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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             
COMMISSION FILE NO. 0-26224
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
Delaware 51-0317849
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1100 Campus Road 08540
Princeton,New Jersey(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 
Registrant's Telephone Number, Including Area Code: (609275-0500
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report:
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASSTRADING SYMBOLNAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, Par Value $.01 Per ShareIARTNasdaq Global Select Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and "emerging growth company" in Rule 12b-2 of the Exchange Act.





Large accelerated filerAccelerated filer
Non-accelerated filer
  
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of April 25, 2022 was 83,135,133.



INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX

 
 Page
Number



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands, except per share amounts)
 Three Months Ended March 31,
 20222021
Total revenue, net$376,638 $360,071 
Costs and expenses:
Cost of goods sold142,569 145,823 
Research and development24,085 22,374 
Selling, general and administrative159,926 156,633 
Intangible asset amortization3,894 4,527 
Total costs and expenses330,474 329,357 
Operating income46,164 30,714 
Interest income1,377 1,748 
Interest expense(11,655)(12,929)
Gain from the sale of business 42,876 
Other income, net3,429 4,869 
Income before income taxes39,315 67,278 
Provision for income taxes6,414 21,884 
Net income $32,901 $45,394 
Net income per share
Basic$0.39 $0.54 
Diluted$0.39 $0.53 
Weighted average common shares outstanding (See Note 13):
Basic83,632 84,500 
Diluted84,276 85,258 
Comprehensive income (See Note 14)57,03175,826 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
4

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share amounts)
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$407,092 $513,448 
Trade accounts receivable, net of allowances of $3,895 and $4,735
234,010 231,831 
Inventories, net328,005 317,386 
Prepaid expenses and other current assets96,946 91,051 
Total current assets1,066,053 1,153,716 
Property, plant and equipment, net309,209 311,703 
Right of use asset - operating leases81,644 84,543 
Intangible assets, net1,121,971 1,145,573 
Goodwill1,008,928 1,013,458 
Deferred tax assets, net54,679 56,950 
Other assets29,513 16,440 
Total assets$3,671,997 $3,782,383 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility$45,000 $45,000 
Current portion of lease liability - operating leases14,300 14,775 
Accounts payable, trade88,371 61,837 
Contract liabilities5,343 5,295 
Accrued compensation57,477 92,656 
Accrued expenses and other current liabilities105,342 120,458 
Total current liabilities315,833 340,021 
Long-term borrowings under senior credit facility824,772 824,257 
Long-term borrowings under securitization facility112,000 112,500 
Long-term convertible securities565,155 564,426 
Lease liability - operating leases87,806 90,329 
Deferred tax liabilities56,633 45,788 
Other liabilities94,601 120,258 
Total liabilities2,056,800 2,097,579 
Stockholders’ equity:
Preferred stock; no par value; 15,000 authorized shares; none outstanding
  
Common stock; $0.01 par value; 240,000 authorized shares; 89,956 and 89,600 issued at March 31, 2022 and December 31, 2021, respectively
900 896 
Additional paid-in capital1,266,739 1,264,943 
Treasury stock, at cost; 6,823 shares and 4,899 shares at March 31, 2022 and December 31, 2021, respectively
(362,886)(234,448)
Accumulated other comprehensive loss(21,025)(45,155)
Retained earnings731,469 698,568 
Total stockholders’ equity1,615,197 1,684,804 
Total liabilities and stockholders’ equity$3,671,997 $3,782,383 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
5


INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
 Three Months Ended March 31,
 20222021
OPERATING ACTIVITIES:
Net income$32,901 $45,394 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,724 29,214 
Non-cash impairment charges 2,754 
Deferred income tax provision (benefit) 3,544 (1,234)
Share-based compensation6,291 6,334 
Amortization of debt issuance costs and expenses associated with debt refinancing1,724 1,721 
Non-cash lease expense(17)1,522 
Loss on disposal of property and equipment712 (2)
Gain from the sale of business (42,876)
Change in fair value of contingent consideration and others(765)281 
Changes in assets and liabilities:
Accounts receivable(3,116)16,756 
Inventories(11,561)(2,332)
Prepaid expenses and other current assets(5,046)(3,574)
Other non-current assets2,283 10,419 
Accounts payable, accrued expenses and other current liabilities(9,754)14,449 
Contract liabilities (83)
Other non-current liabilities(2,576)(9,662)
Net cash provided by operating activities44,344 69,081 
INVESTING ACTIVITIES:
Purchases of property and equipment(9,325)(6,675)
Proceeds from sale of Extremity Orthopedics business  191,736 
Acquired in-process research and development milestone(4,742) 
Cash paid for business acquisitions, net of cash acquired (302,627)
Net cash used in investing activities(14,067)(117,566)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness11,250 600 
Payments on debt(11,750)(2,200)
Purchases of treasury stock(125,000) 
Proceeds from exercised stock options1,239 2,222 
Cash taxes paid in net equity settlement(9,204)(3,637)
Net cash used in financing activities(133,465)(3,015)
Effect of exchange rate changes on cash and cash equivalents(3,168)(9,690)
Net decrease in cash and cash equivalents(106,356)(61,190)
Cash and cash equivalents at beginning of period513,448 470,166 
Cash and cash equivalents at end of period$407,092 $408,976 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Three Months Ended March 31, 2022
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 202289,600 $896 (4,899)$(234,448)$1,264,943 $(45,155)$698,568 $1,684,804 
Net income— — — — — — 32,901 32,901 
Other comprehensive income, net of tax— — — — — 24,130 — 24,130 
Issuance of common stock through employee stock purchase plan17 — — — 1,078 — — 1,078 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes339 4 14 714 (9,758)— — (9,040)
Share-based compensation— — — — 6,324 — — 6,324 
Accelerated shares repurchased— $— (1,938)$(129,152)$4,152 $— $— $(125,000)
Balance, March 31, 202289,956 $900 (6,823)$(362,886)$1,266,739 $(21,025)$731,469 $1,615,197 
Three Months Ended March 31, 2021
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 202189,251 $893 (4,914)$(235,141)$1,290,908 $(74,059)$532,266 $1,514,867 
Net income— — — — — — 45,394 45,394 
Other comprehensive income, net of tax— — — — — 30,432 — 30,432 
Issuance of common stock through employee stock purchase plan18 — — — 1,127 — — 1,127 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes137 1 15 680 (3,222)— — (2,541)
Share-based compensation— — — — 6,098 — — 6,098 
Adoption of Update No. 2020-06— — — — (63,274)— (2,772)(66,046)
Balance, March 31, 202189,406 $894 (4,899)$(234,461)$1,231,637 $(43,627)$574,888 $1,529,331 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
7

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION
General
The terms “we,” “our,” “us,” “Company” and “Integra” refer to Integra LifeSciences Holdings Corporation, a Delaware corporation, and its subsidiaries unless the context suggests otherwise.
In the opinion of management, the March 31, 2022 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, statement of changes in shareholders' equity, results of operations and cash flows of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. The December 31, 2021 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Operating results for the three-month period ended March 31, 2022 are not necessarily indicative of the results to be expected for the entire year.
The preparation of consolidated financial statements is in conformity with generally accepted accounting principles in the United States ("GAAP") which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets including amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of contingent liabilities, the fair value of debt instruments and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic, including reductions in capital and overall spending by our customers, increased freight costs, decreased availability of certain raw materials used in certain of our products and labor constraints. The COVID-19 pandemic has had, and may continue to have, an adverse effect on the Company’s business, results of operations, financial condition, and cash flows, and its future impacts remain highly uncertain and unpredictable. Although there was not a material impact to the Company’s consolidated financial statements as of and for the three months ended March 31, 2022, changes in the Company’s assessment about the length and severity of the pandemic, as well as other factors, could result in actual results differing from estimates. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, duration of the pandemic, including resurgences, new variants or strains, impact of government regulations, the speed and effectiveness of vaccine distribution, vaccine adoption rates and the duration of direct and indirect economic effects of the pandemic and containment measures. Even after the COVID-19 pandemic and government responses thereto have subsided, residual economic and other effects may have an impact on the demand for post-pandemic surgery levels that are difficult to predict.
8

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Employee Termination Benefits
The Company incurred restructuring costs related to employee terminations associated with a future plant closure in the consolidated statement of operations for the three months ended March 31, 2022. Restructuring liability is included in accrued expenses and other current liabilities in the consolidated balance sheet for the three months ended March 31, 2022 and December 31, 2021, respectively. Restructuring liability activity for the three months ended March 31, 2022 were as follows:
(Dollars in thousands)Amount
Balance at December 31, 2021$10,226 
Charges:
Cost of Goods Sold$984 
Research and development79
Selling, general and administrative195
Adjustments$(365)
Balance at March 31, 2022$11,119 
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. The Company adopted ASU 2019-12 as of January 1, 2021. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This amendment applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform- Scope which clarified certain optional expedients and exceptions to entities that are affected because of the reference rate reform. The amendments in this ASU affect the guidance in ASU 2020-04 and are effective in the same timeframe as ASU 2020-04. The Company currently has contracts that are indexed to LIBOR and are continuing to monitor this activity and evaluate the associated risk. The Company is continuing to evaluate the scope of impacted contracts and the potential impact. The Company is also monitoring the developments regarding alternative rates and may amend certain contracts to accommodate those rates if the contract does not already specify a replacement rate. While the notional value of agreements potentially indexed to LIBOR is material, the Company does not expect a material impact to the consolidated financial statements and related disclosures associated with this transition.
In August 2020, the FASB issued ASU 2020-06, Debt- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify. The guidance also simplifies the diluted net income per share calculation in certain areas. The ASU will be effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years using either the modified retrospective or full retrospective method.
9

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
As detailed in Note 6, Debt, on February 4, 2020, the Company issued $575.0 million aggregate principal amount of its 0.5% Convertible Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes are subject to the guidance included in ASU 2020-06. The Company adopted this guidance on January 1, 2021 using the modified retrospective approach which resulted in a cumulative-effect adjustment that increased (decreased) the following consolidated balance sheet accounts:
AdjustmentConsolidated Balance Sheet ClassificationAmount
(in millions)
Deferred tax impact of cumulative-effect adjustmentDeferred tax liabilities$(20.6)
Debt discount reclassificationLong-term convertible securities89.1
Equity issuance costs reclassificationLong-term convertible securities(2.5)
Debt discount amortization and equity costs reclassification, net of taxRetained Earnings(2.8)
Net impact of cumulative-effect adjustmentAdditional paid-in capital(63.3)
On December 9, 2020, the Company made an irrevocable election under the indenture to require the principal portion of its 2025 Notes to be settled in cash and any excess in shares. Following the irrevocable notice, only the amounts settled in excess of the principal will be considered in diluted earnings per share under the “if-converted” method. Upon adoption of ASU 2020-06, the Company’s 2025 Notes were reflected entirely as a liability since the embedded conversion feature will no longer be separately presented within stockholders’ equity. Additionally, from January 1, 2021, the Company is no longer incurring non-cash interest expense for the amortization of debt discount.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the regulations of the U.S. Securities and Exchange Commission (the "SEC"). The ASU has been effective for the Company for annual and interim periods beginning after January 1, 2021. The Company adopted this standard on the January 1, 2021. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options which provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. The amendment had no impact to the Company as the effect will largely depend on the terms of written call options or financings issued or modified in the future.
There are no other recently issued accounting pronouncements that are expected to have any significant effect on the Company's financial position, results of operations or cash flows.
2. ACQUISITIONS AND DIVESTITURES
Sale of Extremity Orthopedics Business
On January 4, 2021, the Company completed the sale of its Extremity Orthopedics business to Smith & Nephew USD Limited ("Smith & Nephew"). The transaction included the sale of the Company's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines. The Company received an aggregate purchase price of $240.0 million from Smith & Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO") effectively terminating the licensing agreement between Integra and the CFO relating to the development of shoulder arthroplasty products.
The divestiture does not represent a strategic shift that will have a major effect on the Company's operations and financial statements. Goodwill was allocated to the assets and liabilities divested using the relative fair value method of the Extremity Orthopedics business to the Company's Tissue Technologies reportable business segment. In connection with the sale, the Company recognized a preliminary gain of $42.9 million that was presented in Gain from the sale of business in the consolidated statement of operations for the three months ended March 31, 2021. The gain was finalized at $41.8 million as Gain from the sale of business for the year ended December 31, 2021. The Company finalized the net working capital and paid an additional $1.3 million to Smith & Nephew as of December 31, 2021.
10

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company also entered into a transition services agreement with Smith & Nephew which requires the Company to provide certain services on behalf of Smith & Nephew for the duration of the period subsequent to the sale of the business as defined in the transition services agreement. The Company also recognized a payable due to Smith & Nephew of $8.5 million for invoicing and cash collection from customers on behalf of Smith & Nephew, pursuant to the transition services agreement, as of March 31, 2022, which is included in the consolidated balance sheets within accrued expenses and other current liabilities. In April 2022, the Company and Smith & Nephew completed a significant portion of the transition service agreement, including order-to-cash.
ACell, Inc. Acquisition
On January 20, 2021, the Company acquired ACell, Inc. (the "ACell Acquisition") for a total purchase price of $306.9 million plus contingent consideration of up to $100 million, which may be payable upon the Company achieving certain revenue-based performance milestones in 2022, 2023 and 2025. The final working capital adjustments of $1.3 million was finalized and paid as of June 30, 2021. Prior to the acquisition, ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix, a technology platform derived from porcine urinary bladder extracellular matrix.
Assets Acquired and Liabilities Assumed at Fair Value
The ACell Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination are recognized at their fair values as of the acquisition date.
The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date:
Dollars in thousandsFinal ValuationWeighted Average Life
Current assets:
Cash$2,726 
Trade accounts receivable, net 16,469 
Inventories, net18,299 
Prepaid expenses and other current assets1,498 
Total current assets$38,992 
Property, plant and equipment, net13,769 
Intangible assets245,000 
13-14 years
Goodwill94,147 
Right of use asset - operating leases9,259 
Deferred tax assets7,465 
Other assets148 
Total assets acquired$408,780 
Current liabilities:
Accounts payable$718 
Accrued expenses5,966 
Current portion of lease liability - operating leases1,673 
Total current liabilities$8,357 
Other long-term liability276 
Lease liability - operating leases7,585 
Deferred tax liability61,724 
Contingent consideration23,900 
Total liabilities assumed$101,842 
Net assets acquired$306,938 
11

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Intangible Assets
The estimated fair value of the developed technology acquired was determined using the multi-period excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each product including net revenues, cost of sales, R&D costs, selling and marketing costs, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream.
The Company used a discount rate of 8.5% to arrive at the present value for the acquired intangible assets to reflect the rate of return a market participant would expect to earn and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
Goodwill
The Company allocated goodwill related to the ACell acquisition to the Tissue Technologies reportable business segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected synergies of the combined company and assembled workforce. Goodwill recognized as a result of this acquisition is non-deductible for income tax purposes.
Contingent Consideration
As part of the ACell Acquisition, the Company is required to make payments to the former shareholders of ACell up to $100 million based on the achievement by the Company of certain revenue-based performance milestones in 2022, 2023, and 2025. The Company used iterations of the Monte Carlo simulation to calculate the fair value of the contingent consideration that considered the possible outcomes of scenarios related to each specific milestone. The Company estimated the fair value of the contingent consideration to be $23.9 million at the acquisition date. The estimated fair value as of March 31, 2022 was $22.1 million. The Company recorded $17.2 million and $23.9 million in other liabilities at March 31, 2022 and March 31, 2021, respectively, and $4.9 million in as accrued expenses and other current liabilities at March 31, 2022 in the consolidated balance sheet of the Company.
The Company determined the acquisition date fair value of contingent consideration obligations using a Monte Carlo simulation, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined using the fair value concepts in ASC 820. The resultant most likely payouts are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligations are revalued to estimated fair value and changes in fair value will be reflected as income or expense in our consolidated statement of operations. Changes in the fair value of the contingent considerations may result from changes in discount periods and rates and changes in the timing and amount of revenue estimates.
Deferred Tax Liabilities
Deferred tax liabilities result from identifiable intangible assets’ fair value adjustments. These adjustments create excess book basis over tax basis which is tax-effected by the statutory tax rates of applicable jurisdictions.
3. REVENUES FROM CONTRACTS WITH CUSTOMERS
Summary of Accounting Policies on Revenue Recognition
Revenue is recognized upon the transfer of control of promised products or services to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.
Performance Obligations
The Company's performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders, or invoices. The Company has no significant multi-element contracts with customers.
Significant Judgments
Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company's strategic partners. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information, and expected sales trends. Differences between actual reported licensee sales and those that were estimated are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant.
12

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company estimates returns, price concessions, and discount allowances using the expected value method based on historical trends and other known factors. Rebate allowances are estimated using the most likely method based on each customer contract.
The Company's return policy, as set forth in its product catalogs and sales invoices, requires review and authorization in advance prior to the return of product. Upon the authorization, a credit will be issued for the goods returned within a set amount of days from the shipment, which is generally ninety days.
The Company disregards the effects of a financing component if the Company expects, at contract inception, that the period between the transfer and customer payment for the goods or services will be one year or less. The Company has no significant revenues recognized on payments expected to be received more than one year after the transfer of control of products or services to customers.
Contract Asset and Liability
Revenues recognized from the Company's private label business that are not invoiced to the customers as a result of recognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheet.
Other operating revenues may include fees received under service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability.
The following table summarized the changes in the contract asset and liability balances for the three months ended March 31, 2022:
Dollars in thousandsTotal
Contract Asset
Contract asset, January 1, 2022
$11,412 
Transferred to trade receivable of contract asset included in beginning of the year contract asset(11,412)
Contract asset, net of transferred to trade receivables on contracts during the period12,217 
Contract asset, March 31, 2022
$12,217 
Contract Liability
Contract liability, January 1, 2022
$11,946 
Recognition of revenue included in beginning of year contract liability$(1,702)
Contract liability, net of revenue recognized on contracts during the period1,981 
Foreign currency translation(8)
Contract liability, March 31, 2022
$12,217 
At March 31, 2022, the short-term portion of the contract liability of $5.3 million and the long-term portion of $6.9 million is included in current liabilities and other liabilities, respectively, in the consolidated balance sheets.
As of March 31, 2022, the Company is expected to recognize revenue of approximately 44% of unsatisfied (or partially unsatisfied) performance obligations as revenue within twelve months, with the remaining balance to be recognized thereafter.
Shipping and Handling Fees
The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold.
Product Warranties
Certain of the Company's medical devices, including monitoring systems and neurosurgical systems, are designed to operate over long periods of time. These products are sold with warranties which may extend for up to two years from the date of purchase. The warranties are not considered a separate performance obligation. The Company estimates its product warranties using the expected value method based on historical trends and other known factors. The Company includes them in accrued expenses and other current liabilities in the consolidated balance sheet.
13

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Taxes Collected from Customers
The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.
Disaggregated Revenue
The following table presents revenues disaggregated by the major sources of revenues for the three months ended March 31, 2022 and 2021 (dollar amounts in thousands):
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Neurosurgery$194,675 $189,254 
Instruments52,633 51,987 
Total Codman Specialty Surgical247,308 241,241 
Wound Reconstruction and Care94,630 88,698 
Private Label34,700 30,132 
Total Tissue Technologies129,330 118,830 
Total revenue$376,638 $360,071 
See Note 15, Segment and Geographical Information, for details of revenues based on the location of the customer.
4. INVENTORIES
Inventories, net consisted of the following:
Dollars in thousandsMarch 31, 2022December 31, 2021
Finished goods$165,186 $162,528 
Work in process70,901 65,323 
Raw materials91,918 89,535 
Total inventories, net$328,005 $317,386 
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill for the three-month period ended March 31, 2022 were as follows:
Dollars in thousandsCodman Specialty
Surgical
Tissue TechnologiesTotal
Goodwill at December 31, 2021$663,428 $350,030 $1,013,458 
Foreign currency translation(2,965)(1,565)(4,530)
Goodwill at March 31, 2022
$660,463 $348,465 $1,008,928 
14

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Other Intangible Assets
The components of the Company’s identifiable intangible assets were as follows:
 March 31, 2022
Dollars in thousandsWeighted
Average
Life
CostAccumulated
Amortization
Net
Completed technology18 years$1,130,190 $(322,436)$807,754 
Customer relationships12 years$210,904 $(145,140)$65,764 
Trademarks/brand names28 years$97,907 $(32,285)$65,622 
Codman tradenameIndefinite$166,849 $— $166,849 
Supplier relationships30 years$30,211 $(16,437)$13,774 
All other11 years$6,125 $(3,917)$2,208 
$1,642,186 $(520,215)$1,121,971 
 December 31, 2021
Dollars in thousandsWeighted
Average
Life
CostAccumulated
Amortization
Net
Completed technology18 years$1,132,954 $(307,013)$825,941 
Customer relationships12 years211,344 (142,755)68,589 
Trademarks/brand names28 years98,367 (31,468)66,899 
Codman tradenameIndefinite167,758 — 167,758 
Supplier relationships30 years30,211 (16,192)14,019 
All other11 years6,258 (3,891)2,367 
$1,646,892 $(501,319)$1,145,573 
Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of goods sold) is expected to be approximately $58.9 million for the remainder of 2022, $78.2 million in 2023, $77.6 million in 2024, $77.5 million in 2025, $77.4 million in 2026, $75.4 million in 2027 and $509.1 million thereafter.
6. DEBT
Amendment to the Sixth Amended and Restated Senior Credit Agreement
On February 3, 2020, the Company entered into the sixth amendment and restatement (the "February 2020 Amendment") of its Senior Credit Facility (the "Senior Credit Facility") with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent. The February 2020 Amendment extended the maturity date to February 3, 2025. The Company continues to have the aggregate principal amount of up to approximately $2.2 billion available to it through the following facilities: (i) a $877.5 million Term Loan facility, and (ii) a $1.3 billion revolving credit facility, which includes a $60 million sublimit for the issuance of standby letters of credit and a $60 million sublimit for swingline loans.
On July 14, 2020, the Company entered into an amendment (the "July 2020 Amendment") to the February 2020 Amendment of the Senior Credit Facility to increase financial flexibility through June 30, 2021, in light of the unprecedented impact and uncertainty of the COVID-19 pandemic on the global economy. The July 2020 amendment did not increase the Company’s total indebtedness.
In connection with the July 2020 amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
Execution of July 2020 Amendment through June 30, 2021
5.50 to 1.00
September 30, 2021 through June 30, 2022
5.00 to 1.00
September 30, 2022 through June 30, 2023
4.50 to 1.00
September 30, 2023 and the last day of each fiscal quarter thereafter
4.00 to 1.00
Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at a rate equal to the following:
15

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
i.the Eurodollar Rate (as defined in the amendment and restatement) in effect from time to time plus the applicable rate (ranging from 1.00% to 2.25%), or
ii.the highest of:
1.the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%
2.the prime lending rate of Bank of America, N.A. or
3.the one-month Eurodollar Rate plus 1.00%
The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness as of such date less cash that is not subject to any restriction on the use or investment thereof to (b) consolidated EBITDA (as defined by the July 2020 amendment), for the period of four consecutive fiscal quarters ending on such date).
The Company will pay an annual commitment fee (ranging from 0.15% to 0.30%), based on the Company's consolidated total leverage ratio, on the amount available for borrowing under the revolving credit facility.
The Senior Credit Facility is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. The Senior Credit Facility is subject to various financial and negative covenants and at March 31, 2022, the Company was in compliance with all such covenants.
At March 31, 2022 and December 31, 2021, there was $42.5 million and $31.3 million, respectively, outstanding under the revolving portion of the Senior Credit Facility at weighted average interest rates of 1.7% and 1.4%, respectively. At March 31, 2022 and December 31, 2021, there was $832.5 million and $843.8 million, respectively, outstanding under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 1.7% and 1.4%, respectively. At both March 31, 2022 and December 31, 2021, there was $45.0 million, of the Term Loan component of the Senior Credit Facility classified as current on the consolidated balance sheets.
The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at March 31, 2022 were $43.4 million and $847.4 million, respectively. These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy. Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities.
Letters of credit outstanding as of March 31, 2022 and December 31, 2021 totaled $1.6 million. There were no amounts drawn as of March 31, 2022.
Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
Quarter Ended March 31, 2022
Principal Repayment
Dollars in thousands
Remainder of 2022
$33,750 
2023
$61,875 
2024
$67,500 
2025
$669,375 
$832,500 
Future interest payments on the term loan component of the Senior Credit Facility based on current interest rates are expected to approximate $10.4 million for remainder of 2022, $13.0 million in 2023, $11.9 million in 2024, and $1.1 million in 2025. Interest is calculated on the term loan portion of the Senior Credit Facility based on LIBOR plus the certain amounts set forth in the Sixth Amended and Restated Credit Agreement. As the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.
The outstanding balance of the revolving credit component of the Senior Credit Facility is due on February 3, 2025.
16

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Convertible Senior Notes
On February 4, 2020, the Company issued $575.0 million aggregate principal amount of its 0.5% Convertible Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes will mature on August 15, 2025 and bear interest at a rate of 0.5% per annum payable semi-annually in arrears, unless earlier converted, repurchased or redeemed in accordance with the terms of the 2025 Notes. The portion of debt proceeds that was classified as equity at the time of the offering was $104.5 million. The effective interest rate implicit in the liability component was 4.2%. In connection with this offering, the Company capitalized $13.2 million of financing fees.
The 2025 Notes are senior, unsecured obligations of the Company, and are convertible into cash and shares of its common stock based on initial conversion rate, subject to adjustment of 13.5739 shares per $1,000 principal amounts of the 2025 Notes (which represents an initial conversion price of $73.67 per share). The 2025 Notes convert only in the following circumstances: (1) if the closing price of the Company's common stock has been at least 130% of the conversion price during the period; (2) if the average trading price per $1,000 principal amount of the 2025 Notes is less than or equal to 98% of the average conversion value of the 2025 Notes during a period as defined in the indenture; (3) at any time on or after February 20, 2023; or (4) if specified corporate transactions occur. As of March 31, 2022, none of these conditions existed with respect to the 2025 Notes and as a result the 2025 Notes are classified as long term.
On December 9, 2020, the Company entered into the First Supplemental Indenture to the original agreement dated as of February 4, 2020 between the Company and Citibank, N.A., as trustee, governing the Company’s outstanding 2025 Notes. The Company irrevocably elected (1) to eliminate the Company’s option to choose physical settlement on any conversion of the 2025 Notes that occurs on or after the date of the First Supplemental Indenture and (2) with respect to any Combination Settlement for a conversion of the 2025 Notes, the Specified Dollar Amount that will be settled in cash per $1,000 principal amount of the 2025 Notes shall be no lower than $1,000.
Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the Notes). The Company will also be required to increase the conversion rate for holders who convert their Notes in connection with certain fundamental changes occurring prior to the maturity date or following delivery by the Company of a notice of redemption.
In connection with the issuance of the 2025 Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the 2025 Notes (the “hedge participants”). The cost of the call transactions was $104.2 million for the 2025 Notes. The Company received $44.5 million of proceeds from the warrant transactions for the 2025 Notes. The call transactions involved purchasing call options from the hedge participants, and the warrant transactions involved selling call options to the hedge participants with a higher strike price than the purchased call options. The initial strike price of the call transactions was $73.67, subject to anti-dilution adjustments substantially similar to those in the 2025 Notes. The initial strike price of the warrant transactions was $113.34 for the 2025 Notes, subject to customary anti-dilution adjustments.
At December 31, 2020, the carrying amount of the liability component was $485.9 million, the remaining unamortized discount was $89.1 million, and the principal amount outstanding was $575.0 million. On January 1, 2021, the Company adopted ASU 2020-06 using the modified retrospective method. See Note 1, Basis of Presentation, for further details. At March 31, 2022, the carrying amount of the liability was $575.0 million. The fair value of the 2025 Notes at March 31, 2022 was $613.7 million. Factors that the Company considered when estimating the fair value of the 2025 Notes included recent quoted market prices or dealer quote. The level of the 2025 Notes is considered as Level 1.
As a result of the adoption of ASU 2020-06, the Company recognized only cash interest related to the contractual interest coupon of $0.7 million on the 2025 Notes for the three months ended March 31, 2022 and March 31, 2021.
Securitization Facility
During the fourth quarter of 2018, the Company entered into an accounts receivable securitization facility (the "Securitization Facility") under which accounts receivable of certain domestic subsidiaries are sold on a non-recourse basis to a special purpose entity (“SPE”), which is a bankruptcy-remote, consolidated subsidiary of the Company. Accordingly, the assets of the SPE are not available to satisfy the obligations of the Company or any of its subsidiaries. From time to time, the SPE may finance such accounts receivable with a revolving loan facility secured by a pledge of such accounts receivable. The amount of outstanding borrowings on the Securitization Facility at any one time is limited to $150.0 million. The Securitization Facility Agreement ("Securitization Agreement") governing the Securitization Facility contains certain covenants and termination events. An occurrence of an event of default or a termination event under this Securitization Agreement may give rise to the right of its counterparty to terminate this facility. As of March 31, 2022, the Company was in compliance with the covenants and none of the termination events had occurred.
17

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
On May 28, 2021, the Company entered into an amendment (the "May 2021 Amendment") of the Securitization Facility which extended the maturity date from December 21, 2021 to May 28, 2024. The May 2021 Amendment does not increase the Company’s total indebtedness.
At March 31, 2022 and December 31, 2021, the Company had $112.0 million and $112.5 million, respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 1.2% and 1.1%, respectively. The fair value of the outstanding borrowing of the Securitization Facility at March 31, 2022 was $113.0 million. These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy. Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities.
7. DERIVATIVE INSTRUMENTS
Interest Rate Hedging
The Company’s interest rate risk relates to U.S. dollar denominated variable interest rate borrowings. The Company uses interest rate swap derivative instruments to manage earnings and cash flow exposure resulting from changes in interest rates. These interest rate swaps apply a fixed interest rate on a portion of the Company's expected LIBOR-indexed floating-rate borrowings.
The Company held the following interest rate swaps as of March 31, 2022 and December 31, 2021 (dollar amounts in thousands):
March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month USD LIBOR Loan300,000 300,000 December 13, 2017January 1, 2018December 31, 20222.201 %(1,619)(5,268)
1-month USD LIBOR Loan150,000 150,000 December 13, 2017July 1, 2019June 30, 20242.423 %(138)(5,520)
1-month USD LIBOR Loan200,000 200,000 December 13, 2017January 1, 2018December 31, 20242.313 %743 (7,421)
1-month USD LIBOR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.220 %(1,898)(5,512)
1-month USD LIBOR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.199 %(1,937)(5,464)
1-month USD LIBOR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.209 %(1,843)(5,494)
1-month USD LIBOR Loan100,000 100,000 December 18, 2018December 30, 2022December 31, 20272.885 %(1,984)(6,886)
1-month USD LIBOR Loan100,000 100,000 December 18, 2018December 30, 2022December 31, 20272.867 %(2,140)(6,764)
1-month USD LIBOR Loan575,000 575,000 December 15, 2020July 31, 2025