29,314       29,867
     Shares issuable upon conversion of
      convertible notes (g)                            --        3,381
                                                  -------      -------

 Adjusted weighted average common shares
  outstanding for adjusted diluted net
  income per share                                 29,314       33,248

 GAAP diluted net income per share                $  0.33      $  0.09
   Non-GAAP adjustments detailed above
   (per share)                                       0.06         0.27
                                                  -------      -------
 Adjusted diluted net income per share            $  0.39      $  0.36
                                                  =======      =======


 (a) 2007 - $1,239 recorded in cost of product revenues; 2006 - $1,399
     recorded in cost of product revenues, $5,600 recorded in research
     and development
 (b) 2006 - $332 recorded in selling general and administrative,
     $1,460 recorded in interest expense
 (c) 2006 - all recorded in other income (expense)
 (d) 2007 - all recorded in selling general and administrative
 (e) 2007 - all recorded in selling general and administrative
 (f) 2007 - all recorded in selling general and administrative
 (g) The "as if converted" method related to the convertible notes is
     applied in the calculation of adjusted diluted net income per
     share for the three months ended September 30, 2006 because its
     effects are more dilutive.

 Condensed Balance Sheet Data (in thousands):

                                             September 30,  December 31,
                                                 2007          2006
                                                 ----          ----

 Cash and marketable securities,
  including non-current portion                $ 129,498     $  22,697
 Accounts receivable, net                         92,313        85,018
 Inventory, net                                  126,371        94,387

 Bank line of credit                                  --       100,000
 Convertible securities, current                 119,962       119,542
 Convertible securities,
   non-current, and other long term debt         330,000           508

 Stockholders' equity                            250,397       296,162


                  INTEGRA LIFESCIENCES HOLDINGS CORPORATION
              RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE

 (In thousands, except per share amounts)

                           Projected Three Months   Projected Year
                                  Ended                 Ended
                                 31-Dec-07            31-Dec-07
                               Low       High       Low       High

 GAAP net income             $ 11,390  $ 12,850  $ 39,479  $ 40,939

 Non-GAAP adjustments:

 Acquisition-related
  charges                       1,000     1,000     3,870     3,870

 Facility consolidation,
  manufacturing transfer
  and system integration
  charges                       2,000     2,000     2,778     2,778

 Employee termination and
  related costs                    --        --        25        25

 Charges associated with
  discontinued or
  withdrawn product lines          --        --     1,456     1,456

 Charges related to
  restructuring European
  legal entities                   --        --       335       335

 Charges related to
  litigation matters or
  disputes                         --        --       138       138

 Intangible asset
  impairments                      --        --     1,014     1,014

 Income tax expense
  (benefit) related to
   above adjustments           (1,020)   (1,020)   (3,437)   (3,437)

 Adjustment to income tax
  expense related to the
  cumulative impact of
  changes in state and
  foreign income tax rates
  and certain infrequently
  occurring items that
  affected the reported
  tax rate                         --        --       942       942
                             --------  --------  --------  --------

 Total of non-GAAP
  adjustments                   1,980     1,980     7,121     7,121

 Adjusted net income         $ 13,370  $ 14,830  $ 46,600  $ 48,060
 Add back of after tax
  interest expense                  3         3        11        11
                             --------  --------  --------  --------
 Adjusted net income for
  diluted earnings per
  share                      $ 13,373  $ 14,833  $ 46,611  $ 48,071

 Weighted average common
  shares outstanding for
  diluted net income per
  share                        29,400    29,400    29,712    29,712

 GAAP diluted net income
  per share                  $   0.39  $   0.44  $   1.33  $   1.38

 Non-GAAP adjustments
  detailed above (per
  share)                     $   0.06  $   0.06  $   0.24  $   0.24
                             --------  --------  --------  --------
 Adjusted diluted net
  income per share           $   0.45  $   0.50  $   1.57  $   1.62


                  INTEGRA LIFESCIENCES HOLDINGS CORPORATION
              RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE

  (In thousands, except per share amounts)

                                       Projected          Projected
                                      Three Months      Three Months
                                         Ended              Ended
                                       31-Mar-08         30-Jun-08
                                     Low      High     Low      High
 GAAP net income                   $10,350  $11,000  $12,000  $13,000

 Non-GAAP adjustments:

  Acquisition-related charges        1,250    1,250    1,250    1,250

  Facility consolidation,
   manufacturing transfer
   and system integration charges      750      750      750      750

  Income tax expense
  (benefit) related
   to above adjustments               (680)    (680)    (680)    (680)
                                   -------- -------- -------- --------

 Total of non-GAAP adjustments       1,320    1,320    1,320    1,320

 Adjusted net income               $11,670  $12,230  $13,320  $14,320
 Add back of after tax
  interest expense                       3        3        3        3
                                   -------- -------- -------- --------
 Adjusted net income
  for diluted earnings per share   $11,673  $12,323  $13,323  $14,323

 Weighted average common shares
  outstanding for diluted net
  income per share                  29,600   29,600   29,800   29,800

 GAAP diluted net
  income per share                 $  0.35  $  0.37  $  0.40  $  0.44

  Non-GAAP adjustments
   detailed above (per share)      $  0.04  $  0.05  $  0.05  $  0.04
                                   -------- -------- -------- --------
 Adjusted diluted net
  income per share                 $  0.39  $  0.42  $  0.45  $  0.48




               INTEGRA LIFESCIENCES HOLDINGS CORPORATION
            RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE

 (In thousands, except per share amounts)
                                               Projected Year Ended
                                                     31-Dec-08
                                               Low             High
 GAAP net income                             $57,250          $61,500

 Non-GAAP adjustments:

  Acquisition-related charges                  2,500            2,500

  Facility consolidation, manufacturing
   transfer and system integration charges     1,500            1,500

  Income tax expense (benefit) related
   to above adjustments                       (1,360)          (1,360)
                                             --------         --------

 Total of non-GAAP adjustments                 2,640            2,640

 Adjusted net income                         $59,890          $64,140
 Add back of after tax interest expense           12               12
                                             --------         --------
 Adjusted net income for diluted
  earnings per share                         $59,902          $64,152

 Weighted average common shares
  outstanding for diluted net
  income per share                            29,900           29,900

  GAAP diluted net income per share          $  1.92          $  2.06

  Non-GAAP adjustments detailed
   above (per share)                         $  0.08          $  0.09
                                             --------         --------

 Adjusted diluted net income per share       $  2.00          $  2.15

IART-F

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: Integra LifeSciences Holdings Corp.

Integra LifeSciences Holdings Corporation
          John B. Henneman III, Executive Vice President, Chief 
           Administrative Officer and Acting Chief Financial Officer
            (609) 936-2481
            jhenneman@Integra-LS.com
          John Bostjancic, Vice President, Corporate Development and 
           Investor Relations
            (609) 936-2239
            jbostjancic@Integra-LS.com

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