Good morning, and thank you for joining us for the Integra LifeSciences Second Quarter 2012 Earnings Results Conference Call. Joining me today are Peter Arduini, President and Chief Executive Officer; and Jack Henneman, Chief Financial Officer.

Yesterday afternoon, we issued a press release announcing our financial results for the second quarter. Certain statements made during this call are forward-looking and actual results might differ materially from those projected in any forward-looking statement.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. The forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements.

Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures is available on the Investor section of our website at integralife.com.

As we aim to keep our prepared remarks short, we will reference the financial results in the press release and will not restate the individual numbers. As a result, you may want to keep a copy of the release handy during the call.

I will now turn the call over to Pete.

Thank you, Angela. As you saw in this morning's press release, we had a strong quarter on the top and bottom line, which came in above our expectations.

As pleased as we are with our performance this quarter, we're concerned about macro uncertainties and have further work to do related to our systems and quality improvements. Both external and internal considerations influence our revised guidance for the balance of 2012, which we will discuss in more detail later in the call.

U.S. Orthopedics led the growth.

U.S. Extremities grew 38% in the period with significant contributions from Regenerative Medicine, which grew almost 20%.

New product additions also contributed to growth in the quarter.

U.S. Spine and Other, which includes our Spine Hardware, OrthoBiologics and Private Label products, increased approximately 13%.

The increase was primarily from the addition of new product launches and strong growth in OrthoBiologics. As we saw in the first quarter, the Spine Hardware market remains challenging, both in price and volume.

OrthoBiologics products, Evo3 and Mosaic, continue to see high demand through both our existing base and newly-added distributors. This demand drove growth in excess of 20% for OrthoBiologics in Q2.

Private Label decreased versus the prior year period.

U.S. Neurosurgery revenues increased 2.4% over the second quarter of 2011.

Continued demand for our market-leading Duraplasty products, as well as strength in our CUSA and Cranial Stabilization product lines drove most of the increase. U.S.

Instruments revenues increased 9% versus the prior year. Sales grew in both the alternate site and acute settings.

The Acute Care business accelerated in Q2 in part due to some large deals we do not expect to repeat in the second half. Demand remains strong for our new Integra [ph] LED surgical headlamp.

In the alternate site channel, end user sales of our products continue to grow well, in line with our expectations. Our distributors have largely achieved their lower inventory targets and have returned to normal buying patterns.

International revenue was up 2% constant currency, but down 4% on a reported basis versus the prior year. In line with our expectations, Europe was up 1% constant currency, down about 9.5% on a reported basis.

The improvement in Europe is primarily driven by Neurosurgery due to increased selling efforts in our direct markets. The rest of the world grew about 1% on a reported basis and 2% constant currency, driven by growth in some Asian markets and offset by declines in Latin America.

The decline in Latin America is mainly due to a decline in dental instrument sales in some markets and a strong comparison resulting from the launch of our Spine Hardware products in Q2 last year.

Now I'll turn the call over to Jack to discuss the financial results in more detail and provide an update to our 2012 outlook, which after I'll bring you up-to-date on our quality system improvements and the remediation of our regenerative medicine facility. Jack?

Thank you, Pete. I'm going to talk about the top line and our decisions around guidance, and then review the P&L in a bit more detail.

We had a stronger quarter than we expected. All our businesses performed well.

As a result, our revenues exceeded the high end of our expectations, growing 10% on a constant currency basis. We continued to improve execution in our supply chain and took the opportunity of our over-performance on the top line to make faster progress against our initiatives.

Looking ahead to the full year, we are raising 2012 guidance for revenues, but not earnings, to reflect the combination of the successful first half results, an increase in our GAAP and adjusted tax rates and the risks that we must manage during the remainder of the year. The increase in our expectation for the top line balances the good start to the year with our growing concern that external economic considerations will make for a tougher second half than we originally planned for.

In addition, as Pete will discuss in a moment, it has been our consistent message that we still have work to do with our quality systems, have not yet resolved all the outstanding issues of our regenerative medicine facility and expect to accelerate other initiatives if better revenue performance affords us that opportunity. We believe this is a prudent approach, and that we will be able to meet our targets.

For 2012, we expect reported gross margin to be in the range of 61.5% to 62.5% and after adjustments in the range of 64% to 65%. In the second quarter, the GAAP gross margin percentage of 62.8% improved over both the prior year period and the first quarter of this year, reflecting improved sales mix and fundamental performance in manufacturing operations, offset by higher expenses for quality systems improvements in the plants.

Higher manufacturing costs include period expenses associated with the remediation of our Plainsboro regenerative medicine facility and quality systems improvements in other facilities.

We calculated adjusted gross margin by backing out the items to cost of goods sold detailed on Column A of the Adjustments table in our press release. During the second quarter, our adjusted gross margin of 55.3%, was up nearly half a point over the comparable measure in the second quarter of 2011, notwithstanding higher department spending to improve quality systems and locations other than Plainsboro.

Compared to the first quarter of 2012, the adjusted gross margin improved slightly, driven by sales mix.

For 2012, we expect R&D spending to remain between 6% and 7% revenues. In the second quarter, R&D expenses were up about 3% versus the prior year, but declined to 6.2% of sales.

Increases in spending on Extremities and Spine were offset by reductions in other areas.

For 2012, we expect reported SG&A to be in the range of 44% to 45% of revenues and after adjustments to remain at last year's level, around 42%. In the second quarter, GAAP SG&A was essentially flat versus a year ago, declining nearly 4 points to 46% of sales.

G&A declined compared to 2011, which included an equity grant to our prior CEO that did not recur in the current period. Sales and marketing expense increased over 2011 mainly because of the addition of SeaSpine and Ascension.

SG&A adjusted for about $5.7 million of special charges, as detailed in our press release, with 43% of revenues up versus the prior year. Selling expense in particular increased over the prior year because a higher proportion of our U.S.

sales were through distributors.

In the second quarter, our adjusted EBITDA margin was 19.3%, down slightly from 19.6% in the prior year period. For 2012, we suggest modeling approximately $27 million in depreciation expense and $25 million in intangible asset amortization, $6.5 million of which will be recorded in COGS.

Interest expense, net of income, was $6.7 million. We recorded $200,000 of other income during the second quarter.

In June, we repaid our $165 million convertible notes on maturity using a combination of cash on hand and borrowings under our credit facility. We finished the quarter with $322 million in borrowings under our credit facility and $194 million reported for our senior convertible notes due in 2016.

We recommend modeling approximately $5.5 million per quarter of interest expense during the second half of 2012. These amounts include the noncash portion of our interest expense.

We suggest modeling $3.5 million per quarter of cash interest expense in the second half.

We ended the second quarter with an effective tax rate of 26.4%. For 2012, we expect our reported tax rate to be 21.3% and our adjusted tax rate to be 30.2%.

These are slight increases from our previous guidance. Our adjusted tax rate assumes the reinstatement of the R&D tax credit in the fourth quarter, but our GAAP rate does not.

We generated $2.3 million in operating cash flow during the second quarter. As we discussed when we gave guidance for the year, about $30 million of the convertible notes repayment in June ran through operating cash flow as it created interest.

Taking that payment into account, the underlying business generated considerable cash. Capital expenditures in the quarter were about $14 million.

We expect to spend $55 million to $65 million on capital expenditures this year, which reflects our new estimates for the timing of our capital prospects.

Notwithstanding the strong performance in the first half, we do not expect any fundamental change in the growth expectations for our segments. For the full year 2012, we expect U.S.

Neurosurgery revenues to increase low- to mid-single digits, U.S. Instrument revenues to increase low- to mid-single digits, U.S.

Extremities revenues to increase high teens to low 20s, U.S. Spine and Other revenues to increase mid- to high-single digits, and International revenues to be flat to up low-single digits, with the flat to declining business in Europe essentially offsetting growth elsewhere in the world.

Finally, we promised on our April call that we will give our first estimate of the impact of the medical device tax on our 2013 results. Though the caveats of the regulations are not final, we expect the gross effect of the tax to be approximately $13 million.

That number does not include offsetting several corporate tax benefits, med tech tax itself, of which we will have more to say when we give our guidance for 2013 on our fourth quarter call. We are still considering how we will reflect the tax on our financial statements, but expect to follow the practices of the large cap medical device companies.

Now I will hand the call over to Pete.

Thank you, Jack. We are certainly pleased with our performance in the second quarter.

With that said, we have much to do to reach our goals in 2012. We've set 3 major goals for the company.

The first goal is to improve execution on fundamentals, including in our operational areas, and we've cleared a large portion of our regenerative medicine back order, but we still have catch up work to do, especially in our Private Label business. More critically, we still have work to do to remediate the issues the FDA has raised in our Plainsboro facility.

The FDA is inspecting our Plainsboro facility as we speak, but while we do not know the results of the inspection, we're both pleased with the progress that we've made, and we believe that we still have more work to do before the FDA will clear the issues raised in the warning letter. We'll not speculate further about the results of the inspection or otherwise characterize it until the FDA has completed its work.

Resolving the warning letter, improving our quality systems in other facilities remains a top priority, as we are aggressively applying both financial and human resource towards that end. While we believe that our incremental remediation expenses peaked in the first half, we will continue to put significant dollars towards improving our quality systems until we are satisfied that they are sufficiently robust.

The second goal is optimize our operations. For our size, we're a complicated company with more technologies, products and locations than even some larger businesses.

That complexity is a significant opportunity to optimize the organization to a more streamlined footprint in common systems. We kicked off this journey earlier this year at our Analyst Day meeting, which we will have scheduled now for October 24th, in connection with the North American Spine Society meeting in Dallas, Texas.

We will discuss our long-term plans which will include our efforts to streamline our operations, processes and activities in more detail. Finally, we have also been hard at work implementing a new global ERP system and expect our first field implementation later this year.

Each of these initiatives will contribute to optimizing the company.

The third goal is to accelerate growth. The second quarter's results are a nice step in that direction.

We look forward to the new product launches, the growth of our sales and distribution organization and especially in Orthopedics in outside the United States. And also, sensible and strategically important acquisitions to drive growth in the future.

Before I conclude, we're pleased to welcome Bob Davis to Integra as the President of U.S. Neuro division.

Bob is a strong leader and business manager, with more than 25 years of experience in the global health care industry. Most recently, Bob was the General Manager for the global anesthesia and critical care business at Baxter Healthcare.

Prior to Baxter, Bob held various leadership positions at GE Healthcare and Hewlett-Packard. Chris Thatcher, who many of you know, has been appointed President, Corporate Initiatives, focusing on key strategies aligning with our organizational commitments.

Now, we'll be happy to answer your questions. [Operator Instructions] Operator, you may now open the call to our participants.

So I'm just trying to understand some of the moving pieces within Ortho. Extremities was very strong this quarter, but Spine and Other took a little bit of a step back.

It sounds like that wasn't due to Biologics. So the first question would be, what's going on with Spine Hardware?

And then what can, if any, tell us about the success you're having on the Extremities side?

Sure, I'll take a shot at that and then Pete may fill in and expand and elaborate as he sees fit. The -- so Spine -- so the U.S.

Spine and Other segment, just so everyone has it in mind, has really 2 pieces to it. Our Spine and OrthoBiologics business, which is essentially managed centrally through overlapping distributor networks and our Private Label business, which is heavily oriented to Orthopedics as well.

As we said, the Private Label business was down. So that had an impact on that segment's results.

The OrthoBiologics numbers, which are -- obviously do not include any impact of any acquisition, were up very -- up strongly again. I don't know how many quarters in a row this is, but they've been doing very well.

Spine Hardware was actually pretty encouraging for us. We faced the same pricing headwinds that are reported by the other players.

We're not going to tease apart because as we said, we've really fully integrated SeaSpine. But when we file our Q in the next few days, you'll see the pro forma numbers.

And I just want to -- you guys should go back and take a look at those. If you pro forma it all back using the methodology required in the Q, you'll see that we had about a 1% gain, a small gain in Spine Hardware fundamentally.

So that is very encouraging for us we've actually managed to get the whole thing running pretty well, and we're pretty encouraged by it.

Chris, I would just add that, to Jack's point, in Extremities, there were regenerative products to skin and our neuro products are doing -- continue to do well, obviously, the new Ascension products. And not only the effect of just Ascension by itself, but those products, coupled with our portfolio, have created some new energy in our total portfolio.

So that's driving some of the continued growth in our hardware on the Extremities side. And as Jack said, in Spine, obviously, the OrthoBiologics continues to do well.

But in Spine outside have some good execution by the commercial team, we also had some new launches, our new scoliosis system, the Daytona System, which did quite well within the quarter, and we see that continuing. We have a minimally invasive system out that's doing quite well.

So it's a complement of our good commercial execution, and quite frankly, an ongoing and tough market with some new products is kind of how we see it.

That's helpful. Just secondly, can you comment on how much of an impact those large orders you say that within instrument had this quarter?

And what's the right growth rate for that business now that it seems like things are normalizing a bit?

Chris, I mean, I think we're not going to specifically quantify the level of them, but the fact is, is that we had a stronger first half in Instruments, primarily driven by the Acute Care business with some bigger orders. We don't see recurring in the second half.

And so, we expect to get back to our normal kind of run rate levels, which is more in the lower single-digit growth areas. And so to Jack's point, with the stronger first half, lower second half, kind of in the mid-growth range for the year is how we see the growth continuing.

Off site, we believe at this point now, as I've mentioned in my prepared comments, that our distributors are really at their normalized level, which means at the lower carrying levels, and we believe they're going to continue to order at that rate for the foreseeable future.

So just a couple of questions on the -- one on the revenue line and then maybe a quick question on the guidance on the earnings. So on the revenues, I was very encouraged by the Instrument business growing quite a bit in the second quarter here.

And you guys, obviously, are bullish enough to raise the numbers. Just curious kind of how you see the second half, where did you get the confidence there?

Is this something that you were seeing -- are we seeing some pent-up demand playing out here, or how should we think about sort of next few months as we -- in the context of what should be just done in the second quarter?

Spencer, thanks for the question. Look, I think from an Instrument standpoint, we've had a good first half across the board for the most part.

As we mentioned in the comments, challenges in Europe, just the whole economic uncertainty, even in the United States, we tend to be a little bit more cautious. Our guidance really, if you take a look at our increase we had in the first half, and we fundamentally don't parlay that forward, that still relates to our increase that we've placed for the second half.

And part of the non-raise on the EPS side as well is specifically tied to we have other expenses and things that we've plan on spending additional funds on as we already communicated in previous calls. And Jack, you may want to talk a little bit more specifically about the revenue guidance?

So, Spencer, just to clarify, were you asking about the consolidated revenue guidance or about the Instrument guidance?

Well I was just trying to try to -- yes, I'm trying to get the view on both in terms of the consolidated, as well as the Instruments side, sort of what kind of thought processes will you guys -- in your numbers, how you guys have thought about the 6 months-plus outlook, kind of where you guys are coming out with -- based on your projections, kind of how the guidance reflects that, I guess, is what I'm trying to ask.

Sure. So on the Instruments side specifically, just to clarify, we did say that because of the strong performance in the second quarter, we expect the 2012 growth of the Instruments business to now be low- to mid-single digits, okay?

That's a little bit of a tweak up in the language from the first quarter, but that reflects the second quarter performance where we had a couple of these big orders. We don't expect them to repeat, so don't go extending the second quarter growth rates for Instruments to the rest of the year.

You should listen to our guidance for the full year, low- to mid-single digits for the Instruments division. Now as far as the entire company goes, we've had a good half.

In the first quarter, we came in at the top of our guidance range, and that reflected our ability to execute in March as we had forecasted when we talked in February. The second quarter, again, was quite strong.

So on the one hand, it's a strong first half. And we give annual guidance.

So if we didn't give you any increase, it would look like we were taken down the back half, and we don't want to take down the back half. On the other hand, we don't want to raise the back half because even though we're doing well in our businesses and we have a bunch of momentum, the truth of the matter is, is we see a lot of uncertainty out there.

I think every other device company is talking about the same things we're seeing. So that's the sort of message we're sending.

It's a small raise meant to reflect our total performance for the year, not new bullishness about the back half.

Okay, that's very helpful, Jack. And then just a follow-up on EPS guidance.

The -- one thing that I -- this may have been just me, but my impression when Peter came in as the new CEO, was that you guys may go through some review of your current cost structure and take a hard look at some of the operational issues and potentially try to get some of that improved or a tweak to be more efficient and so forth. I was curious whether that -- kind of where that process is at this point?

And if there is going to be any leverage from that, when would we see something like that at the bottom line?

Yes, we're developing the plans. And as you've probably heard on the scripted portion of the call, we're going to talk a lot about that at our Analyst Meeting in the fall, which we've now scheduled for October 24 in Dallas in connection with the NAS meeting.

So we're going to do our Analyst Day and we'll have sort of a fairly, I would think, developed presentation of what we plan to do at the time. We're still in the middle of planning for that.

So we're not suggesting that long-term restructuring benefits are flowing through our current results. We're working on it, in fact, we're spending money, as you can see, to develop what our -- what we plan to do and get working on some of these programs now.

So that's the main point there. Now as far as the EPS guidance for the year is concerned, yes, we did raise the revenue guidance for the year a little bit.

We did not raise the earnings guidance, and the main reason we didn't raise the earnings guidance, along with the revenue guidance, is number one, we do expect a slightly higher tax rate for the year. So that eats up some of the gain that you would get.

And secondly, we've concluded that we're going to spend a little bit more money in the back half on initiatives, quality systems and a number of other things. And so while we're fairly optimistic about the year, and we're happy to how it's progressed so far, we don't want to raise the earnings guidance in the back half.

This is actually Jon in for David. I had a quick question on the integration for Ascension.

We kind of saw U.S. Extremities performing a little better than we expected it to.

And I was wondering if this was, I guess, more related to counter synergies from the acquisition fading and maybe even turning into some synergies from cross-selling?

Well, I mean, Jon, as we've communicated, I think we talked even at last call that the Ascension integration fundamentally was completed really at the end of Q1. We feel good about the progress, and as I just commented earlier, I think one of the benefits that we are getting is new products into the pipeline are really starting to actually generate some good synergies with our legacy products as well.

Also keep in mind that we've got the new shoulder product into the portfolio, which we're starting to see some nice lift in Q2 that we didn't have the same type of growth in Q1, primarily because if you remember, we're just really launching this product line. That accentuated with our Biologics portfolio which continues to be strong.

Okay. And then as a quick follow-up, gross margins, I guess, seemed a bit stronger than we would have expected and SG&A was probably a little higher as well.

Is this something that we should kind of expect carrying forward in the remainder of the year?

Well, we've had the gross margins really coming down to a nice shift with mix. I mean, we've been talking about that mix shift primarily tied to a lot of our Orthopedics growth.

And so we're starting to see some of that come through the overall P&L. Jack, I don't know if you want to comment any further?

Yes, I would pay some attention to the guidance on gross margins. We don't necessarily expect the strong, strong results on gross margin in Q2 to extend in a linear way through the second half of the year.

Our gross margins always moved around a little bit, and it's always been a mistake to try and draw a granular trend from any one quarter to the next. We do have some variances that are in inventory that will come out in the back half that will have a negative impact on gross margin to some degree for instance.

But it's highly dependent on the mix, and we don't know exactly what the mix of products we'll sell in the back half will be. So I think if you sort of stick to our guidance, as a way of thinking about it, probably drive you to the closest result we can come up with.

And your SG&A question, yes, SG&A spending was a little higher than expected, partly because the mix of business in the company continues to shift toward Orthopedics. That has higher selling expense associated and partly because we are continuing to spend money where we need to on things like quality systems and other initiatives, and we'll do so when we have the P&L capacity to make it happen.

We're not being tied on that front because we need to become excellent in that area.

So a question on Neuro. The U.S.

Neuro looks like it's tracking more to the low end of your range. Can you just talk a little bit about U.S.

Neuro? And also, can you clarify your overseas Neuro comment?

I think you said Europe Neuro was performing pretty well because of some changes in selling efforts there. So can you talk a little bit more about the overseas Neuro as well?

Yes, Amit, I think -- look, from the U.S. standpoint, it was a solid quarter.

I think it was a little bit due to timing of what deals and things are coming through, you know, played a little bit into where we are. I think fundamentally, we feel pretty good about where we ultimately ended up from a deal structure, in particular, what our flow products look like.

And as I've mentioned in the comments, CUSA's did well. We don't see really any major declines or issues with that level of capital purchases.

And we also have our cranial positioning products, that stabilization products that actually did well during the period. But I think as communicated in previous calls, we do have product launches and stuff coming in the second half, so we're counting on some of those products to kind of tick up a little bit of the growth rate for our full year projections.

So that's kind of the U.S., from a o-U.S. standpoint particularly in Europe.

It's obviously a tough market all across the board. And since Neuro is a larger part of our business, we typically feel that there more.

With that being said, one of my comments were about distribution since Debbie Leonetti has taken over running our overall International business a little over a year ago, we've had a major focus on really optimizing our sales effectiveness and performance, very focused country plans, performance management. We've really looked at our distribution structure, our direct and both indirect and implemented a lot of changes really at the end of last year.

And we think now we're starting to see the benefit of really just stronger selling capabilities in certain countries that a lot of our Neuro products are strong and many of these, at this point, are the Western Europe markets.

So I just want to clarify, so you expect that to continue going forward then as it sounds like on the overseas side?

Yes, I would expect better execution to continue in a world of uncertainty and challenges in Europe. I guess that's kind of how I would place the caveat.

And so, clearly, from our comp from previous years, we're doing better because we have better people on the ground executing and delivering, but in a market that's clearly even softer than it was last year.

Okay. And then my follow-up was on Foot and Ankle, can you just review for us the competitive landscape, especially in forefoot and just give us the performance on mid and hind?

Yes, I'll comment a little bit about the market and then Jack could comment a little bit about just some of our overall performance. And when I look at -- I mean the market continues to be competitive.

There's more players, obviously, coming into the marketplace. We see obviously now versus a few years ago increased competition clearly across the board that definitely translates into some more price pressure than we had seen in previous years.

All that being said, the addition of new products that actually make the procedures, obviously, more effective and increased outcomes for patients, as well as our easier to use, either in instrumentation or actually the implants clearly gives us some differentiation, we feel good about the timing and the integration of Ascension. And I think to my previous point, not only in the upper extremities where the Ascension product line brought some really nice products in, but also in lower because now we have a more extensive product line.

We have more competition. If you got really everything that's needed, you can be a little bit more captive with certain positions on your discussion.

So we're definitely seeing more focus there. A lot of the new players, a lot of the bigger guys obviously coming into this space.

What we've done as well on top of new products is we really spent a lot of time on sales force effectiveness with training and development, really taking a look at our distribution structure. We've optimized many of our territories at a much more focused area to be more competitive.

And we feel really good about our overall position. Jack, you may just want to comment at a high levels just on some of the extremity performance?

Yes, I mean, I'm not sure there's a whole lot to add to that. Our Extremities grew -- had a really good quarter.

I would make an observation that it also grew substantially over Q1. And obviously, there's no acquisition noise in Q2 versus Q1.

So we feel really good about our Extremities business in the main. I'm not sure that -- well, it is the case that there is more competition in the Foot and Ankle hardware areas and other things.

We think our guys are meeting that competition. They're also scratching where it itches and selling a lot more of the stuff that we've got in our bags that other people don't have.

And that's showing up in the results for this segment. So that's how we look at it.

Did legacy Foot and Ankle grow in the quarter?

Yes.

Just first on -- non GAAP gross margin was as pretty solid here for the second straight quarter above 65%, if the full year guidance is 64% to 65%, it looks like the start of a trend here. Can you just give us an idea on what hurts gross margin in the second half of the year?

Sure. So, Jason, you've been following us a long time.

And this is probably a conversation we've had before. My view, based on history, is that it's never wise to come up with quarter-to-quarter trends and stare at them.

And we've got a lot of things going on. We had a nice quarter from a gross margin standpoint.

We had good sales mix. We sold a lot of high-margin stuff.

You saw the Regenerative Medicine products and Extremities did really well. All good stuff.

And so we're very pleased with it. The reason why we didn't raise the guidance for the full year though is number one, we're continuing to do a bunch of work on our facilities, so we're having the department spend in the facilities, and we're going to continue to do that until we feel they're really humming like tops.

That's point one. Point two is there are variances in inventory, we already know about them, but -- that will be popping out in the back half of the year, and that will be a little bit of a headwind on gross margin.

I don't want to get into the granularity of that because it depends again on what products we actually do end up selling. But that will have some impact.

Jack, do you feel more confident in your ability to forecast gross margin today versus, say, a year ago?

Yes. Yes, the manufacturing -- number one, we've substantially upgraded, frankly, our FP&A team working in that area.

Number two, we have -- we're getting more -- slowly but surely, we're getting more consistent month by month performance out of our plants and our planning group. And it's not a straight line, but it's an improvement, and it's just getting better for us.

I would add, Jason, to Jack's comments about, obviously, everything from our F&LP [ph] processes to how we're forecasting. We've spent a big focus area, obviously, since the end of last year.

We've talked about it, and we think that improvement is increasing. But again, just to add to Jack's points, we've benefited from mix.

We're spending against the quality initiatives which we will continue really through this year. We're making some good progress, and some of this is less about spend on actually trying to correct things and more around spend to create commonality and simplify.

But the spend still are roughly at the same level. And we've talked about the initiatives that we're going to talk about more really at our Investor Day a lot of the things where we're already starting to put money in against and some of those changes, they have some direct effects, obviously, to gross margin.

That's helpful. And just quickly as a follow up.

It was a little unclear. Are you cleared of your backorder situation both in the U.S.

or o-U.S. or are you still in some sort of back order?

Yes, I mean we're fundamentally for our major product lines, out of back order. But we still have selected backorders across the globe.

And we feel very comfortable that we'll be able to alleviate those here in the next few months. Now that's back orders.

But we still won't be to the same level of carrying inventory that we want to be at on these products. And so quite frankly, the added growth we had in the first half, we're very excited about it, that's great.

That also had more of a challenge on leading the backorder because we also had increased sales on a lot of the selected products.

Looking at your revenue guidance, and if you were to take out currency, you have been guiding 6% to 8% ex-currency. Given the currency headwinds, what would the new revenue guidance will look like, ex-currency?

What would the new revenue guidance look like ex-currency? The revenue guidance we gave assumes current exchange rates.

So -- that's a way to think about it for the rest of the year. If exchange rates stay the same, we expected to do between $828 million and $838 million for the year.

Now there are baked in year-over-year currency differences, obviously, the euro -- in Q3 a year ago, the euro was something like $0.18, $0.19, $0.20 more valuable than it is today. So when we get to report in Q3, we'll tell you about the year-over-year currency effects, however they unfold ultimately.

But the guidance we're giving for the year assumes current exchange rates. So that -- does that make sense?

Well, you had a 9% reported and a 10% ex-currency for the quarter. So if you were able to look forward at the end of the year and take that currency, what would the new guidance look like in terms of...

The year-over-year growth rate would be on the order of 6.5% to 8.5% constant currency if currency stays the way it is today. Something like that.

That was on the fly math that we were doing here to get you that answer.

I think, yes, that's fair. Are there any other benefits from the spending that you're doing optimization as -- Peter, as you said, commonality and simplify in terms of the either cost savings or benefits that you may not see this year but further down the road, that you are spending on?

Well, ultimately, David, that's our plan. So I mean, the focus that we've got is get around this 3 strategic points for the company about improving overall execution, optimizing the company, accelerating growth.

Just a focus on execution goes much deeper than, obviously, making sure that we deliver our numbers. It's about creating a deeper culture in the company with training and development so that we can take on bigger things, do things more effectively, do things more effectively with less systems and less people involved to be able to accomplish that.

That's part of the whole simplification piece. And then in Dallas, that's part of what our plans are, is to give you a view into the different components of what we're working on, the rough benefits of how we see those manifesting themselves.

And also then how we see the company evolving because of that. So the short answer is, yes.

But like many of these items, as you start these initiatives, they take money to start. They tend to have some level of lumpiness in the benefits meaning you sometimes take a step back to get 2 forward.

And how you orchestrate those together is what we clearly are looking at and integrating in. But we're quite pleased with how the organization is embracing and adapting kind of these approaches, and we're quite happy with the results we've had today.

So you mentioned a significant growth of 20% in regenerative medicine. What particular product line led that growth, if that's available?

So in our Extremities business, the portion of that, just to kind of remind everyone, that half of our business, unlike a lot of the other Extremities players, there's regenerative product and many are traditional metal implants, in that portfolio, are skin derivative base products, as well as the neuro repair-type products are the 2 main categories. And they drove the majority of the growth.

Okay, and then just one quick follow-up question. Would you look to do any additions in that area on the regenerative side, either through acquisitions or new product lines?

So regenerative medicine is clearly one of our wheelhouses. It's one of the core strengths of the company.

We are clearly have been focusing internally on our own R&D and prioritizing items towards that area, so that's an area that you'll see, and we're going to be focusing on growth in that area to bring out new products. And clearly, from an acquisition standpoint, either in partnering, licensing, as well as straight out acquisitions, yes, I would say in the future that you'll hear more from us from that area.

It's Rosemary in for Steve. Can you talk some more to the initiatives on the ground to accelerate spine growth?

Sure. I mean, I think, first of all, I guess, the whole backdrop is, is that we haven't really seen a significant change in the spine market, meaning that the price challenges still -- we see them consisting -- persisting.

And we also see a lot of the same challenges in consolidation of items that are taking place in a lot of the hospitals, meaning how people are actually buying. That being said, internal to Integra, with the integration of SeaSpine, which was completed a few quarters ago, we've got a very strong commercial team.

The team has been quite successful, really selling the story of what Integra Spine is all about and where we're headed. And so we've had, I think, a positive impact of bringing new distributors into the fold.

When you take a look at our world-leading OrthoBiologics portfolio and the growth that that's had, that's also a very nice component of having more distributors come in, more distributors being able to get our products out to a further reach has been a big part of it. The second part I mentioned a little bit earlier here in the Q&A, which is new products.

So we've had a nice unfolding of new products, inter-body devices that have some novel capabilities to actually reduce steps and reduce -- limit uncertainty for the clinician. The deformity product, the fact is, we really haven't had a full deformity system.

And as you probably know, the deformity season really happens around the December holiday break and really in the summer when a lot of kids are out of school. We started this one with a strong set, and a good chunk of our growth from Spine Hardware really came from some of those new products.

That all said, any growth we get, we have to deal with 3% to 5% price headwind pretty much each quarter. So we feel good about the focus and the spirit of our overall strategy, execution is the focus within spine, both in commercial, as well as getting new products out the door.

Okay, that's helpful. And just following up on Amit's question, I was hoping to get some more color on your European outlook in general.

It doesn't sound like your macro outlook for Europe is any better or worse than it was previously.

I'll comment, and then Jack, if you want to add any further color. I mean, we've been very transparent I think from the beginning of the year, saying that our plans really contemplated this year a tough Europe.

And then obviously, we were hoping that it wouldn't be a tough Europe, but it is. And we had planned for that, that coupled with really realignments in our European organization, which took place at the end of last year, helped position us to kind of deal well, I think, with some tough markets that are there.

We also have been bringing some new products into the markets. So our spine products, new extremity products, primarily tied with Ascension, so that's given us some new reach and really some new products and energy with our sales force and actually with customers.

But that all being said, we don't have any crystal ball that says that we think Europe is going to get any significantly better in the second half. I think from what everyone else has been saying about their feelings on Europe, I think we're probably in the same boat relative to the ongoing outlook.

And so our focus is really being able to deliver execution against our key customers, being able to bring the new products in that we have planned and actually launched them on time, which we feel good about. I mean, Jack, I don't know if you want to add anymore color.

Yes, I mean, look, we were up 1% constant currency. And judging from the landscape in the industry, that's actually pretty good.

As Pete said, our plan -- not that you want plans to be down, but we've pretty much forecast that we'll be down in Europe for the year. And so the fact that we're up a hair is not a bad place to be.

So just one follow-up on spine and one on some of the work that you're doing sort of in the back -- sort of sounds like back office systems, function, shared services kind of work. On the spine business, I guess you're annualizing the SeaSpine acquisition currently, and I'm just wondering, as you head into the back half of the year -- and I apologize if this question came up, Spine and OrthoBiologics, if that's the way you talk about it, do we see some moderation there?

Do we see -- what should we expect from that line as you sort of get past the annualizing of SeaSpine?

Right. Well, so this is Jack.

It all sort of depends on what you're comparing it to. But early in the call, and I'm not -- I don't know whether you were on at that stage or not, we had a question about Spine, that segment.

And we said on the call, Private Label was down. We said on the call that OrthoBiologics was up north of 20%.

That was a strong performance there, and that's part of the segment. And then, we didn't give a sort of organic growth number for Spine Hardware because we've integrated the lines in it.

As always, we've taken a point of view that we want don't want to change the behavior of our people because we're talking about one product line versus another. But what I did say is that if you go pro forma, the performance of the business, and you just sort of look at what SeaSpine did last year before we bought them and then after we bought them, and add as that ends, our Spine Hardware was actually up low single digits.

And that's in the -- we said 1%, so that's in the face of pricing pressure, same pricing pressure everyone else has. So we feel like we're actually -- we know we're actually increasing procedure volume and moving up in Spine Hardware now, which is a nice place to be and something of an improvement all in the -- over the last couple of quarters.

So that's a way to look at that business. When we fully lap SeaSpine, the reported growth rate for that segment will decline a little bit because we would have fully lapped it.

Okay, but decline, not -- down year-over-year, or not grow as fast? Just to be clear.

Not grow as fast. The reported growth for that segment will not be quite as fast because we would have fully lapped the acquisition.

As Jack commented earlier, I mean, we're expecting this year spine to be kind of mid to high-single digits with the combination of the 2 pieces.

So consolidation of those -- have taken and sounds like that's behind you. And -- I mean, in a flat to down spine mark that you're growing faster than the market, which is terrific.

The other question I had was either for Jack or Pete, about the spend. And you talked a little bit about it earlier in the call.

But I'm not sure if you've quantified the amount and the duration of those projects, if you could maybe provide some color?

So we did not quantify it. And I don't think we're going to per se because we, ourselves, want to make sure that the work gets done.

And we're going to basically fund it as necessary. That said, there are -- just to remind everyone on the call, our excess quality spend, excess over baseline to get where we think we need to go is in 2 pieces.

The piece for the regenerative medicine plan is excluded from our adjusted number. And you can go to the back of the press release, and there's a forecast in effect of what that will be for the balance of the year.

So we laid that out. The excess spend elsewhere in the company is -- I think we've said typically running hundreds and thousands of dollars a quarter.

We haven't said a lot. It's going to go up and down, and it's more than that one quarter to the next -- I'm getting corrected, it's over $1 million a quarter, all right?

And it is not excluded from the adjusted numbers. So that is actually rolling through the P&L, and we'll get relief from that as we complete projects around the company.

Just wanted to -- I'm trying to interpolate -- interpret your comments about the Plainsboro and the fact that you're still doing work to address the FDA letter with the FDA is inspecting the plant. I would have expected they would have been in there after the fact -- I'm going to go start there.

Well, as I think you heard my opening comments, I mean the agency is currently in the facility. I mean, I think at a high level, I don't want to really kind of speculate or comment broadly, but I think the point really is, is that we've made, I think, very good progress in the facility.

We've commented on previous calls about the structural updates and the changes that we've made, the processes and the overall controls, and really, our ability to get the products ramped back up and to be able to manage our backlog. That being said, we really haven't had all the items on the warning letter closed out, really, at the start of the inspection.

The FDA has obviously been aware of this. They get monthly updates from us.

So if you'd asked me, would you see the warning letter getting left after the inspection? I'd say, no.

In fact, we've had open items that we've been working on. I would expect that we'll probably get additional comments or some observations coming back out of the audit.

But we feel good about our overall progress. We think we've made some good trends forward, and we'll be looking forward for the close out and obviously moving on to get this item behind us.

Our view is, from taking a look at what others have experienced from talking outside to experts, in many cases, these take, as we've communicated before, over a year in many cases from the day they are opened until they actually get closed out. And we don't think this is really any different.

Okay. And now I know you've moved some regenerative products out of that facility.

Can you help us understand what is still made there? Either by product or revenue run rate or something?

Give us a sense of the scope of what you talked about?

Dale, for competitive reasons, I don't want to kind of go line item. But I will tell you that between our Puerto Rico facility and our New Jersey facility, a vast majority of our products we have redundancy.

We've been quite successful with moving certain products into the Puerto Rico facility and having the ability to make either portions of the process or all of the process at either facility. Well, many of you know that, if you listened, that this has been a part of our long-term strategy to create redundancy.

Obviously, in the midst of some of our scenarios, we've been accelerating some of those. And so when you think about our supply, our ability really to manage all of our key products either out of New Jersey or Puerto Rico, we're in a pretty good spot.

Well the plan -- I'm sorry, I'm going beyond my questions, allotted questions, but this is kind of a follow on to the original question. Is the plan eventually to move everything out of Plainsboro into New Jersey and Puerto Rico?

And when would that occur?

The plan is actually to build up a redundant capability for our regenerative medicine products in Puerto Rico. Our current facility in New Jersey, which we referred to as our 105 facility, that's where the warning letter actually is, is actually we have another facility on the same campus that we'll be bringing up in 2013.

We'll actually have some products and some processes this year, but fundamentally bringing it up with the high-volume in 2013. That is literally on our same campus, then the plan with the 105 facility is really to use it more as an R&D development facility that we would develop and bring on new R&D products, new capabilities.

It also has the capability, obviously, to continue along for production. But that's really what our existing capabilities are, is to have a quick print that we actually have a new facility, the 109, the 105 facility not to be used for production, and then the facility in Puerto Rico to be the redundant site.

Great. Thank you for dialing in, and we'll be looking forward to speaking with you in the third quarter from Dallas.

Thanks, everyone