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 September 30, 2020March 31, 2021
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 CORPORATIONCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
Delaware51-0317849
(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER

IDENTIFICATION NO.)
1100 Campus Road08540
Princeton,New Jersey(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's Telephone Number, Including Area Code: (609(609) 275-0500
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 Share
IARTNasdaq 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
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  
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes      No  
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of OctoberApril 27, 20202021 was 84,272,671.84,549,309.
















































Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX

Page
Number
Page
Number




EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT




Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME / (LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
 
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
2020 2019 2020 2019 20212020
Total revenue, net$370,232
 $379,095
 $983,221
 $1,122,430
Total revenue, net$360,071 $354,324 
Costs and expenses:       Costs and expenses:
Cost of goods sold134,811
 142,636
 373,765
 415,219
Cost of goods sold145,823 133,476 
Research and development19,460
 19,003
 55,202
 54,957
Research and development22,374 20,816 
In-process research and development0
 59,889
 0
 59,889
Selling, general and administrative150,076
 173,098
 432,136
 513,345
Selling, general and administrative156,633 165,952 
Intangible asset amortization8,343
 5,056
 23,393
 21,340
Intangible asset amortization4,527 6,977 
Total costs and expenses312,690
 399,682
 884,496
 1,064,750
Total costs and expenses329,357 327,221 
Operating income (loss)57,542
 (20,587) 98,725
 57,680
Operating incomeOperating income30,714 27,103 
Interest income2,273
 2,913
 7,124
 8,051
Interest income1,748 2,570 
Interest expense(20,796) (13,962) (54,230) (40,495)Interest expense(12,929)(17,752)
Other income, net2,492
 4,127
 2,985
 8,461
Income (loss) before income taxes41,511
 (27,509) 54,604
 33,697
Provision (benefit) for income taxes9,174
 101
 13,456
 (1,185)
Net income (loss)$32,337
 $(27,610) $41,148
 $34,882
Gain from the sale of businessGain from the sale of business42,876 
Other income (expense), netOther income (expense), net4,869 (479)
Income before income taxesIncome before income taxes67,278 11,442 
Provision for income taxesProvision for income taxes21,884 2,262 
       
Net income (loss) per share       
Net incomeNet income$45,394 $9,180 
Net income per shareNet income per share
BasicBasic$0.54 $0.11 
DilutedDiluted$0.53 $0.11 
Weighted average common shares outstanding (See Note 13):Weighted average common shares outstanding (See Note 13):
Basic$0.38
 $(0.32) $0.49
 $0.41
Basic84,500 85,188 
Diluted$0.38
 $(0.32) $0.48
 $0.40
Diluted85,258 85,892 
Comprehensive income (loss) (See Note 14)Comprehensive income (loss) (See Note 14)75,826(19,007)
       
Weighted average common shares outstanding (See Note 14):       
Basic84,325
 85,688
 84,745
 85,536
Diluted84,752
 85,688
 85,303
 86,581
Comprehensive income (loss) (See Note 15)$43,548
 $(46,521) $25,637
 $(7,288)


The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share amounts)
 September 30, 2020 December 31, 2019
ASSETS   
Current assets:   
Cash and cash equivalents$396,279
 $198,911
Trade accounts receivable, net of allowances of $6,727 and $4,303218,184
 275,296
Inventories, net307,839
 316,054
Assets held for sale159,977
 0
Prepaid expenses and other current assets69,817
 67,907
  Total current assets1,152,096
 858,168
Property, plant and equipment, net294,439
 337,404
Right of use asset - operating leases84,916
 94,530
Intangible assets, net973,685
 1,031,591
Goodwill919,556
 954,280
Deferred tax assets, net8,150
 12,623
Other assets20,679
 14,644
Total assets$3,453,521
 $3,303,240
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of borrowings under senior credit facility$22,500
 $45,000
Current portion of lease liability - operating leases12,518
 12,253
Accounts payable, trade50,254
 113,090
Contract liabilities4,875
 4,772
Accrued compensation71,712
 79,385
Liabilities held for sale12,349
 0
Accrued expenses and other current liabilities80,938
 76,809
  Total current liabilities255,146
 331,309
Long-term borrowings under senior credit facility944,102
 1,198,561
Long-term borrowings under securitization facility92,300
 104,500
Long-term convertible securities469,898
 0
Lease liability - operating leases88,778
 97,504
Deferred tax liabilities27,780
 36,553
Other liabilities177,530
 118,077
Total liabilities2,055,534
 1,886,504
Stockholders’ equity:   
Preferred stock; no par value; 15,000 authorized shares; none outstanding0
 0
Common stock; $0.01 par value; 240,000 authorized shares; 89,191 and 88,735 issued at September 30, 2020 and December 31, 2019, respectively892
 887
Additional paid-in capital1,284,711
 1,213,620
Treasury stock, at cost; 4,915 shares and 2,865 shares at September 30, 2020 and December 31, 2019, respectively(235,224) (119,943)
Accumulated other comprehensive loss(91,913) (76,402)
Retained earnings439,521
 398,574
Total stockholders’ equity1,397,987
 1,416,736
Total liabilities and stockholders’ equity$3,453,521
 $3,303,240


March 31, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$408,976 $470,166 
Trade accounts receivable, net of allowances of $6,886 and $6,439223,542 225,532 
Inventories, net328,049 310,117 
Prepaid expenses and other current assets78,508 69,282 
Assets held for sale162,105 
  Total current assets1,039,075 1,237,202 
Property, plant and equipment, net296,193 287,529 
Right of use asset - operating leases91,174 83,635 
Intangible assets, net1,193,681 989,436 
Goodwill1,010,072 932,367 
Deferred tax assets, net74,626 73,690 
Other assets36,733 11,277 
Total assets$3,741,554 $3,615,136 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility$45,000 $33,750 
Current portion of borrowings under securitization facility110,900 112,500 
Current portion of lease liability - operating leases13,900 12,818 
Accounts payable, trade61,500 54,608 
Income taxes payable13,700 
Contract liabilities5,400 5,275 
Accrued compensation65,442 76,117 
Accrued expenses and other current liabilities96,459 94,194 
Liabilities held for sale11,751 
  Total current liabilities412,301 401,013 
Long-term borrowings under senior credit facility922,672 933,387 
Long-term convertible securities562,240 474,834 
Lease liability - operating leases95,549 88,118 
Deferred tax liabilities65,282 16,190 
Other liabilities154,179 186,727 
Total liabilities2,212,223 2,100,269 
Stockholders’ equity:
Preferred stock; 0 par value; 15,000 authorized shares; NaN outstanding
Common stock; $0.01 par value; 240,000 authorized shares; 89,406 and 89,251 issued at March 31, 2021 and December 31, 2020, respectively894 893 
Additional paid-in capital1,231,637 1,290,909 
Treasury stock, at cost; 4,899 shares and 4,914 shares at March 31, 2021 and December 31, 2020, respectively(234,461)(235,141)
Accumulated other comprehensive loss(43,627)(74,059)
         Retained earnings574,888 532,265 
Total stockholders’ equity1,529,331 1,514,867 
Total liabilities and stockholders’ equity$3,741,554 $3,615,136 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Three Months Ended March 31,
 20212020
OPERATING ACTIVITIES:
Net income$45,394 $9,180 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,214 29,151 
Non-cash impairment charges2,754 
Deferred income tax (benefit) provision(1,234)5,068 
Share-based compensation6,334 3,750 
Amortization of debt issuance costs and expenses associated with debt refinancing1,721 4,246 
Non-cash lease expense1,522 178 
Accretion of bond issuance discount2,529 
Loss on disposal of property and equipment(2)374 
Gain from the sale of business(42,876)
Change in fair value of contingent consideration and others281 (1,051)
Changes in assets and liabilities:
Accounts receivable16,756 28,301 
Inventories(2,332)(26,236)
Prepaid expenses and other current assets(3,574)4,683 
Other non-current assets10,419 3,000 
Accounts payable, accrued expenses and other current liabilities14,449 (40,413)
Contract liabilities(83)338 
Other non-current liabilities(9,662)(2,284)
Net cash provided by operating activities69,081 20,814 
INVESTING ACTIVITIES:
Purchases of property and equipment(6,675)(16,519)
Proceeds from sale of Extremity Orthopedics business191,736 
Proceeds from sale of property and equipment34 
Cash (paid) provided for business acquisitions, net of cash acquired(302,627)
Acquired in-process research and development(5,000)
Net cash used in investing activities(117,566)(21,485)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness600 113,200 
Payments on debt(2,200)(344,200)
Purchase of option hedge on convertible notes(104,248)
Proceeds from convertible notes issuance575,000 
Proceeds from sale of stock purchase warrants44,562 
Payment of debt issuance costs(20,264)
Purchases of treasury stock(100,000)
Proceeds from exercised stock options2,222 2,303 
Cash taxes paid in net equity settlement(3,637)(4,348)
Net cash (used) provided by financing activities(3,015)162,005 
Effect of exchange rate changes on cash and cash equivalents(9,690)(2,533)
Net increase in cash and cash equivalents(61,190)158,801 
Cash and cash equivalents at beginning of period470,166 198,911 
Cash and cash equivalents at end of period$408,976 $357,712 
 Nine Months Ended September 30,
 2020 2019
OPERATING ACTIVITIES:   
Net income$41,148
 $34,882
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization89,853
 81,584
Non-cash in-process research and development expense0
 59,889
Non-cash impairment charges0
 5,764
Income tax expense (benefit)4,784
 (10,536)
Share-based compensation14,333
 15,744
Amortization of debt issuance costs and expenses associated with debt refinancing10,499
 4,084
Non-cash lease expense2,172
 3,473
Accretion of bond issuance discount11,075
 0
Loss on disposal of property and equipment559
 844
Change in fair value of contingent consideration and others(45) 10
Changes in assets and liabilities:   
Accounts receivable57,863
 (17,519)
Inventories(45,531) (30,553)
Prepaid expenses and other current assets(865) (8,162)
Other non-current assets10,868
 6,650
Accounts payable, accrued expenses and other current liabilities(67,178) 366
Contract liabilities(548) (1,395)
Other non-current liabilities(5,417) (2,876)
Net cash provided by operating activities123,570
 142,249
INVESTING ACTIVITIES:   
Purchases of property and equipment(30,463) (47,343)
Acquired in-process research and development milestone

(5,000) 0
Proceeds from note receivable0
 752
Proceeds from sale of property and equipment3,311
 36
Cash (paid) provided for business acquisitions, net of cash acquired0
 (30,509)
Acquired in-process research and development0
 (64,995)
Net cash used in investing activities(32,152) (142,059)
FINANCING ACTIVITIES:   
Proceeds from borrowings of long-term indebtedness151,300
 215,800
Payments on debt(441,000) (143,250)
Purchase of option hedge on convertible notes(104,248) 0
Proceeds from convertible notes issuance575,000
 0
Proceeds from sale of stock purchase warrants44,563
 0
Payment of debt issuance costs(24,347) 0
Purchases of treasury stock(100,000) 0
Proceeds from exercised stock options3,821
 6,948
Cash taxes paid in net equity settlement(4,686) (6,272)
Net cash provided by financing activities100,403
 73,226
Effect of exchange rate changes on cash and cash equivalents5,547
 (4,273)
Net increase in cash and cash equivalents197,368
 69,143
Cash and cash equivalents at beginning of period198,911
 138,838
Cash and cash equivalents at end of period$396,279
 $207,981

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
(In thousands, except per share amounts) 

Three Months Ended March 31, 2021
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
(In thousands)
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 (loss), 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 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 
 Nine Months Ended September 30, 2020
 Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Equity
Shares AmountShares Amount
 (In thousands)
Balance, January 1, 202088,735
 $887
 (2,865) $(119,943) $1,213,620
 $(76,402) $398,574
 $1,416,736
Net income
 
 
 
 
 
 9,180
 9,180
Other comprehensive loss, net of tax
 
 
 
 
 (28,187) 
 (28,187)
Issuance of common stock through employee stock purchase plan13
 
 
 
 694
 
 
 694
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes357
 2
 10
 476
 (3,217) 
 
 (2,739)
Share-based compensation  
 
 
 3,781
 
 
 3,781
Share repurchase and equity component of the convertible note issuance, net

 
 (135) (7,632) 42,538
 
 
 34,906
Accelerated shares repurchased
 
 (1,304) (75,407) (16,961) 
 
 (92,368)
Adoption of Update No. 2016-13
 
 
 
 
 
 (200) (200)
Balance, March 31, 202089,105
 $889
 (4,294) $(202,506) $1,240,455
 $(104,589) $407,553
 $1,341,802
Net loss
 
 
 
 
 
 (369) (369)
Other comprehensive income, net of tax
 
 
 
 
 1,464
 
 1,464
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes84
 3
 
 (35) 1,282
 
 
 1,250
Share-based compensation
 
 
 
 4,948
 
 
 4,948
Accelerated shares repurchased
 
 (621) (32,685) 32,685
 
 
 0
Balance, June 30, 202089,189
 $892
 (4,915) $(235,226) $1,279,370
 $(103,125) $407,184
 $1,349,095
Net income
 
 
 
 
 
 32,337
 32,337
Other comprehensive income, net of tax
 
 
 
 
 11,212
 
 11,212
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes2
 
 
 2
 (69) 
 
 (67)
Share-based compensation
 
 
 
 5,410
 
 
 5,410
Balance, September 30, 202089,191

$892

(4,915)
$(235,224)
$1,284,711

$(91,913)
$439,521

$1,397,987


Three Months Ended March 31, 2020
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
(In thousands)
Balance, January 1, 202088,735 $887 (2,865)$(119,943)$1,213,620 $(76,401)$398,573 $1,416,736 
Net income— — — — — — 9,180 9,180 
Other comprehensive loss, net of tax— — — — — (28,187)— (28,187)
Issuance of common stock through employee stock purchase plan13 — — — 694 — — 694 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes357 10 476 (3,217)— — (2,739)
Share-based compensation— — — — 3,781 — — 3,781 
Share repurchase and equity component of the convertible note issuance, net— — (135)(7,632)42,538 — — 34,906 
Accelerated shares repurchased— — (1,304)(75,407)(16,961)— — (92,368)
Adoption of Update No. 2016-13— — — — — — (200)(200)
Balance, March 31, 202089,105 $889 (4,294)$(202,506)$1,240,455 $(104,588)$407,553 $1,341,803 

 Nine Months Ended September 30, 2019
 Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Equity
Shares AmountShares Amount
 (In thousands)
Balance, January 1, 201988,044
 $880
 (2,881) $(120,615) $1,192,601
 $(45,443) $348,373
 $1,375,796
Net income
 
 
 
 
 
 32,756
 32,756
Other comprehensive loss, net of tax
 
 
 
 
 (11,236) 
 (11,236)
Issuance of common stock through employee stock purchase plan17
 
 
 
 716
 
 
 716
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes243
 2
 12
 506
 (5,629) 
 
 (5,121)
Share-based compensation
 
 
 
 4,119
 
 
 4,119
Balance, March 31, 201988,304
 $882
 (2,869) $(120,109) $1,191,807
 $(56,679) $381,129
 $1,397,030
Net income
 
 
 
 
 
 29,736
 29,736
Other comprehensive loss, net of tax
 
 
 
 
 (12,021) 
 (12,021)
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes47
 1
 
 2
 405
 
 
 408
Share-based compensation
 
 
 
 5,798
 
 
 5,798
Balance, June 30, 201988,351
 $883
 (2,869) $(120,107) $1,198,010
 $(68,700) $410,865
 $1,420,951
Net loss
 
 
 
 
 
 (27,610) (27,610)
Other comprehensive loss, net of tax
 
 
 
 
 (18,915) 
 (18,915)
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes338
 3
 
 6
 4,665
 
 
 4,674
Share-based compensation
 
 
 
 5,874
 
 
 5,874
Balance, September 30, 201988,689
 $886
 (2,869) $(120,101) $1,208,549
 $(87,615) $383,255
 $1,384,974

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents
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 September 30, 2020March 31, 2021 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 shareholder's 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, 20192020 included in the Company’s Annual Report on Form 10-K. The December 31, 20192020 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 and nine month period ended September 30, 2020March 31, 2021 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 the equity component of convertible debt 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. The novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, inventory valuations, fair value measurements, goodwill and long-lived asset impairments, the effectiveness of the Company’s hedging instruments, deferred tax valuation allowances, and allowances for doubtful accounts receivable.
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the responses to the pandemic and information is rapidly evolving. From late March,During the beginning of 2020, the Company's customers diverted resources to treat COVID-19 patients and deferred or canceled elective or non-emergent surgical procedures, all of which impacted hospitals' abilities to meet their obligations, including to the Company. Beginning in May 2020 and throughTowards the end of 2020 and during the thirdfirst quarter of 2020,2021, procedural volumes relevant to the Company’s products steadily increased and, in some geographic areas, began to approach normalized levels. However, on-going uncertainty persists about the continuing sustainability of those procedural volumes as virus outbreaks constrain healthcare networks. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption has had an adverse effect on the Company's business as customers curtailed and reduced capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and the economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain. 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, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted with certainty. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. TheDuring the first quarter of 2021, the Company's revenues were still impacted due to COVID-19 pandemic continuesresurgences and lower surgical procedural volumes, though not to cause a financial strain on healthcare systems which varies by location, and asthe levels seen in early 2020. As a result, we do not expect the same level of spendingCompany has continued to manage its operating costs in the fourth quarter that we experienced last year.this environment. 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. If the downturn is more severe and prolonged than currently expected, the Company may need to take further steps to reduce costs.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



Recently IssuedRecent Accounting StandardsPronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU isbecame effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with no change to financial results reported in prior periods. The cumulative-effect adjustment recorded on January 1, 2020 is not material. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements and related disclosures.
The Company's exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, orand other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be an adverse impact as hospital's cash flows are impacted by their responsedue to customer and governmental responses to the COVID-19 pandemic.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.Plans The new. This guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU will beis effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption iswas permitted. The Company adopted this guidance during the year ended December 31, 2020. The adoption isof this guidance did not expected to have a materialsignificant impact on the Company's consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (e.g., a service contract). Under the newthis guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 using a prospective transition method. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 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 intraperiodintra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The newThis 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 No. 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 Company is currently assessing the impactadoption of this standardguidance did not have a material impact on itsthe Company's results or financial condition and results of operations.position.
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 LIBORLondon 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 No. 2020-04 and are effective in the same timeframe as ASU No. 2020-04. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 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

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In August 2020, the FASB issued ASU No. 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.years using either the modified retrospective or full retrospective method.

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 is currently assessingadopted 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)

Upon adoption of this ASU No. 2020-06, the Company’s Convertible Senior Notes were reflected entirely as a liability since the embedded conversion feature will no longer be separately presented within stockholders’ equity. On December 9, 2020, the Company made an irrevocable election under the indenture to require the principal portion of its convertible senior 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. Additionally, from January 1, 2021, the Company is no longer incurring non-cash interest expense for the amortization of debt discount, therefore the interest expense for the 2025 Notes, which is included in the interest expense on the consolidated statements of operations and comprehensive loss, is lower as compared to the fiscal year of 2020.

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 SEC’s regulations. The ASU will be effective for the Company for annual and interim periods beginning after beginning January 1, 2021. The Company adopted this standard on its consolidatedthe January 1, 2021. The adoption of this guidance did not have a material impact on the Company's results, financial statements and relatedposition or disclosures.
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. ASSETSACQUISITIONS AND LIABILITIES HELD FOR SALEDIVESTITURES
Sale of Extremity Orthopedics Business
On September 29, 2020,January 4, 2021, the Company and certaincompleted its previously announced sale of its subsidiaries entered into an agreement to sell its Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $240 million in cash.("Smith & Nephew"). The transaction includesincluded the sale of the Company’sCompany's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines. In connection with the transaction, theThe Company will payreceived an aggregate purchase price of $240.0 million from Smith and Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC (“CFO”("CFO") pursuant toeffectively terminating the terms of certain agreementslicensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products. The transaction is expected to close at or around the end of 2020, subject to the satisfaction of customary conditions, including regulatory approvals and consultation with employee representative bodies.
The Company considered the assets and liabilities associated with the Extremity Orthopedics business to be accounted as held-for-sale as the six criteria under ASC 260 were met during the third quarter of 2020. Upon designation of the assets and liabilities as held for sale, the Company recorded the assets at the lower of their carrying value or their estimated fair value, less estimated costs to sell. Goodwill was allocated to the assets and liabilities held for sale using the relative fair value method of the Extremity Orthopedics business to the Company's Orthopedics and Tissue Technologies reporting unit. The fair value of the business less costs to sell exceeded the related carrying value.

The Extremity Orthopedics business was treated as a single disposal group and presented separately in the condensed consolidated balance sheet as assets and liabilities held for sale as of September 30, 2020. These balances are presented as current assets and liabilities as they are expected to be sold within twelve months. The major classes of assets and liabilities classified as a held for sale consisted of the following as of September 30, 2020 (amounts in thousands):
Prepaid and other current assets$748
Other assets4,448
Deferred tax assets6,927
Intangible assets13,332
Property, plant and equipment, net36,714
Goodwill47,117
Inventories50,691
Total assets held for sale$159,977
Other liabilities241
Current portion of lease liability - operating leases

1,060
Accrued compensation1,584
Deferred tax liabilities3,035
Lease liability - operating leases

6,429
Total liabilities held for sale

$12,349



3. BUSINESS DEVELOPMENT
Arkis BioSciences Inc.
On July 29, 2019, the Company acquired Arkis BioSciences Inc. ("Arkis") for an acquisition purchase price of $30.6 million (the "Arkis Acquisition") plus contingent consideration of up to $25.5 million, that may be payable based on the successful completion of certain development and commercial milestones. The contingent consideration had an acquisition date fair value of $13.1 million. Arkis was a privately-held company that marketed the CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Assets and liabilities divested consisted of the following as of December 31, 2020 (amounts in thousands):
Prepaid expenses and other current assets$713 
Right of use asset-operating leases and Other assets3,186 
Deferred tax assets6,589 
Intangible assets, net13,332 
Property, plant and equipment, net37,893 
Goodwill47,546 
Inventories52,845 
Total assets held for sale$162,104 
Other liabilities336 
Current portion of lease liability - operating leases539 
Accrued compensation1,767 
Deferred tax liabilities3,440 
Lease liability - operating leases5,669 
Total liabilities held for sale$11,751 
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 reporting unit. The Company recognized a gain of $42.9 million in connection with the sale that is presented in Gain from the sale of business in the consolidated statement of operations for the three months ended March 31, 2021. The net proceeds are subject to adjustments based on changes in the actual closing net working capital.The purchase price is preliminary pending finalization of potential working capital adjustments.
The Company also entered into a transition services agreement ("TSA") 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 agreement. The Company recognized a payable due to Smith & Nephew of $9.0 million, included in the consolidated balance sheet within accrued expenses and other current liabilities respectively.
ACell Inc. Acquisition
On January 20, 2021, the Company acquired ACell Inc. (the "ACell Acquisition") for an acquisition purchase price of $305.4 million plus contingent consideration of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025. The purchase price is subject to adjustments based on changes in the actual closing net working capital. The consideration is preliminary pending finalization of potential working capital adjustments. 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 ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix.
Assets Acquired and Liabilities Assumed at Fair Value
The ArkisACell Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination to beare recognized at their fair values as of the acquisition date. As of March 31, 2021, certain amounts relating to the valuation of intangible assets and tax related matters have not been finalized. The finalization of these matters may result in changes to goodwill.








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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table summarizes the finalpreliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
 
Final Valuation as of
September 30, 2019
 Weighted Average Life
 (Dollars in thousands)  
Cash$90
  
Other current assets751
  
Property, plant and equipment457
  
Deferred tax assets1,697
  
Intangible assets:   
CerebroFlo developed technology20,100
 15 years
Enabling technology license1,980
 14 years
Goodwill27,153
  
Total assets acquired52,228
  
    
Accounts payable, accrued expenses and other liabilities2,926
  
Contingent consideration13,100
  
Deferred tax liabilities5,603
  
     Net assets acquired$30,599
  

Preliminary ValuationWeighted Average Life
(In thousands)
Current assets:
Cash$2,726 
Trade accounts receivable, net16,469 
Inventories, net18,299 
Prepaids expenses and other current assets1,498 
Total current assets38,992 
Property, plant and equipment, net13,769 
Intangible assets245,000 13-14 years
Goodwill92,983 
Right of use asset - operating leases9,259 
Deferred tax assets9,768 
Other assets148 
Total assets acquired409,919
Current liabilities:
Accounts payable$718 
Accrued expenses6,227 
Current portion of lease liability - operating leases1,673 
Total current liabilities8,618 
Other long-term liability276
Lease liability - operating leases7,585 
Deferred tax liability64,178 
Contingent consideration23,900 
Total liabilities assumed104,557
Net assets acquired$305,362
Intangible Assets
The estimated fair value of the intangible assetsdeveloped technology acquired was determined using the multi-period excess earnings method of the income approach, which is a valuation technique that provides an estimate ofestimates value based on the fairpresent value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life.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 asset (includingproduct including net revenues, cost of sales, R&D costs, selling and marketing costs, working capital, and working capital/contributory asset charges),charges, 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 14.5%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 ArkisACell Acquisition to the Codman Specialty SurgicalTissue Technologies segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. One of the key factors that contributes to the recognition of goodwill, and a driver for the Company's acquisition of Arkis, is the planned expansion of the Endexo technology with the existing products within the Codman Specialty Surgical segment. Goodwill recognized as a result of this acquisition is non-deductible for income tax purposes.
Contingent Consideration
As part of the acquisition, the Company is required to pay the former shareholders of ACell up to $100 million based on the achievement 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
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 Company determines the acquisition date fair value of contingent consideration obligations based onusing a probability-weighted income approach derived from revenue estimates and a probabilityMonte Carlo simulation, as well as significant unobservable inputs, reflecting the Company’s assessment with respectof the assumptions market participants would use to the likelihood of achieving contingent obligations.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 probability-weighted cash flowsmost likely payouts are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value will be reflected as income or expense in the Company'sour consolidated statement of operations. Changes in the fair value of the contingent consideration obligationsconsiderations may result from changes in discount periods and rates and changes in the timing and amount of revenue estimates andestimates. Adverse changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

As part of the acquisition, the Company is required to pay the former shareholders of Arkis up to $25.5 million based on the timing of certain development milestones of $10.0 million and commercial sales milestones of $15.5 million, respectively. The Company used a probability weighted income approach to calculate the fair value ofutilized in the contingent consideration that considered the possible outcomes of scenarios related to each specified milestone. The Company estimated the fair value ofestimates could result in an increase in the contingent consideration obligation and a corresponding charge to be $13.1 million at the acquisition date. The estimated fair value as of September 30, 2020 was $14.2 million. This amount is included in other liabilities at September 30, 2020 in the consolidated balance sheets of the Company.operating results.
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.
The proPro forma resultsrevenues for the three months ended March 31, 2021 and 2020 were $364.7 million and $377.3 million, respectively. Pro forma net income and earnings per share are not presented for this acquisition as they are not material.
Rebound Therapeutics Corporation
On September 9, 2019, the Company acquired Rebound Therapeutics Corporation (“Rebound”), developers of a single-use medical device known as the AURORA Surgiscope® System ("Aurora") which enables minimally invasive access, using optics and illumination, for visualization, diagnostic and therapeutic use in neurosurgery (the “Rebound transaction”). Under the terms of the Rebound transaction, the Company made an upfront payment of $67.1 million and are committed to pay up to $35.0 million of contingent development milestones upon achievement of certain regulatory milestones. The acquisition of Rebound was primarily concentrated in 1 single identifiable asset and thus, for accounting purposes, the Company has concluded that the acquired assets do not meet the accounting definition of a business. The initial payment was allocated primarily to Aurora, resulting in a $59.9 million in-process research and development (IPR&D) expense. The balance of approximately $7.2 million, which included $2.1 million of cash and cash equivalents and a net deferred tax asset of $4.2 million, was allocated to the remaining net assets acquired. The deferred tax asset primarily resulted from a federal net operating loss carry forward.
During the fourth quarter of 2019, the Company achieved the first developmental milestone which triggered a $5.0 million obligation to be paid to former shareholders of Rebound. The Company recorded $5.0 million as IPR&D expense in the consolidated statements of operations during the year ended December 31, 2019. The obligation was included in accrued expenses and other current liabilities at December 31, 2019 in the consolidated balance sheets. The milestone was paid during the first quarter of 2020.
Integrated Shoulder Collaboration, Inc.
On January 4, 2019, the Company entered into a licensing agreement with Integrated Shoulder Collaboration, Inc ("ISC"). Under the terms of the agreement, the Company paid ISC $1.7 million for the exclusive, worldwide license to commercialize its short stem and stemless shoulder system. A patent related to short stem and stemless shoulder systems was issued to ISC during the first quarter of 2019. ISC is eligible to receive royalties on sales of the short stem and stemless shoulder system. The Company has the option to acquire ISC at a date four years subsequent to the first commercial sale, which becomes mandatory upon the achievement of a certain sales thresholds of the short stem and stemless shoulder system, for an amount not to exceed $80.0 million. The transaction was accounted for as an asset acquisition as the Company concluded that it acquired primarily 1 asset. During the quarter ended March 31, 2019, the total upfront payment of $1.7 million was expensed as a component of research and development expense and the future milestone and option payments will be recorded if the corresponding events become probable.
In connection with the sale of the Company's Extremity Orthopedic business, the Company will pay $41.5 million to CFO pursuant to the terms of certain agreements between Integra and CFO relating to the sale of shares of ISC which includes the development of shoulder arthroplasty products effectively terminating our licensing agreement with ISC. See Note 2, Assets and Liabilities Held for Sale, for details of the transaction.
4.3. 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.
Total revenue, net, includes product sales, product royalties and other revenues, such as fees received for services.
For products shipped with FOB shipping point terms, the control of the product passes to the customer at the time of shipment. For shipments in which the control of the product is transferred when the customer receives the product, the Company recognizes revenue upon receipt by the customer. Certain products that the Company produces for private label customers have no alternative use and the Company has a right of payment for performance to date. Revenues from those products are recognized over the period

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

that the Company manufactures these products, which is typically one to three months. The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company's performance obligation of transferring control of goods being manufactured for private label customers.
A portion of the Company's product revenue is generated from consigned inventory maintained at hospitals and distributors, and also from inventory physically held by field sales representatives. For these types of product sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized.   
Revenues from sale of products and services are evidenced by either a contract with the customer or a valid purchase order and an invoice which includes all relevant terms of sale. For product sales, invoices are generally issued upon the transfer of control (or upon the completion of the manufacturing in the case of the private label transactions recognized over time) and are typically payable thirty days after the invoice date. The Company performs a review of each specific customer's creditworthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers' creditworthiness prospectively.
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 and 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.
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.












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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following table summarizes the changes in the contract asset and liability balances for the ninethree months ended September 30, 2020:March 31, 2021:
Contract Asset 
Contract asset, January 1, 2020$8,680
Transferred to trade receivable of contract asset included
     in beginning of the year contract asset
(8,680)
Contract asset, net of transferred to trade receivables on contracts during the period6,653
Contract asset, September 30, 2020$6,653
  
Contract Liability 
Contract liability, January 1, 2020$11,946
Recognition of revenue included in beginning of year contract liability(3,150)
Contract liability, net of revenue recognized on contracts during the period

2,631
Foreign currency translation(42)
Contract liability, September 30, 2020$11,385

Contract Asset
Contract asset, January 1, 2021$7,430 
Transferred to trade receivable of contract asset included
     in beginning of the year contract asset
(7,430)
Contract asset, net of transferred to trade receivables on contracts during the period6,499 
Contract asset, March 31, 2021$6,499 
Contract Liability
Contract liability, January 1, 2021$11,961 
Recognition of revenue included in beginning of year contract liability(1,677)
Contract liability, net of revenue recognized on contracts during the period1,604 
Foreign currency translation(22)
Contract liability, March 31, 202111,866 
At September 30, 2020,March 31, 2021, the short-term portion of the contract liability of $4.9$5.4 million and the long-term portion of $6.5 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet.
As of September 30, 2020,March 31, 2021, the Company is expected to recognize approximately 43%46% of unsatisfied (or partially unsatisfied) performance obligations as revenue through 2020,2021, with the remaining balance to be recognized in 20212022 and thereafter.
Shipping and Handling FeesFees
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.
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.













15

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

Disaggregated Revenue
The following table presents revenues disaggregated by the major sources of revenues for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 (amounts in thousands):
 Three Months Ended September 30, 2020Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
     
Neurosurgery$189,674
$195,330
 $516,048
$567,779
Instruments49,649
57,654
 124,493
169,031
Total Codman Specialty Surgical239,323
252,984
 640,541
736,810
      
Wound Reconstruction and Care82,115
82,213
 210,673
239,458
Extremity Orthopedics21,922
20,852
 54,556
65,299
Private Label26,872
23,046
 77,451
80,863
Total Orthopedics and Tissue Technologies130,909
126,111
 342,680
385,620
Total revenue$370,232
$379,095
 $983,221
$1,122,430
14

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Neurosurgery$189,254 $184,943 
Instruments51,987 46,497 
Total Codman Specialty Surgical241,241 231,440 
Wound Reconstruction and Care(2)
88,698 72,267 
Extremity Orthopedics(1)
21,472 
Private Label30,132 29,145 
Total Tissue Technologies118,830 122,884 
Total revenue$360,071 $354,324 

(1)
On January 4, 2021, the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited. In conjunction with the sale of this business, the Company rebranded the Orthopedics and Tissue Technologies segment as Tissue Technologies in the first quarter of 2021. See Note 2. Acquisitions and Divestitures, for details.
Prior period amounts were reclassified between categories within(2) On January 20, 2021, the Codman Specialty Surgical segmentCompany acquired ACell Inc. for an acquisition purchase price of $305.4 million plus contingent consideration of up to conform to the current period presentation.$100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.See Note 2. Acquisitions and Divestitures, for details.
See Note 16,15, Segment and Geographical Information, for details of revenues based on the location of the customer.
5.4. INVENTORIES
Inventories, net consisted of the following:
March 31, 2021December 31, 2020
 (In thousands)
Finished goods$191,712 $180,301 
Work in process57,173 53,336 
Raw materials79,164 $76,480 
Total inventories, net$328,049 $310,117 
 September 30, 2020 December 31, 2019
 (In thousands)
Finished goods$223,726
 $201,870
Work in process57,037
 48,333
Raw materials77,767
 $65,851
Transfer to assets held for sale (See Note 2. Assets Held for Sale)

(50,691) 0
Total inventories$307,839
 $316,054


At December 31, 2020, $52.8 million of inventories, net was presented separately as "Assets held for sale" in conjunction with the sale of the Extremity Orthopedics business. Further, the increase in inventory at March 31, 2021 as compared to the year ended December 31, 2020, was primarily driven from the inventory acquired in conjunction with the ACell Inc. acquisition. See Note 2, Acquisitions and Divestitures, for details.
6.5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill for the nine-monththree-month period ended September 30, 2020March 31, 2021 were as follows:
 
Codman Specialty
Surgical
 
Orthopedics and
Tissue Technologies
 Total
 (In thousands)
Goodwill at December 31, 2019$653,500
 $300,780
 $954,280
Transfer to assets held for sale (See Note 2. Assets Held for Sale)
0
 (47,117) (47,117)
Foreign currency translation8,928
 3,465
 12,393
Goodwill at September 30, 2020$662,428
 $257,128
 $919,556








Codman Specialty
Surgical
Tissue TechnologiesTotal
 (In thousands)
Goodwill at December 31, 2020$671,975 $260,392 $932,367 
ACell Acquisition92,983 92,983 
Foreign currency translation(10,013)(5,265)(15,278)
Goodwill at March 31, 2021$661,962 $348,110 $1,010,072 
16
15

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

The components of the Company’s identifiable intangible assets were as follows:
 March 31, 2021
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Completed technology18 years1,120,918(257,360)863,558
Customer relationships12 years212,332(134,794)77,538
Trademarks/brand names28 years98,533(28,862)69,671
Codman tradenameIndefinite165,091165,091
Supplier relationships30 years30,211(15,447)14,764
All other10 years6,813(3,754)3,059
1,633,898(440,217)1,193,681
 September 30, 2020
 
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net
 (Dollars in thousands)
Completed technology19 years $891,554
 $(250,609) $640,945
Customer relationships12 years 223,512
 (138,989) 84,523
Trademarks/brand names28 years 104,404
 (31,425) 72,979
Codman tradenameIndefinite 167,013
 
 167,013
Supplier relationships27 years 34,721
 (19,018) 15,703
All other(1)
4 years 11,101
 (5,247) 5,854
Transfer to assets held for sale (See Note 2. Assets Held for Sale)

  (39,821) 26,489
 (13,332)
   $1,392,484
 $(418,799) $973,685

 December 31, 2019
 
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net
 (Dollars in thousands)
Completed technology19 years $880,623
 $(213,702) $666,921
Customer relationships12 years 222,575
 (119,393) 103,182
Trademarks/brand names28 years 103,873
 (28,514) 75,359
Codman tradenameIndefinite 163,126
 
 163,126
Supplier relationships27 years 34,721
 (17,947) 16,774
All other (1)
4 years 10,869
 (4,640) 6,229
   $1,415,787
 $(384,196) $1,031,591

(1)
At September 30, 2020 and December 31, 2019, all other included IPR&D of $1.0 million, which was indefinite-lived. At September 30, 2020, this IPR&D asset was presented separately as "assets held for sale" in conjunction with the sale of the Extremity Orthopedics business which is expected to be sold within twelve months. See Note 2, Assets and Liabilities Held for Sale
 December 31, 2020
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Completed technology19 years896,478 (248,088)648,390 
Customer relationships12 years213,270 (132,838)80,432 
Trademarks/brand names28 years104,209 (31,767)72,442 
Codman tradenameIndefinite170,226 — 170,226 
Supplier relationships27 years30,211 (15,203)15,008 
All other (1)
4 years6,693 (3,755)2,938 
1,421,087 (431,651)989,436 
(1)Prior period amounts were reclassified as it relates to All other within this table to conform to the current period presentation.
The increase in the Company's identifiable intangible assets at March 31, 2021 as compared to the year ended December 31, 2020, was primarily driven from intangible assets acquired in conjunction with the ACell Inc. acquisition. See Note 2, Acquisitions and Divestitures, for details.
Goodwill and Intangible Assets with Indefinite Lives

The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the third quarter in accordance with ASC Topic 350. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative evaluation for some or all of its reporting units and perform a quantitative test. During the third quarter of 2020, the Company began with the qualitative evaluation, which was sufficient to find 0 impairment.

For intangible assets with indefinite lives, the Company elected to bypass the qualitative evaluation for its Codman tradename intangible asset and perform a quantitative test during the third quarter 2020. In performing this test, the Company utilized a discount rate of 11.5%. The assumptions used in evaluating the Codman tradename for impairment are subject to change and are tracked against historical results by management. Based on the results of the quantitative test, the Company recorded 0 impairment to the Codman tradename intangible asset.


17

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

Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of product revenues) is expected to be approximately $15.7$60.7 million for the remainder of 2020, $62.1 million in 2021, $59.7$78.8 million in 2022, $58.9$78.0 million in 2023, $58.4$77.3 million in 2024, $58.4$77.3 million in 2025, $77.2 million in 2026 and $494.9$582.7 million thereafter.

7.
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 in light of the unprecedented impact and uncertainty of the COVID-19 pandemic on the global economy. The July 2020 amendment does not increase the Company’s total indebtedness.
In connection with the July 14, 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:
16

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
Execution of July 2020 Amendment through June 30, 20215.50 to 1.00
September 30, 2021 through June 30, 20225.00 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:
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.
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%

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 September 30, 2020,March 31, 2021, the Company was in compliance with all such covenants. In connection with the February 2020 Amendment, the Company capitalized $4.6 million of financing costs in connection with modification of the Senior Credit Facility and wrote off $1.2 million of previously capitalized financing costs during the first quarter of 2020. In connection with the July 2020 amendment, the Company expensed $3.3 million of incremental financing costs in connection with the modification of the Senior Credit Facility during the third quarter of 2020.
At September 30, 2020March 31, 2021 and December 31, 2019,2020, there waswas $97.5 million and $375.0 million outstanding, respectively,outstanding under the revolving credit component of the Senior Credit Facility at weighted average interest rates of 1.5% and 3.2%, respectively.. At September 30, 2020March 31, 2021 and December 31, 2019, 2020, there was $877.5 million outstanding respectively, under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 1.5% and 3.2%. At March 31, 2021, respectively. At September 30, 2020, $22.5$45.0 million

18

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

million of the Term Loan component of the Senior Credit Facility is classified as current on the consolidated balance sheet as the first mandatory repayment is due June 30, 2021.
The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at September 30, 2020March 31, 2021 were $94.6$98.5 million and $853.7$884.9 million, respectively.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 inputsinputs that reflect unadjusted quoted prices for identical assets or liabilities.
Letters of credit outstanding as of September 30, 2020March 31, 2021 and December 31, 20192020 totaled $1.6 million and $0.8 million. There were 0 amounts drawn as of September 30, 2020.March 31, 2021.







17

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
Quarter Ended September 30, 2020 Principal Repayment
  (In thousands)
Remainder of 2020 $0
2021 33,750
2022 45,000
2023 61,875
2024 67,500
2025 669,375
  $877,500

Quarter Ended March 31, 2021Principal Repayment
(In thousands)
Remainder of 2021$33,750 
202245,000 
202361,875 
202467,500 
2025669,375 
$877,500 
The outstanding balance of the revolving credit component of the Senior Credit Facility is due on February 3, 2025.
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 Notes. The portion of debt proceeds that was classified as equity at the time of the offering was $104.5 million, and that amount is being amortized to interest expense using the effective interest method through August 2025.million. The effective interest rate implicit in the liability component iswas 4.2%. In connection with this offering, the Company capitalized $13.2 million of financing fees. At September 30, 2020, the carrying amount of the liability component was $481.5 million, the remaining unamortized discount was $93.5 million, and the principal amount outstanding was $575.0 million. The fair value of the 2025 Notes at September 30, 2020 was $541.8 million.
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 $1000 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 September 30, 2020,March 31, 2021, 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

19

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

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, 2021, in conjunction with the adoption of the ASU, the carrying amount of the liability was $575.0 million. The fair value of the 2025 Notes at March 31, 2021 was $642.1 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.
18

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
During the ninethree months ended September 30,March 31, 2020, the Company recognized cash interest related to the contractual interest coupon of $1.9$0.4 million and amortization of the discount on the liability component of $11.1$2.5 million for a total interest charge of $13.0$2.9 million on the 2020 Notes. On January 1, 2021, the Company adopted ASU 2020-06 using the modified retrospective method. See Note 1, Basis of Presentation, for further details. During the three months ended March 31, 2021, as a result of the adoption of the ASU, the Company recognized only cash interest related to the contractual interest coupon of $0.7 million on the 2025 Notes.
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") is for an initial three-year term and may be extended. The 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 September 30, 2020,March 31, 2021, the Company was in compliance with the covenants and none of the termination events had occurred. At September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had $92.3$110.9 million and $104.5$112.5 million, respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 1.4% and 2.8%, respectively.1.3%. At March 31, 2021, the total amount outstanding under the Securitization Facility is classified as current on the consolidated balance sheet as the total amount is due on December 21, 2021.
The fair value of the outstanding borrowing of the Securitization Facility at September 30, 2020March 31, 2021 was $92.8$110.8 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.
8.7. 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 September 30, 2020March 31, 2021 and December 31, 20192020 (dollar amounts in thousands):
March 31, 2021December 31, 2020
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month USD LIBOR Loan100,000 March 27, 2017December 31, 2017June 30, 20211.971 %(463)(929)
1-month USD LIBOR Loan300,000 December 13, 2017January 1, 2018December 31, 20222.201 %(10,526)(12,557)
1-month USD LIBOR Loan150,000 December 13, 2017July 1, 2019June 30, 20242.423 %(9,413)(11,502)
1-month USD LIBOR Loan200,000 December 13, 2017January 1, 2018December 31, 20242.313 %(12,293)(16,243)
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.220 %(7,842)(9,836)
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.199 %(7,805)(9,826)
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.209 %(7,849)(9,783)
1-month USD LIBOR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.885 %(6,037)(10,407)
1-month USD LIBOR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.867 %(5,826)(10,431)
1-month USD LIBOR Loan575,000 December 15, 2020July 31, 2025December 31, 20271.415 %11,810 (1,907)
1-month USD LIBOR Loan125,000 December 15, 2020July 1, 2025December 31, 20271.404 %2,697 (348)
Total interest rate derivatives designated as cash flow hedge$1,875,000 $(53,547)$(93,769)
  September 30, 2020 December 31, 2019         September 30, 2020 December 31, 2019
Hedged Item Notional Amount Notional Amount Designation Date Effective Date Termination Date Fixed Interest Rate Estimated Fair Value
              Asset (Liability)
3-month USD LIBOR Loan 0
 50,000
 February 6, 2017 June 30, 2017 June 30, 2020 1.834% $0
 $(2)
1-month USD LIBOR Loan 0
 100,000
 February 6, 2017 June 30, 2017 June 30, 2020 1.652% 0
 12
1-month USD LIBOR Loan 100,000
 100,000
 March 27, 2017 December 31, 2017 June 30, 2021 1.971% (1,377) (581)
1-month USD LIBOR Loan 150,000
 150,000
 December 13, 2017 January 1, 2018 December 31, 2022 2.201% (6,901) (2,880)
1-month USD LIBOR Loan 150,000
 150,000
 December 13, 2017 January 1, 2018 December 31, 2022 2.201% (6,922) (2,880)
1-month USD LIBOR Loan 100,000
 100,000
 December 13, 2017 July 1, 2019 June 30, 2024 2.423% (8,454) (3,517)
1-month USD LIBOR Loan 50,000
 50,000
 December 13, 2017 July 1, 2019 June 30, 2024 2.423% (4,064) (1,778)
1-month USD LIBOR Loan 200,000
 200,000
 December 13, 2017 January 1, 2018 December 31, 2024 2.313% (18,188) (6,595)
1-month USD LIBOR Loan 75,000
 75,000
 October 10, 2018 July 1, 2020 June 30, 2025 3.220% (10,608) (5,750)
1-month USD LIBOR Loan 75,000
 75,000
 October 10, 2018 July 1, 2020 June 30, 2025 3.199% (10,871) (5,747)
1-month USD LIBOR Loan 75,000
 75,000
 October 10, 2018 July 1, 2020 June 30, 2025 3.209% (10,586) (5,807)
1-month USD LIBOR Loan 100,000
 100,000
 December 18, 2018 December 30, 2022 December 31, 2027 2.885% (11,282) (4,930)
1-month USD LIBOR Loan 100,000
 100,000
 December 18, 2018 December 30, 2022 December 31, 2027 2.867% (11,127) (4,691)
Total interest rate derivatives designated as cash flow hedge $1,175,000
 $1,325,000
         $(100,380) $(45,145)
19


INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company has designated these derivative instruments as cash flow hedges. The Company assesses the effectiveness of these derivative instruments and has recorded the changes in the fair value of the derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive loss (“AOCL”), net of tax, until the hedged item affected earnings, at which point any gain or loss was reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the remaining amount of any gain or loss on the related cash flow hedge recorded in AOCL to interest expense at that time.

20

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

Foreign Currency Hedging
From time to time the Company enters into foreign currency hedge contracts intended to protect the U.S. dollar value of certain forecasted foreign currency denominated transactions. The Company assesses the effectiveness of the contracts that are designated as hedging instruments. The changes in fair value of foreign currency cash flow hedges are recorded in AOCL, net of tax, untiltax. Those amounts are subsequently reclassified to earnings from AOCL as impacted by the hedged item affects earnings. Oncewhen the related hedged item affects earnings, the Company reclassifies amounts recorded in AOCL to earnings. If the hedged forecasted transaction does not occur, or if it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. For contracts not designated as hedging instruments, the changes in fair value of the contracts are recognized in other income, (expense), net in the consolidated statements of operation, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.
During the fourth quarter of 2020, the Company entered into foreign currency forward contracts, with a notional amount of $9.7 million to mitigate the foreign exchange risk related to certain intercompany loans denominated in Canadian Dollar ("CAD") and intercompany receivables denominated in Japanese Yen ("JPY"). The contracts are not designated as hedging instruments. The Company recognized a $0.2 million loss from the change in fair value of the contracts, which was included in other income, net in the consolidated statement of operations as of March 31, 2021. The Company subsequently settled its foreign currency forward contracts associated with the intercompany receivables denominated in JPY during the first quarter of 2021. The fair value of the foreign currency forward contracts denominated in CAD was $0.2 million as of March 31, 2021.
The success of the Company’s hedging program depends, in part, on forecasts of certain activity denominated in foreign currency. The Company may experience unanticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activities during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect earnings and cash flows.
Cross-Currency Rate Swaps
On October 2, 2017, the Company entered into cross-currency swap agreements to convert a notional amount of $300.0 million equivalent to 291.2 million of CHFSwiss Francs ("CHF") denominated intercompany loans into U.S. dollars. The CHF-denominated intercompany loans were the result of the purchase of intellectual property by a subsidiary in Switzerland as part of an acquisition.
On December 21, 2020, the Company entered into cross-currency swap agreements to convert a notional amount of $471.6 million equivalent to 420.1 million of a CHF denominated intercompany loan into U.S. dollars. The CHF denominated intercompany loan was the result of an intra-entity transfer of certain intellectual property rights to a subsidiary in Switzerland completed during the fourth quarter of 2020. The intercompany loan requires quarterly payments of CHF 5.8 million plus accrued interest. As a result, the aggregate notional amount of the related cross-currency swaps will decrease by a corresponding amount.
The objective of these cross-currency swaps is to reduce volatility of earnings and cash flows associated with changes in the foreign currency exchange rate. Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make interest payments in Swiss Francs and receive interest in U.S. dollars. Upon the maturity of these contracts, the Company will pay the principal amount of the loans in Swiss Francs and receive U.S. dollars from the counterparties.
The Company held the following cross-currency rate swaps as of September 30, 2020March 31, 2021 and December 31, 20192020 (dollar amounts in thousands):
           September 30, 2020 December 31, 2019
  Effective Date Termination Date Fixed Rate Aggregate Notional Amount 
Fair Value
Asset (Liability)
             
Pay CHF October 2, 2017 October 2, 2020 1.75% CHF32,355
 $(1,565) $(101)
Receive U.S.$  4.38% $33,333
  
              
Pay CHF October 2, 2017 October 2, 2021 1.85% CHF48,533
 (2,003) (119)
Receive U.S.$  4.46% $50,000
  
              
Pay CHF October 2, 2017 October 2, 2022 1.95% CHF145,598
 (4,167) (289)
Receive U.S.$  4.52% $150,000
  
              
Total          $(7,735) $(509)
20

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
March 31, 2021December 31, 2020March 31, 2021December 31, 2020
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay CHFOctober 2, 2017October 2, 20211.85%CHF48,533 48,533 (955)(4,335)
Receive U.S.$4.46%$50,000 50,000 
Pay CHFOctober 2, 2017October 2, 20221.95%CHF145,598 145,598 (868)(11,262)
Receive U.S.$4.52%$150,000 150,000 
Pay CHFDecember 21, 2020December 20, 20253.00%CHF414,387 420,137 17,314 (7,843)
Receive U.S.$3.98%$465,185 471,640 
Total$15,491 $(23,441)


On October 2, 2020 in accordance with the termination date, the Company settled aThe cross-currency swap designated as a cash flow hedge of an intercompany loan with an aggregate notional amount of $33.3 million.
The cross- currency swaps are carried on the consolidated balance sheet at fair value, and changes in the fair values are recorded as unrealized gains or losses in AOCL. For the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded lossesa gain of $6.9$42.9 million and $12.0a loss of $1.7 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the gains recognized on the intercompany loans. For the three and nine months ended September 30, 2019, the Company recorded gains of $5.7 million and $3.9 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset theor losses recognized on the intercompany loans.
For the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded a loss of $6.3 million and a gain of $2.7 million in AOCL, respectively, related to change in fair value of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $9.7$40.2 million and $15.4$5.9 million in AOCL, respectively, related to change in fair value of the cross-currency swaps.
For the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded gains of $1.5$1.3 million and $4.5 million, respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $1.8 million and

21

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

$5.5$1.5 million, respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.
The estimated gain that is expected to be reclassified to other income (expense), net from AOCL as of September 30, 2020March 31, 2021 within the next twelve months is $3.0$9.1 million. As of September 30, 2020,March 31, 2021, the Company does not expect any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.
Net Investment Hedges
The Company manages certain foreign exchange risks through a variety of strategies, including hedging. The Company is exposed to foreign exchange risk from its international operations through foreign currency purchases, net investments in foreign subsidiaries, and foreign currency assets and liabilities created in the normal course of business. On October 1, 2018 and December 16, 2020, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries.
The Company held the following cross-currency rate swaps designated as net investment hedges as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively (dollar amounts in thousands):
           September 30, 2020 December 31, 2019
  Effective Date Termination Date Fixed Rate Aggregate Notional Amount 
Fair Value
Asset (Liability)
             
Pay EUR October 3, 2018 September 30, 2021 0% EUR44,859
 $589
 $2,459
Receive U.S.$   3.01% $52,000
  
              
Pay EUR October 3, 2018 September 30, 2023 0% EUR51,760
 2,443
 3,087
Receive U.S.$   2.57% $60,000
  
              
Pay EUR October 3, 2018 September 30, 2025 0% EUR38,820
 2,398
 2,032
Receive U.S.$   2.19% $45,000
  
              
Pay GBP October 3, 2018 September 30, 2025 1.67% GBP128,284
 8,580
 (154)
Receive U.S.$   2.71% $167,500
  
              
Pay CHF October 3, 2018 September 30, 2025 0% CHF165,172
 (6,828) 1,221
Receive GBP   1.67% GBP128,284
  
              
Total          $7,182
 $8,645
21


INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
March 31, 2021December 31, 2020
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay EUROctober 3, 2018September 30, 20210%EUR44,859 $(9)$(1,884)
Receive U.S.$3.01%$52,000 
Pay EUROctober 3, 2018September 30, 20230%EUR51,760 1,707 (450)
Receive U.S.$2.57%$60,000 
Pay EUROctober 3, 2018September 30, 20250%EUR38,820 1,096 92 
Receive U.S.$2.19%$45,000 
Pay CHFDecember 16, 2020December 16, 20270%CHF222,300 3,033 (3,794)
Receive U.S.$1.10%$250,000 
Total$5,827 $(6,036)
The cross-currency swaps were carried on the consolidated balance sheet at fair value and changes in the fair values were recorded as unrealized gains or losses in AOCL. For the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded loss of $11.3 million and a gain of $5.1 million in AOCL related to the change in fair value of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $17.1$11.9 million and $26.6$16.7 million in AOCL related to the change in fair value of the cross-currency swaps.
For the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded gains of $2.2$1.7 million and $6.6$2.2 million in interest income included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $2.5 million and $7.2 million, respectively, in interest income included in the consolidation statements of operations related to the interest rate differential of the cross-currency swaps.
The estimated gain that is expected to be reclassified to interest income from AOCL as of September 30, 2020March 31, 2021 within the next twelve months is $7.7$5.2 million.
Counterparty Credit Risk
The Company manages its concentration of counterparty credit risk on its derivative instruments by limiting acceptable counterparties to a group of major financial institutions with investment grade credit ratings, and by actively monitoring their credit ratings and outstanding positions on an ongoing basis. Therefore, the Company considers the credit risk of the counterparties to be low. Furthermore, none of the Company’s derivative transactions are subject to collateral or other security arrangements, and none contain provisions that depend upon the Company’s credit ratings from any credit rating agency.

22

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

Fair Value of Derivative Instruments
The Company has classified all of its derivative instruments within Level 2 of the fair value hierarchy because observable inputs are available for substantially the full term of the derivative instruments. The fair values of the interest rate swaps and cross-currency swaps were developed using a market approach based on publicly available market yield curves and the terms of the swap. The Company performs ongoing assessments of counterparty credit risk.

The following table summarizes the fair value for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of September 30, 2020March 31, 2021 and December 31, 2019:2020:
22
  Fair Value as of
Location on Balance Sheet (1):
 September 30, 2020 December 31, 2019
  (In thousands)
Derivatives designated as hedges — Assets:    
Prepaid expenses and other current assets    
Cash Flow Hedges    
Interest rate swap $0
 $12
Cross-currency swap 4,608
 5,032
Net Investment Hedges    
Cross-currency swap 7,717
 7,952
Other assets    
Net Investment Hedges    
Cross-currency swap 9,071
 3,465
Total derivatives designated as hedges — Assets $21,396
 $16,461
     
Derivatives designated as hedges — Liabilities:    
Accrued expenses and other current liabilities    
Cash Flow Hedges    
Interest rate swap $22,324
 $6,635
Cross-currency swap 1,565
 101
Other liabilities    
Cash Flow Hedges    
Interest rate swap 78,056
 38,522
Cross-currency swap 10,777
 5,440
Net Investment Hedges    
Cross-currency swap 9,605
 2,772
Total derivatives designated as hedges — Liabilities $122,327
 $53,470
(1)
The Company classifies derivative assets and liabilities as non-current based on the cash flows expected to be incurred within the following 12 months.


23

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

 Fair Value as of
Location on Balance Sheet (1):
March 31, 2021December 31, 2020
 (In thousands)
Derivatives designated as hedges — Assets:
Prepaid expenses and other current assets
Cash Flow Hedges
Cross-currency swap10,083 7,623 
Net Investment Hedges
Cross-currency swap5,209 5,297 
Other assets
Cash Flow Hedges
Interest rate swap(2)
14,507 
Cross-currency swap10,978 
Net Investment Hedges
Cross-currency swap656 
Total derivatives designated as hedges — Assets$41,433 $12,920 
Derivatives designated as hedges — Liabilities:
Accrued expenses and other current liabilities
Cash Flow Hedges
Interest rate swap(2)
21,337 22,033 
Cross-currency swap955 4,335 
Net Investment Hedges
Cross-currency swap10 1,884 
Other liabilities
Cash Flow Hedges
Interest rate swap(2)
46,717 71,736 
Cross-currency swap4,615 26,728 
Net Investment Hedges
Cross-currency swap28 9,449 
Total derivatives designated as hedges — Liabilities$73,652 $136,165 
(1)The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months.
(2) At March 31, 2021 and December 31, 2020, the total notional amounts related to the Company’s interest rate swaps both
were $1.9 billion.
23

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following presents the effect of derivative instruments designated as cash flow hedges on the accompanying condensed consolidated statement of operations during the three and nine months ended September 30, 2020March 31, 2021 and 2019:2020:
Balance in AOCL
Beginning of
Quarter
Amount of
Gain (Loss)
Recognized in
AOCL
Amount of Gain (Loss)
Reclassified from
AOCL into
Earnings
Balance in AOCL
End of Quarter
Location in
Statements of
Operations
 (In thousands)
Three Months Ended March 31, 2021
Cash Flow Hedges
Interest rate swap$(93,769)$34,518 $(5,705)$(53,546)Interest expense
Cross-currency swap(1,073)40,194 44,150 (5,029)Other income (expense),net
Net Investment Hedges
Cross-currency swap(12,291)13,573 1,711 (429)Interest income
$(107,133)$88,285 $40,156 $(59,004)
Three Months Ended March 31, 2020
Cash Flow Hedges
Interest rate swap$(45,145)$(51,651)$(1,043)$(95,753)Interest expense
Cross-currency swap177 5,907 (182)6,266 Other income (expense),net
Net Investment Hedges
Cross-currency swap10,229 18,897 2,180 26,946 Interest income
$(34,739)$(26,847)$955 $(62,541)
 
Balance in AOCL
Beginning of
Quarter
 
Amount of
Gain (Loss)
Recognized in
AOCL
 
Amount of Gain (Loss)
Reclassified from
AOCL into
Earnings
 
Balance in AOCL
End of Quarter
 
Location in
Statements of
Operations
 (In thousands)
Three Months Ended September 30, 2020         
Cash Flow Hedges         
Interest rate swap$(102,128) $(3,971) $(5,718) $(100,381) Interest expense
Cross-currency swap5,843
 (6,272) (5,353) 4,924
 Other income (expense),net
Net Investment Hedges         
Cross-currency swap22,223
 (11,254) 2,202
 8,767
 Interest income
 $(74,062) $(21,497) $(8,869) $(86,690)  
Three Months Ended September 30, 2019         
Cash Flow Hedges         
Interest rate swap$(43,161) $(13,788) $237
 $(57,186) Interest expense
Cross-currency swap(2,284) 9,661
 7,520
 (143) Other income (expense),net
Net Investment Hedges         
Cross-currency swap4,054
 17,136
 2,489
 18,701
 Interest income
 $(41,391) $13,009
 $10,246
 $(38,628)  
          
 
Balance in AOCL
Beginning of
Year
 
Amount of
Gain (Loss)
Recognized in
AOCL
 
Amount of Gain (Loss)
Reclassified from
AOCL into
Earnings
 
Balance in AOCL
End of Quarter
 
Location in
Statements of
Operations
 (In thousands)
Nine Months Ended September 30, 2020         
Cash Flow Hedges         
Interest rate swap$(45,146) $(65,608) $(10,373) $(100,381) Interest expense
Cross-currency swap177
 (2,688) (7,435) 4,924
 Other income (expense),net
Net Investment Hedges         
Cross-currency swap10,229
 5,102
 6,564
 8,767
 Interest income
 $(34,740) $(63,194) $(11,244) $(86,690)  
Nine months ended September 30, 2019         
Cash Flow Hedges         
Interest rate swap$619
 $(54,841) $2,964
 $(57,186) Interest expense
Cross-currency swap(6,190) 15,418
 9,371
 (143) Other income (expense), net
Net Investment Hedges         
Cross-currency swap(632) 26,558
 7,225
 18,701
 Interest income
 $(6,203) $(12,865) $19,560
 $(38,628)  


9.8. STOCK-BASED COMPENSATION
As of September 30, 2020,March 31, 2021, the Company had stock options, restricted stock awards, performance stock units,awards, contract stock awards and restricted stock unit awards outstanding under 2 plans, the 2001 Equity Incentive Plan (the “2001 Plan”) and the 2003 Equity Incentive Plan (the “2003 Plan,”Plan”). The 2000 and collectively,2001 Equity Incentive Plans were terminated as of February 19, 2021, and no further awards may be issued under the “Plans”).plans.
Stock options issued under the Plans2003 Plan become exercisable over specified periods, generally within four years from the date of grant for officers and employees, and within one year from date of grant for directors and generally expire eight years from the grant

24

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

date for employees, and from six to ten years for directors and certain executive officers. The Company values stock option grants using the binomial distribution model. Restricted stock issued under the Plans vests over specified periods, generally three years after the date of grant. The vesting of performance stock issued under the Plans is subject to service and performance conditions.
Stock Options
As of September 30, 2020,March 31, 2021, there were approximately $6.0$7.7 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately three years. There were 348,587149,558 stock options granted during the ninethree months ended September 30, 2020.March 31, 2021. For the ninethree months ended September 30, 2020,March 31, 2021, the weighted average grant date fair value for stock options was $13.03$22.59 per option.
Awards of Restricted Stock and Performance Stock
Performance stock and restricted stock awards generally have requisite service periods of three years.years. Performance stock units are subject to graded vesting conditions based on revenue goals of the Company. The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period. As of September 30, 2020,March 31, 2021, there was approximately $27.5$42.4 million of total unrecognized compensation costs related to these unvested awards. The Company expects to recognize these costs over a weighted-average period of approximately two years. The Company granted 322,485211,262 restricted stock awards and 180,875176,147 performance stock awards during the ninethree months ended September 30, 2020.March 31, 2021. For the ninethree months ended September 30, 2020,March 31, 2021, the weighted average grant date fair value for restricted stock awards and performance stock units was $44.08$68.00 and $43.39$68.10 per award, respectively.
The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which provides eligible employees with the opportunity to acquire shares of common stock at periodic intervals by means of accumulated payroll deductions. The ESPP is a non-compensatory plan based on its terms.
24
10.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
9. RETIREMENT PLANS
The Company maintains defined benefit pension plans that cover certain employees in France, Japan, Germany and Switzerland.
Net periodic benefit costs for the Company’s defined benefit pension plans for the three and nine months ended September 30, 2020March 31, 2021 were $1.0 million and $3.0 million, respectively.$0.6 million. The components of the net periodic benefit costs other than the service cost component of $1.0 million and $2.9$0.8 million for the three and nine months ended September 30, 2020, respectively,March 31, 2021, are included in other income (expense), net in the consolidated statements of operations.
Net periodic benefit costs for the Company’s defined benefit pension plans for the three and nine months ended September 30, 2019March 31, 2020 was $1.0 million and $2.1 million, respectively.million. The components of the net periodic benefit costs other than the service cost component of $0.7 million and $2.0$0.9 million for the three and nine months ended September 30, 2019, respectively,March 31, 2020, are included in other income (expense), net in the consolidated statements of operations.
The estimated fair values of plan assets were $33.2$32.8 million and $30.8$37.8 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The net plan assets of the pension plans are invested in common trusts as of September 30, 2020March 31, 2021 and December 31, 2019.2020. Common trusts are classified as Level 2 in the fair value hierarchy. The fair value of common trusts is valued at the net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The investment strategy of the Company's defined benefit plans is both to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within an appropriate risk profile.
Deferred Compensation Plan
In May 2019, theThe Company adopted the Integra LifeSciencesmaintains a Deferred Compensation Plan (the “Plan”). Under the Plan,in which certain employees of the Company may defer the payment and taxation of up to 75% of their base salary and up to 100% of bonus amounts and other eligible cash compensation.
During the first quarter of 2020, employees participating in the PlanCompany's deferred compensation plan began to defer their compensation. This deferred compensation is invested in funds offered under the Planthis plan and is valued based on Level 1 measurements in the fair value hierarchy. The purpose of the Plan is to retain key employees by providing them with an opportunity to defer a portion of their compensation as elected by the participant in accordance with the Plan. Any amounts set aside to defray the liabilities assumed by the Company will remain the general assets of the Company until such amounts are distributed to the participants. Assets of the Company's deferred compensation plan are included in Other current assets and recorded at fair value based on their quoted market prices. The fair value of these assets at September 30, 2020March 31, 2021 was $1.7$2.9 million. Offsetting liabilities relating to the deferred compensation plan are included in Other liabilities.

25

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

11.10. LEASES AND RELATED PARTY LEASES
The Company leases administrative, manufacturing, research and distribution facilities and vehicles through operating lease agreements. The Company has no finance leases as of September 30, 2020.March 31, 2021. Many of the Company's leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area or other maintenance costs). For vehicles, the Company has elected the practical expedient to group lease and non-lease components. 
Most facility leases include 1 or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion, therefore, the majority of renewals to extend the lease terms are not included in the Right of Use ("ROU") assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates renewal options and when they are reasonably certain of exercise, the renewal period is included in the lease term.
As most of the Company's leases do not provide an implicit rate, the Company uses a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.
Total operating lease expense for the ninethree months ended September 30,March 31, 2021 and March 31, 2020 and September 30, 2019, was $14.6$5.3 million and $14.2$4.8 million respectively, which includes $0.2$0.1 million, in related party operating lease expense.

Supplemental balance sheet information related to operating leases at September 30, 2020 were as follows:
September 30, 2020
(In thousands, except lease term and discount rate)
Weighted average remaining lease term (in years):
Leased facilities11.8
Leased vehicles1.4
Weighted average discount rate:
Leased facilities4.6%
Leased vehicles2.2%
25

Supplemental cash flow information related to leases for the nine months ended September 30, 2020 and September 30, 2019 were as follows:
 September 30, 2020 September 30, 2019
 (In thousands) (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases$10,976
 $10,680
    
ROU assets obtained in exchange for lease liabilities:   
Operating leases$6,007
 $41,860












26

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
March 31, 2021December 31, 2020
(In thousands, except lease term and discount rate)
ROU assets91,174 83,635 
Current lease liabilities13,900 12,818 
Non-current lease liabilities95,549 88,118 
Total lease liabilities$109,449 $100,936 
Weighted average remaining lease term (in years):
Leased facilities11.8 years11.6 years
Leased vehicles2.0 years2.3 years
Weighted average discount rate:
Leased facilities5.1 %4.6 %
Leased vehicles2.7 %2.3 %
Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 were as follows:
March 31, 2021March 31, 2020
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3,761 $3,229 
ROU assets obtained in exchange for lease liabilities:
Operating leases$9,662 $5,808 


















26

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Future minimum lease payments under operating leases at September 30, 2020March 31, 2021 were as follows:
 Related Parties Third Parties Total
 (In thousands)
2020$74
 $3,742
 $3,816
2021296
 13,209
 13,505
2022296
 13,224
 13,520
2023296
 10,782
 11,078
2024296
 9,996
 10,292
Thereafter1,426
 86,750
 88,176
Total minimum lease payments$2,684
 $137,703
 $140,387
Less: Imputed interest    39,091
Total lease liabilities    101,296
Less: Current lease liabilities    12,518
Long-term lease liabilities    88,778

Third PartiesRelated PartiesTotal
(In thousands)
2021$11,637 $222 $11,859 
202216,331 296 16,627 
202312,949 296 13,245 
202411,410 296 11,706 
202510,813 296 11,109 
20269,672 296 9,968 
Thereafter72,854 837 73,691 
Total minimum lease payments$145,666 $2,539 $148,205 
Less: Imputed interest38,756 
Total lease liabilities109,449 
Less: Current lease liabilities13,900 
Long-term lease liabilities95,549 
Related Party Leases
The Company leases its manufacturing facility in Plainsboro, New Jersey, from a general partnership that is 50% owned by a corporation whose shareholders are trusts, whose beneficiaries include family members of the Company’s principal stockholder and former director. The term of the current lease agreement is through October 31, 2029 at an annual rate of approximately $0.3 million per year. The current lease agreement also provides (i) a 5-year renewal option for the Company to extend the lease from November 1, 2029 through October 31, 2034 at the fair market rental rate of the premises, and (ii) another 5-year renewal option to extend the lease from November 1, 2034 through October 31, 2039 at the fair market rental rate of the premises.
12.11. TREASURY STOCK
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, there were 4.9 million and 2.9 million shares of treasury stock outstanding with a cost of $235.2$234.5 million and $119.9$235.1 million, respectively, at a weighted average cost per share of $47.86 and $41.87, respectively.$47.86.
On December 11, 2018,7, 2020, the boardBoard of directorsDirectors of the Company (the “Board”) authorized the Company to repurchase up to $225.0 million of the Company’s common stock. The program allows the Company to repurchase its shares opportunistically from time to time. The repurchase authorization expires in December 2020.2022. The Company has $225.0 million remaining under the share repurchase of its Common Stock. The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

During the ninetwelve months ended September 30,December 31, 2020, the Company repurchased 2.1 million shares of Integra’s common stock as part of the existingprevious share repurchase authorization. The Company utilized $100.0 million of net proceeds from the offering of the Convertible Senior Notes to execute the share repurchase transactions. This included $7.6 million from certain purchasers of the convertible notes in conjunction with the closing of the offering. On February 5, 2020, the Company entered into a
$92.4 $92.4 million accelerated share repurchase ("ASR") to complete the remaining $100.0 million of share repurchase. The Company received 1.3 million shares at inception of the ASR, which represented approximately 80% of the expected total shares. Upon settlement of the ASR in June 2020, the Company received an additional 0.6 million shares determined using the volume-weighted average price of the Company's common stock during the term of the transaction.


The Company has $125.0 million remaining under the share repurchase of its Common Stock. The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

13.12. INCOME TAXES
The following table provides a summary of the Company's effective tax rate:
 Three Months Ended March 31,
 20212020
Reported tax rate32.5 %19.8 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
Reported tax rate22.1% (0.4)% 24.6% (3.5)%



27

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

The Company’s effective income tax rates for the three months ended September 30,March 31, 2021 and 2020 were 32.5% and 2019 were 22.1% and (0.4)%19.8%, respectively. For the three months ended September 30,March 31, 2021, the primary driver of the higher tax rate is the tax impact of the gain on the sale of the business which closed during the first quarter of 2021. For the three months ended March 31, 2020, the primary drivers of the higher tax rate arewere lower income impacted by the jurisdictional mix of income alongCOVID-19 pandemic, coupled with a $4.2$3.3 million recognition of avaluation allowance on certain foreign deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business, offset by a $3.2 million benefit from the reversal of the French valuation allowance. For the three months ended September 30, 2019, the rate was primarily driven by the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense. This amount was not deductible for tax purposes.

The Company's effective income tax rates for the nine months ended September 30, 2020 and September 30, 2019 were 24.6% and (3.5)%, respectively. For the nine months ended September 30, 2020, the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business. For the nine months ended September 30, 2019, the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense. This amount is not deductible for tax purposes. This was offset by a tax benefit of $10.8 million related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 31, 2019. The Company received a federal tax credit in Switzerland of 12 million CHF, which may be used over a seven year period, ending in 2024.assets.
As of September 30, 2020,March 31, 2021, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed indefinitely reinvested. Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. As such, the Company has determined the tax impact of repatriating these earnings would not be material as of September 30, 2020.March 31, 2021. The Company does not anticipate the need to repatriate earnings from foreign subsidiaries as a result of the impact of the COVID-19 pandemic.
On March 27, 2020, the Coronavirus Aid Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act included certain income tax provisions for corporations and individuals, among other provisions. The Company does not expect the CARES Act provisions to have a significant impact on the Company's income taxes. The Company continues to monitor the issuance of new legislation, regulations, and case law that may impact federal, state, and international tax positions.

14.13. NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share was as follows:
 Three Months Ended March 31,
 20212020
(In thousands, except per share amounts)
Basic net income per share:
Net income$45,394 $9,180 
Weighted average common shares outstanding84,500 85,188 
Basic net income per common share$0.54 $0.11 
Diluted net income per share:
Net income$45,394 $9,180 
Weighted average common shares outstanding — Basic84,500 85,188 
Effect of dilutive securities:
Stock options and restricted stock758 704 
Weighted average common shares for diluted earnings per share85,258 85,892 
Diluted net income per common share$0.53 $0.11 
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
 (In thousands, except per share amounts) (In thousands, except per share amounts)
Basic net income (loss) per share:       
Net income (loss)$32,337
 $(27,610) $41,148
 $34,882
Weighted average common shares outstanding84,325
 85,688
 84,745
 85,536
Basic net income (loss) per common share$0.38
 $(0.32) $0.49
 $0.41
        
Diluted net income (loss) per share:       
Net income (loss)$32,337
 $(27,610) $41,148
 $34,882
        
Weighted average common shares outstanding — Basic84,325
 85,688
 84,745
 85,536
Effect of dilutive securities:       
Stock options and restricted stock427
 0
 558
 1,045
Weighted average common shares for diluted earnings per share84,752
 85,688
 85,303
 86,581
        
Diluted net income (loss) per common share$0.38
 $(0.32) $0.48
 $0.40


Common stock of approximately 0.30.5 million and 0.60.4 million shares at September 30,March 31, 2021, and 2020, and 2019, respectively that are issuable through exercise of dilutive securities were not included in the computation of diluted net income (loss) per share because their effect would have been anti-dilutive.

28

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

Performance Shares and Restricted Units that entitle the holders to approximately 0.5 million shares of common stock are included in the basic and diluted weighted average shares outstanding calculation from their date of issuance because no further consideration is due related to the issuance of the underlying common shares.

Based on the adoption of ASU 2020-06, as the principal amount of the 2025 Notes will be paid in cash and only the conversion spread is settled in shares, the Company will be utilizing the if-converted method and only includes the net number of incremental shares that would be issued upon conversion.

15.
28

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS

Comprehensive income (loss)loss for three months ended March 31, 2021 and 2020 was as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
 (In thousands) (In thousands)
Net income (loss)$32,337
 $(27,610) $41,148
 $34,882
Foreign currency translation adjustment21,181
 (18,651) 24,801
 (17,960)
Change in unrealized loss on derivatives, net of tax(9,679) (775) (39,814) (24,714)
Pension liability adjustment, net of tax(291) 515
 (498) 504
Comprehensive income (loss), net$43,548
 $(46,521) $25,637
 $(7,288)

 Three Months Ended March 31,
 20212020
 (In thousands)
Net income$45,394 $9,180 
Foreign currency translation adjustment(6,802)(6,813)
Change in unrealized loss on derivatives, net of tax36,915 (21,306)
Pension liability adjustment, net of tax319 (68)
Comprehensive income (loss), net$75,826 $(19,007)
Changes in accumulated other comprehensive loss by component between December 31, 20192020 and September 30, 2020March 31, 2021 are presented in the table below, net of tax:
  Gains and Losses on Derivatives Defined Benefit Pension Items Foreign Currency Items Total
  (In thousands)
Balance at January 1, 2020 $(26,625) $(9,709) $(40,068) $(76,402)
Other comprehensive income (loss) (48,429) (498) 24,801
 (24,126)
Less: Amounts reclassified from accumulated other comprehensive loss (8,615) 0
 0
 (8,615)
Net current-period other comprehensive income (loss) (39,814) (498) 24,801
 (15,511)
Balance at September 30, 2020 $(66,439) $(10,207) $(15,267) $(91,913)

Gains and Losses on DerivativesDefined Benefit Pension ItemsForeign Currency ItemsTotal
(In thousands)
Balance at January 1, 2021$(82,249)$(5,105)$13,295 $(74,059)
Other comprehensive income (loss)67,776 319 (6,802)61,293 
Less: Amounts reclassified from accumulated other comprehensive loss30,861 30,861 
Net current-period other comprehensive income (loss)36,915 319 (6,802)30,432 
Balance at March 31, 2021$(45,334)$(4,786)$6,493 $(43,627)
For the ninethree months ended September 30, 2020,March 31, 2021, the Company reclassified a loss of $5.7$33.9 million and $2.9$3.1 million from accumulated other comprehensive loss to other income (expense), net and interest income, respectively.income.
16.15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company internally manages 2 global reportable segments and reports the results of its businesses to its chief operating decision maker. The 2 reportable segments and their activities are described below.
The Codman Specialty Surgical segment includes (i) the Neurosurgery business, which sells a full line of products for neurosurgery and neuro critical care such as tissue ablation equipment, dural repair products, cerebral spinal fluid management devices, intracranial monitoring equipment, and cranial stabilization equipment and (ii) the instruments business, which sells more than 40,000 instrument patterns and surgical and lighting products to hospitals, surgery centers, dental, podiatry, and veterinary offices.
The Orthopedics and Tissue Technologies segment includes such offerings as skin and wound repair, bone and joint fixation implants in the upper and lower extremities, bone grafts, and nerve and tendon repair products. In conjunction with the sale of the Extremity Orthopedics business, the Company rebranded the Orthopedics and Tissue Technologies segment as Tissue Technologies in the first quarter of 2021.
The Corporate and other category includes (i) various executive, finance, human resource, information systems and legal functions, (ii) brand management, and (iii) share-based compensation costs.
The operating results of the various reportable segments as presented are not comparable to one another because (i) certain operating segments are more dependent than others on corporate functions for unallocated general and administrative and/or operational manufacturing functions and (ii) the Company does not allocate certain manufacturing costs and general and administrative costs to the operating segment results. Net sales and profit by each reportable segment for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 are as follows:

follows :
29

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

 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
 (In thousands) (In thousands)
Segment Net Sales       
Codman Specialty Surgical$239,323
 $252,984
 $640,541
 $736,810
Orthopedics and Tissue Technologies 
130,909
 126,111
 342,680
 385,620
Total revenues$370,232
 $379,095
 $983,221
 $1,122,430
Segment Profit       
Codman Specialty Surgical$97,061
 $101,129
 $249,552
 $291,750
Orthopedics and Tissue Technologies 
50,132
 30,383
 110,091
 112,664
Segment profit147,193
 131,512
 359,643
 $404,414
Amortization(8,343) (5,056)
 $(23,393) (21,340)
Corporate and other(81,308) (147,043) (237,525) (325,394)
Operating income$57,542
 $(20,587) $98,725
 $57,680

Three Months Ended March 31,
 20212020
(In thousands)
Segment Net Sales
Codman Specialty Surgical$241,241 $231,440 
Tissue Technologies
118,830 122,884 
Total revenues$360,071 $354,324 
Segment Profit
Codman Specialty Surgical$106,778 $87,235 
Tissue Technologies
50,011 31,271 
Segment profit156,789 118,506 
Amortization(4,527)(6,977)
Corporate and other(121,548)(84,426)
Operating income$30,714 $27,103 
The Company does not allocate any assets to the reportable segments. No asset information is reported to the chief operating decision maker and disclosed in the financial information for each segment.
The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
 (In thousands) (In thousands)
United States$266,477
 $266,280
 $695,179
 $796,397
Europe45,995
 49,242
 123,917
 148,753
Asia Pacific40,473
 42,079
 113,934
 114,810
Rest of World17,287
 21,494
 50,191
 62,470
Total Revenues$370,232
 $379,095
 $983,221
 $1,122,430

 Three Months Ended March 31,
 20212020
 (In thousands)
United States$247,793 $246,852 
Europe45,819 45,896 
Asia Pacific47,295 39,960 
Rest of World19,164 21,616 
Total Revenues$360,071 $354,324 

17.16. COMMITMENTS AND CONTINGENCIES
In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company has agreed to pay royalties on sales of certain products that it sells. The royalty payments that the Company made under these agreements were not significant for any of the periods presented.
The Company is subject to various claims, lawsuits and proceedings in the ordinary course of the Company's business, including claims by current or former employees, distributors and competitors and with respect to its products and product liability claims, lawsuits and proceedings, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material, adverse effect on the Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.
The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost.





30

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

Contingent Consideration
The Company determined the fair value of contingent consideration during the ninethree month period ended September 30,March 31, 2021 and March 31, 2020 and September 30, 2019 to reflect the change in estimates, additions, payments, transfers and the time value of money during the period.
A reconciliation of the opening balances to the closing balances of these Level 3 measurements for the ninethree months ended September 30,March 31, 2021 and March 31, 2020 and September 30, 2019 is as follows (in thousands):
Nine Months Ended September 30, 2020Contingent Consideration Liability Related to Acquisition of Arkis (See Note 3) 
Contingent Consideration
 Liability Related to Acquisition of Derma Sciences
Location in Financial Statements
 Long-term Long-term 
Balance as of January 1, 2020$14,210
 $230
 
Loss from change in fair value of contingent consideration liabilities(45) 0
Research and development
Balance as of September 30, 2020$14,165
 $230
 

Three Months Ended March 31, 2021Contingent Consideration Liability Related to Acquisition of:
ArkisDerma SciencesACell Inc. (See Note 2)Location in Financial Statements
Short-termLong-termLong-termLong-term
Balance as of January 1, 2021$3,415 $11,746 $230 $
Additions from acquisition of ACell— — — 23,900 
Loss from change in fair value of contingent consideration liabilities17 $265 Research and development
Balance as of March 31, 2021$3,432 $12,011 $230 $23,900 
Three Months Ended March 31, 2020Contingent Consideration Liability Related to Acquisition of:
ArkisDerma SciencesLocation in Financial Statements
Long-termLong-term
Balance as of January 1, 2020$14,210 $230 
Loss from change in fair value of contingent consideration liabilities(1,051)Research and development
Balance as of March 31, 2020$13,159 $230 
Nine Months Ended September 30, 2019Contingent Consideration Liability Related to Acquisition of Arkis (See Note 3) 
Contingent Consideration
 Liability Related to Acquisition of Derma Sciences
Location in Financial Statements
 Long-term Long-term 
Balance as of January 1, 2019$0
 $230
 
Additions from acquisition of Arkis13,100
 0
 
Balance as of September 30, 2019$13,100
 $230
 
Arkis BioSciences Inc.

On July 29, 2019, the Company acquired Arkis BioSciences Inc. ("Arkis") for an acquisition purchase price of $30.6 million (the "Arkis Acquisition") plus contingent consideration of up to $25.5 million, that may be payable based on the successful completion of certain development and commercial milestones. Arkis was a privately-held company that marketed the CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.
As part of the acquisition, the Company is required to pay the former shareholders of Arkis up to $25.5 million based on the timing of certain development milestones of $10.0 million and commercial sales milestones of $15.5 million, respectively. The Company used a probability weighted income approach to calculate the fair value of the contingent consideration that considered the possible outcomes of scenarios related to each specified milestone. The Company estimated the fair value of the contingent consideration to be $13.1 million at the acquisition date. The estimated fair value as of March 31, 2021 and March 31, 2020 was $15.4 million and $13.2 million, respectively. The Company recorded $3.4 million in accrued expenses and other current liabilities at March 31, 2021 and $12 million and $13.2 million in other liabilities at March 31, 2021 and March 31, 2020, respectively, in the consolidated balance sheet of the Company.
Derma Sciences
The Company assumed contingent consideration incurred by Derma Sciences, Inc. ("Derma Sciences") related to its acquisitions of BioD and the intellectual property related to Medihoney products. The Company accounted for the contingent liabilities by recording their fair value on the date of the acquisition based on a probability weighted income approach. The Company has already paid $33.3 million related to the aforementioned contingent liabilities. NaN contingent liability remains which relates to net sales of Medihoney products exceeding certain amounts defined in the agreement between the Company and Derma Sciences. The potential maximum undiscounted payment amounts to $3.0 million. The estimated fair value as of September 30,March 31, 2021 and March 31, 2020 and September 30, 2019 was $0.2 million.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 20192020 included in our Annual Report on Form 10-K.
We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters. These forward-looking statements include, but are not limited to, statements related to the Company's expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations. These statements should, therefore, be considered in light of various important factors, including, but not limited to, the following: Thethe Company's ability to obtain accuraterecover to normalized procedure volume in the midst of the COVID-19 pandemic; the risk that the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures; curtailed or delayed capital spending by the Company's customers; disruption to the Company's supply chain; closures of our facilities; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 outbreak; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, and under the heading "Risk Factors" in this

report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “might,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions in this report.
GENERAL
Integra, headquartered in Princeton, New Jersey, is a world leader in medical technologies.technology. The Company was founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue. Since then, Integra has developed numerous product lines from this technology for applications ranging from burn and deep tissue wounds, to the repair of dura mater in the brain, and repair ofas well as nerves and tendons. The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care collagen matrix products for hernia and plastic & reconstructive surgery, and orthopedic hardware, through a combination of several global acquisitions and development of products internally developed products to further meet the needs of its customers and impact patient care.
We manufactureIntegra manufactures and sell oursells products in two reportable global business segments: Codman Specialty Surgical and Tissue Technologies. In conjunction with the sale of the Extremity and Orthopedics business, the Company rebranded the Orthopedics and Tissue Technologies.Technologies segment as Tissue Technologies in the first quarter of 2021. See Note 2. Acquisitions and Divestitures, for details. Our Codman Specialty Surgical products comprise of specialty surgical implants and instrumentation for a broad range of specialties. This segment includes products and solutions for dural access and repair, instruments, advanced energy, cerebral spinal fluid ("CSF") management and neuro monitoring including market-leadingmarket leading product portfolios used in neurosurgery operation suites and critical care units. Our Orthopedics and Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, surgical reconstruction, and small bone fixation and joint replacement hardware products for both upper extremities and lower extremities. This business also includes private label sales of a broad set of our regenerative and wound care medical technologies.
We have key manufacturing and research facilities located in California, Massachusetts, New Jersey, Ohio, Tennessee, Texas, Canada, France, Germany, Ireland, Puerto Rico and Switzerland. We also source most of our handheld surgical instruments, specialty metal and pyrocarbon implants, and dural sealant products through specialized third-party vendors.
Codman Specialty Surgical products are sold through a combination of directly employed sales representatives, distributors and wholesalers, depending on the customer call point.
Orthopedics Our Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, and surgical reconstruction. This business also includes private label sales of a broad set of our regenerative and wound care medicine technologies. Tissue Technologies products are sold through directly employed sales representatives and distributors focused on their respective surgical specialties, and strategic partners.

We have key manufacturing and research facilities located in California, Indiana, Maryland, Massachusetts, New Jersey, Ohio, Tennessee, Canada, France, Germany, Ireland, Puerto Rico and Switzerland. We also source most of our handheld surgical instruments, and dural sealant products through specialized third-party vendors.
Integra is committed to delivering high quality products that positively impact the lives of millions of patients and their families. We focus on four key pillars of our strategy: 1) buildingenabling an execution-focused culture, 2) achievingoptimizing relevant scale, 3) improvingadvancing innovation and agility, and innovation, and 4) leading in customer experience. We believe that by sharpening our focus on these areas through improved planning and communication, optimization of our infrastructure, and strategically aligned tuck-in acquisitions, we can build scale, increase competitiveness and achieve our long-term goals.
To this end, the executive leadership team has established the following key priorities aligned to the following areas of focus:
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Strategic Acquisitions.An important part of the Company's strategy is pursuing strategic transactions and licensing agreements that increase relevant scale in the clinical areas in which Integra competes. We successfully completed the Codman Neurosurgery integration, the most significant acquisitionIn December 2020, Integra entered into a merger agreement to acquire ACell, Inc., an innovative regenerative medicine company specializing in the Company's history, as we exited 45 transition service agreements, across 90 countries.manufacture of porcine urinary bladder extracellular matrices. This acquisition, which closed on January 20, 2021, expands our product offering of regenerative technology and is complementary to Integra’s existing tissue technologies portfolio. The acquisition also supports our long-term growth and profitability strategy with a financial profile similar to Integra’s tissue products. In 2021, we are focused on the integration of ACell Inc., into our Tissue Technologies business segment, while also continuing the development of regenerative tissue products for complex wound management that will benefit the expanded the Company's portfolio of neurosurgery productsportfolio. See Note 2, Acquisitions and established us as the world leader in neurosurgery. It has also enabled us to expand our international footprint and customer reach, thereby providing access to our entire product portfolio globally. In 2020, we continue to invest in our two most recent acquisitions Arkis Biosciences, Inc. and Rebound Therapeutics Corporation, both of which are developing innovative technologiesDivestitures, for neurosurgery.details.
Portfolio Optimization and New Product Introductions. We are investing in innovative product development to drive a multi-generational pipeline for our key product franchises. Our product development efforts span across our key global franchises focused on potential for significant returns on investment. In February 2020, we launched the AmnioExcel® Plus Placental Allograft Membrane, the next generation wound care offering to support soft tissue repair. Further in 2020, weWe continue to reapadvance the benefitsdevelopment of many ofpioneering technologies from our 10 new products launches from 2019.2019 acquisitions, Arkis Biosciences, Inc. and Rebound Therapeutics Corporation. In addition to new product development, we are funding studies to gather clinical evidence to support launches, ensure market access and improve reimbursement for existing products. We continue to identify ways of optimizing our portfolio including identifying low-growth, low-margin products and product franchises for discontinuation.

On September 29, 2020,In January 2021, we entered into an agreement to sellcompleted the sale of our Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $240 million in cash. The transaction is expected to close at or around the end of 2020,cash subject to the satisfactionfinalization of customary conditions, including regulatory approvals and consultation with employee representative bodies. See Note 2, Assets and Liabilities Held for Sale, for details. Upon completion of theworking capital adjustments. This transaction we expect Integra to be a faster growing, more profitable, and more focused company.  This will enableenables us to increase our investments in our core Neurosurgery and Tissue Technology businesses.Those investmentsbusinesses which will strengthen our existing leadership positions andin both areas, fund pipeline opportunities to drive future growth and expand our addressable markets. We will also significantly reduce the complexity of the organization. Exiting the Orthopedics business is accretive to our organic growthSee Note 2, Acquisitions and EBITDA margins which will enhance shareholder value and keep us on a path toward achieving our long-term growth and profitability targets.  Additionally, this transaction will improve our financial flexibility. We will have the ability to meaningfully reduce our consolidated total leverage ratio and to pursue strategic M&A from a stronger financial position.Divestitures for details.
Commercial Channel Investments.With acquisitions, new product introductions and a broader portfolio of products, investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs. To support our commercial efforts in Tissue Technologies, we expanded our two-tier specialist model to increase our presence in focused segments. We created a virtual selling organization to help serve the evolving needs of our customers. Internationally, we have increased our commercial resources significantly in manykey emerging markets and are making investments to support our sales organization and maximize our commercial opportunities. We now have aThese strong investments in our international sales channel that will deliver our current portfolio as well as position us well for expansion.expansion and long-term growth. In addition, we continue to build upon our leadership brands across our product franchises to enable us to engage customers through enterprise-wide contracts.
Customer Experience.We aspire to be ranked as a best-in-class provider and are committed to strengthen our relationships with all customers. We strive to consistently deliver outstanding customer service and continue to invest in technologies, systems and processes to improveenhance the way our customers do business with us.customer experience. Additionally, we expect to build on the success of our professional educationlaunched new digital programs, resources and virtual product training to drive continued customer familiarity with our growing portfolio of medical technologies globally.
Clinical and Product Development Activities
We continue to invest in collecting clinical evidence to support the Company's existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions. In each area, we continue to benefit from products launched over the past several years.
Within our Codman Specialty Surgical segment, the Company received FDA clearance in July 2020 to treat malignant and benign tumors, but not limited to meningiomas and gliomas, for its CUSA®CUSA® Clarity Ultrasonic Surgical Aspirator System, the first and only ultrasonic tissue ablation system with this specific indication. The FDA clearance is based on a wealth of peer-reviewed clinical publications and 40 years of surgical cases involving resection of brain and spinal tumors.

Additionally, the Company continued to reap the benefits of our product launches from the prior year from the Codman Specialty Surgical segment, including our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas™ Plus Programmable Valve along with additional shunt configurations. In Japan, we are experiencing strong growth as a result of the successful launch of DuraGen® in the prior year,mid-2019, which is the first and only collagen xenograft approved for use as a dural substitute in the country. We are focused on the development of core clinical applications in our
electromechanical technologies portfolio. Also, we updated our CUSA Clarity platform to incorporate a new ultrasonic handpiece, surgical tips and integrated electrosurgical capabilities. We continue to work with several instrument partners to bring new surgical instrument platforms to the market. This enables us to add new instruments with minimal expense and invest in ongoing development, such as our next generation of LED technology with our DUO LED Surgical Headlight System.

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We also continued to advance the early-stage technology platforms we acquired during 2019. Through the Arkis Biosciences acquisition, we added a platform technology, CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation. The CerebroFlo EVD Catheter has demonstrated an average of 99% less thrombus accumulation onto its surface, in vitro, compared to a market leading EVD catheter. We also acquired a company, Rebound Therapeutics, that specialized in single-use medical devices that enable minimally invasive access with enhanced lighting and visualization to the neurosurgery suite and launched the MIRROR registry to collect data on this new device. Importantly, these new platforms provide us with the opportunity to expand into new, faster growth therapeutic areas, such as intracerebral hemorrhage and minimally invasive neurosurgery.

Within our Orthopedic and Tissue Technologies segment, in 2020, we launched AmnioExcel® Plus Placental Allograft Membrane, a human placental tissue product for treatment of wounds during February 2020.wounds. We also continued to benefit fromcompleted a randomized clinical study of PriMatrix for use in the 2019 U.S. product launches, such as, the Panta® II TTC Arthrodesis Nail System.closure of Diabetic Foot Ulcers (DFU). The Panta II system is our new fusion nail used in ankle fixation. WeCompany also launched a small post baseplate in our reverse shoulder system that accommodates smaller patients. In addition, we initiated the limited market release of enhancements to our Salto Talaris® Total Ankle System.

In May 2020, the Company announced positive clinical and economic data on Integra® Bilayer Wound Matrix ("IBWM") in complex lower extremity reconstruction based on two retrospective studies recently published in Plastic and Reconstructive Surgery, the official journal of the American Society of Plastic Surgeons. As surgeons lookslook for ways to efficiently and effectively repair and close wounds during these challenging times, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.
COVID-19 Pandemic
The Company's focus duringDuring this global crisis, remains unchanged. The Company continues to supportthe Company's focus remained on supporting patients, provideproviding customers with life-saving products, and protectprotecting the health and safetywell-being of itsour employees. The rapid and evolving spread of the

virus has resulted in an unprecedented challenge to the global healthcare industry, as medical resources were reallocated to fight COVID-19. During the first half of 2020, in response to the Company was able to sustain ongoing operationspandemic, we acted swiftly by implementing contingency plans such as enabling itsprotocols to ensure continuity of our manufacturing and distribution sites around the world to continue operating at levels required to meet demand and to provide for the safety of itsour employees.
During Aprilthe first quarter of 2020,2021, the Company's revenues were still impacted due to COVID-19 resurgences and lower surgical procedural volumes, though not to the levels seen in early 2020. As a result, the Company implemented cost-savings measures, which included the following:
Reduced executive management compensation through July 2020 and director compensation
Reduced cash compensation for all other employees through reduced commissions, reductionhas continued to manage its operating costs in hours through July 2020 and/or furloughs
Hiring freeze, elimination of overtime, reduction in certain employee benefit costs, cessation of third-party services and temporary contractor relationships
Significant reduction in capital expenditures and discretionary spending including travel, events and marketing programs

The Company restored employee wages and other spending in the third quarter of 2020, as revenues sequentially increased approximately 43.1% as compared to the second quarter of 2020. The Company also continues to implement programs and strategies to drive sustainable growth, such as partnering with key opinion leaders to increase our customer engagement through educational webinars and improve the clinical components of sales training. As many surgical procedures in which our products are employed cannot be deferred for more than 90 days, this should contribute to the continued recovery of the Company's business. We cannot predict with certainty the extent to which the COVID-19 pandemic will impact procedures in the fourth quarter and beyond.environment. We remain confident that the underlying markets in which the Company competes remain attractive over the long term. We also remain focused on managing the business for the long-term, including preserving full time jobs needed to support the rebound in surgical procedure volumes. The Company's adaptability and resiliency in the face of this unprecedented crisis is made possible in part by prior investments in technology infrastructure and operations, as well as our talented and committed global workforce. Throughout this period, we continued to prioritize and invest in critical R&D and clinical programs.

Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Any such economic recession could have a material adverse effect on the Company's long-term business as hospitals curtail and reduce capital as well as overall spending. The COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on travel and access to our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could further significantly impact our sales and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of surgical and medical intervention procedures performed and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Information pertaining to additional risk factors as it relates to the COVID-19 pandemic can be found in Item 1A. Risk Factors.
FDA Matters
We manufacture and distribute products derived from human tissue for which FDA has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient.
On June 22, 2015, the FDA (the “FDA”) issued an Untitled Letter (the "Untitled Letter") alleging that BioD LLC's ("BioD")BioD's morselized amniotic membrane tissue based products do not meet the criteria for regulation as HCT/Ps solely under Section 361 of the Public Health Services Act ("Section 361") and that, as a result, BioD would need a biologics license to lawfully market those morselized products. Since the issuance of the Untitled Letter, BioD and more recently the Company have been in discussions with the FDA to communicate their disagreement with the FDA’s assertion that certain products are more than minimally manipulated. The FDA has not changed its position that certain of the BioD acquired products are not eligible for marketing solely under Section 361. In July, 2020, the FDA issued the final guidance document related to human tissue titled, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use” (the “HCT/PFinal Guidance”). This Guidance document supersedes the November 2017 guidance.
The HCT/P Final Guidance maintains the FDA’s position that products such as the Company’s morselized amniotic membrane tissue-based products do not meet the criteria for regulation solely as HCT/Ps. In addition, the FDA articulated a risk-based approach to enforcement and, while some uses for amniotic membrane tissue-based products would have as much as thirty-six months of enforcement discretion, other high risk uses could be subject to immediate enforcement action. The revised final
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guidance extends the discretionary enforcement period to May 31, 2021. The Company does not believe the uses for its amniotic membrane tissue-based products fall into the high-risk category.

As of September 30, 2020March 31, 2021, the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic tissue-based products. Nonetheless, we can make no assurances that the FDA will continue to exercise its enforcement discretion with respect to the Company’s morselized amniotic membrane tissue-based products, and any potential

action of the FDA could have a financial impact regarding the sales of such products. The Company has been considering and continues to consider regulatory approval pathways for its morselized amniotic membrane tissue-based products.

Revenues from BioD morselized amniotic membrane basedmembrane-based products for the ninethree months ended September 30, 2020March 31, 2021 were less than 1.0% of consolidated revenues.
On March 7, 2019, TEI Biosciences, Inc. a subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the United States Food and Drug Administration.FDA. The warning letter relates to quality systems issues at our manufacturing facility located in Boston, Massachusetts. The letter resulted from an inspection held at that facility in October and November 2018 and did not identify any new observations that were not already provided in the Form 483 that followed the inspection. The Company submitted its initial response to the FDA Warning Letter on March 28, 2019 and provides regular progress reports to the FDA as to its corrective actions on a monthly basis and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so. The warning letter does not restrict the Company’s ability to manufacture or ship products or require the recall of any products. Nor does it restrict our ability to seek FDA 510(k) clearance of products. The letter states that requests for Certificates to Foreign Governments willwould not be granted, however,granted. However, due to our progress reports, the FDA has agreed to resume issuing Certificates to Foreign Governments to TEI due to substantial progress and the length of time it takes to resolve the Warning Letter. Additionally, premarket approval applications for Class III devices to which the Quality System regulation violations are reasonably related will not be approved until the violations have been corrected. The TEI Boston facility manufactures extracellular bovine matrix (EBM) products. The Company does not expect to incur material incremental expense for remediation activities. We cannot, however, give any assurances that the FDA will be satisfied with our response to the Warning Letter or as to the expected date of the resolution of the matters included in the letter. Until the issues cited in the letter are resolved to the FDA’s satisfaction, the FDA may initiate additional regulatory action without further notice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products and could have a material adverse effect on our business, financial condition and results of operations.
Revenues of products manufactured in the TEI Boston facility for the ninethree months ended September 30, 2020March 31, 2021 were approximately 4.5% of consolidated revenues.
ACQUISITIONS & DIVESTITURES
Divestiture
On January 4, 2021, the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited. 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 and Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO") effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products. The Company recognized a gain of $42.9 million in connection with the sale that is presented in Gain from the sale of business in the consolidated statement of operations for the year ended March 31, 2021. See Note 2- Acquisitions and Divestitures for details.

Acquisition
On January 20, 2021, the Company acquired ACell Inc. for an acquisition purchase price of $305.4 million plus contingent consideration of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025. 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 ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix. See Note 2- Acquisitions and Divestitures for details.

OPTIMIZATION AND INTEGRATION ACTIVITIES

As a result of our ongoing acquisition strategy and significant growth in recent years, we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, implement a common ERP system, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products. These efforts are expected to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain.
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RESULTS OF OPERATIONS
Executive Summary
Net income (loss) for the three months ended September 30, 2020March 31, 2021 was $32.3$45.4 million, or $0.38$0.53 per diluted share, as compared to $(27.6)$9.2 million or $(0.32)$0.11 per diluted share for the three months ended September 30, 2019.
Net income for the nine months ended September 30, 2020 was $41.1 million, or $0.48 per diluted share, as compared to $34.9 million or $0.40 per diluted share for the nine months ended September 30, 2019.March 31, 2020.
The net income for the three and nine months ended September 30, 2020March 31, 2021 was impactedprimarily driven by the COVID-19 pandemic which resulted in lower revenues in addition to a decrease in the level of operating expenses due to cost-savings measures implemented by the Company during 2020. The Company also had an increase in interest expensenon-operating income primarily due to the issuancegain of $42.9 million recognized in the Convertible Senior Notes. The increase in net income for the three months ended September 30, 2020 from the same period last year resulted from a $59.9 million IPR&D expense attributed to the Rebound transaction which occurred during the thirdfirst quarter of 2019.
For the nine months ended September 30, 2020, total revenues were $983.2 million, representing a decline of 12.4% from prior year revenues.
First quarter revenues declined 1.5% which reflects the impact of the COVID-19 pandemic on the Company from mid-March 2020 following two and a half months of revenue trends at the higher end of the Company’s expectations. As2021 as a result of the speedsale of its Extremity Orthopedics business to Smith & Nephew. The Company also benefited from slightly higher revenues and severity of the spread of COVID-19, the Company saw rapid and significant decline in surgical and medical intervention procedures as healthcare providers reallocated resources to address the increasing demands caused by the COVID-19 pandemic. By reacting swiftly in February and working with customers and distributors, we were largely able to mitigate the first quarter impact of the social and economic shutdowns that took place globally.
The second quarter finished with sales of $258.7 million, representing a decline of 32.6% from the prior year period. In April 2020, revenues were down 45% as compared to the same periodlower operating expenses in the prior year 2019, as healthcare providers around the world began to defer non-urgent medical procedures. Throughout the remainder of the second quarter of 2020, revenues improved sequentially as compared to lows experienced in April 2020, as surgical procedure restrictions began to ease.

During the third quarter, we experienced strong sequential quarterly revenue improvements across all franchises, representing an increase of 43.1% as compared to the second quarter. Third quarter revenues finished with sales of $370.2 million, representing a decline of 2.3% from the prior year period. The Company's performance varied across regions and product lines

based on the severity of the pandemic but continued to demonstrate strong improvement compared to the second quarter, as surgical procedure restrictions continued to ease.

In the Codman Specialty Surgical ("CSS") segment, revenues increased 41% as compared to the second quarter of 2020. Both the Neurosurgery and Instruments portfolio showed significant sequential quarterly improvement. During the three months ended September 30, 2020, CSS revenues declined 5.4% compared to the prior year. Sales in our neuro monitoring and programmable valve products increased low-single digits in the third quarter compared to the prior year. Despite showing a sequential quarterly improvement, sales in capital products, largely concentrated in our advanced energy franchise, declined mid-double digits in the third quarter compared to the prior year as hospitals and healthcare institutions continued to allocate capital budgets to manage the increase in costs associated with the COVID pandemic. The Company continues to have a strong pipeline of new capital opportunities and believes the reallocation of capital budgets is only temporary.  Additionally, sales of consumable products used in conjunction with previously sold capital equipment nearly recovered to prior year levels in the third quarter. Sales of our Instruments portfolio decreased low-double digitscurrent period as compared to the prior year, as sales of some products are more closely tied to hospital budgets rather than directly correlated to procedure volumes.period.
In the Orthopedics and Tissue Technologies ("OTT") segment, revenues increased 47.3% as compared to the second quarter of 2020. Sales in our Wound Reconstruction, Extremity Orthopedics and Private Label portfolios all showed sequential quarterly improvement in revenues. During the three months ended September 30, 2020, OTT revenues increased 3.8% as compared to the prior year. Sales in the Wound Reconstruction portfolio remained flat as compared to the prior year led by growth in sales of Integra skin, PriMatrix and amniotic tissue products. This was offset by performance in surgical reconstruction which declined by mid-double digits as compared to the prior year. Sales of our Extremity Orthopedics portfolio increased low single digits as deferred surgical procedures were completed. Our Private Label portfolio sales also increased by low-double digits over the prior year.Special Charges
We continue to closely monitor local and regional COVID-19 surges for an impact on procedures in the fourth quarter of 2020 and beyond. The reallocation of hospital resources to treat COVID-19 may continue to cause a financial strain on healthcare systems. Additionally, the Company does not expect all markets and product lines to improve at the same rate based on the level of recurrence of COVID-19 and its associated impact on the pace of procedure recovery and economic normalization.

Income before taxes includes the following special charges:charges:
Three Months Ended September 30, 
Nine Months Ended
September 30,
Three Months Ended March 31,
2020 2019 2020 2019 20212020
(In thousands) (In thousands) (In thousands)
Acquisition, divestiture and integration-related charges(2)
$7,148
 $74,531
 $19,856
 $106,816
Acquisition, divestiture and integration-related charges(2)
$(27,001)$6,166 
Structural optimization charges4,543
 5,353
 9,015
 13,169
Structural optimization charges3,946 3,242 
EU medical device regulation2,399
 1,978
 5,470
 3,200
EU medical device regulation5,748 2,187 
Litigation charges
 (2,254) 
 46
Discontinued product lines charges999
 3,104
 5,486
 6,825
Discontinued product lines charges33 3,185 
Impairment charges
 
 
 5,764
Convertible debt non-cash interest expenseConvertible debt non-cash interest expense— 2,529 
Expenses related to debt refinancingExpenses related to debt refinancing— 2,740 
COVID-19 pandemic related charges(1)
(192) 
 3,644
 
COVID-19 pandemic related charges(1)
— 4,706 
Expenses related to debt refinancing3,428
 
 6,168
 
Convertible debt non-cash interest expense4,295
 
 11,075
 
Total$22,620
 $82,712
 $60,714
 $135,820
Total$(17,274)$24,755 
(1) Charges relate to business interruptions and costcosts associated fromwith the COVID-19 pandemic which impacted the Company's operations globally, partially offset by Coronavirus government relief programs.programs in the prior year.
(2) The Company included $59.9completed its sale of its Extremity Orthopedics business to Smith & Nephew and recognized a gain of $42.9 million of IPR&D expense withinfor the three months ended March 31, 2021 which was partially offset by other acquisition, divestiture and integration-related charges as a result of the Rebound transaction in the third quarter of 2019.charges. See Note 2. Acquisitions and Divestitures for details.
The items reported above are reflected in the condensed consolidated statements of operations as follows: 
Three Months Ended March 31,
 20212020
 (In thousands)
Cost of goods sold$10,179 $9,307 
Research and development5,515 (1,051)
Selling, general and administrative11,494 11,230 
Interest expense(1)
— 5,269 
Gain from the sale of business(2)
(42,876)— 
Other income(1,586)— 
  Total$(17,274)$24,755 
 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
 (In thousands) (In thousands)
Cost of goods sold (1)
$6,892
 $5,963
 $22,500
 $17,177
Research and development859
 
 432
 1,650
IPR&D expense
 59,889
 
 59,916
Selling, general and administrative7,146
 19,361
 20,539
 53,814
Intangible asset amortization(2)

 
 
 5,764
Interest expense7,723
 
 17,243
 
Other expense
 (2,501) 
 (2,501)
  Total$22,620
 $82,712
 $60,714
 $135,820


(1) Upon adoption of ASU No. 2020-06, the Company will no longer incur non-cash interest expense for the amortization of debt discount. See Note 1. Basis of Presentation, for details.
(1) Amortization(2) See Note 2. Acquisitions and impairment charges related to technology based intangible assets is included in cost of goods sold.

(2) Impairment charges related to non-technology based intangible assets such as customer relationships are included in Intangible asset amortization.Divestitures for details.
We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, divestiture, integration and restructuring activities, and for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude. We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future.
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We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating performance from period to period, assessingagainst the business model objectives that management has established, and against other companies in our industry. We provide this information to investors so that they can analyze our operating results in the same way that management does and to use this information in their assessment of our core business and valuation of Integra.
Revenues and Gross Margin
The Company's revenues and gross margin on product revenues were as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020 20192020 2019
Segment Net Sales(Dollars in thousands)(Dollars in thousands)
Codman Specialty Surgical$239,323
 $252,984
$640,541
 $736,810
Orthopedics & Tissue Technologies130,909
 126,111
342,680
 385,620
Total revenue370,232
 379,095
983,221
 1,122,430
Cost of goods sold134,811
 142,636
373,765
 415,219
Gross margin on total revenues$235,421
 $236,459
$609,456
 $707,211
Gross margin as a percentage of total revenues63.6% 62.4%62.0% 63.0%


 Three Months Ended March 31,
 20212020
Segment Net Sales(Dollars in thousands)
Codman Specialty Surgical$241,241$231,440
Tissue Technologies$118,830$122,884
Total revenues$360,071$354,324
Cost of goods sold$145,823$133,476
Gross margin on total revenues$214,248$220,848
Gross margin as a percentage of total revenues59.5 %62.3 %

Three Months Ended September 30, 2020March 31, 2021 as Compared to Three Months Ended September 30, 2019March 31, 2020
Revenues and Gross Margin
For the three months ended September 30, 2020,March 31, 2021, total revenues decreasedincreased by $8.9$5.7 million to $370.2$360.1 million from $379.1$354.3 million for the same period in 2019.2020. Domestic revenues increased by $0.2$0.9 million, or 0.1%0.4%, to $266.5$247.8 million and were 72.0%68.8% of total revenues for the three months ended September 30, 2020March 31, 2021 compared to $266.3$246.9 million during the same period in the prior year. International revenues decreasedincreased by $9.1$4.8 million or 8%4.5% to $103.8$112.3 million for the three months ended September 30, 2020March 31, 2021 compared to $112.8$107.5 million during the same period in the prior year. Foreign exchange fluctuations had a favorable impact of $5.9 million on revenues for the quarter.
In the Codman Specialty Surgical segment ("CSS"), revenues were $241.2 million which was an increase of $9.8 million, or 4.2% as compared to the prior-year period. The net decrease of $8.9 million wasCompany saw growth within our Neurosurgery portfolio primarily with sales in advanced energy increasing high single digits as a result of disruption fromcapital and disposable sales recovery in our international markets. Sales in our instruments portfolio increased low double digits as compared to the COVID-19 pandemic and $6.0 million duefirst quarter of 2020 primarily driven by recovery in physician office visits in comparison to discontinued and divested products offset by $2.6 million due to favorable impact of foreign exchange.the prior year.
Codman Specialty SurgicalIn the Tissue Technologies ("TT") segment, revenues were $239.3$118.8 million which was a decrease of $13.7$4.1 million, or 5.4%3.3% from the prior-year period. The decline in revenue was primarily as a result of the sale of the Company's Extremity Orthopedics product portfolio to Smith and Tissue Technologies revenues were $130.9 million,Nephew which occurred on January 4, 2021. This decline was partially offset by sales in our Wound Reconstruction portfolio which increased due to the acquisition of ACell Inc. which was completed on January 20, 2021 and growth from our legacy portfolio such as Primatrix and Integra skin products.
We continue to closely monitor local, regional, and global COVID-19 surges as well as new variants of the virus for an increaseimpact on procedures during Q2 2021 and beyond. The reallocation of $4.8 million, or 3.8% fromhospital resources to treat COVID-19 may continue to cause a financial strain on healthcare systems and reduce procedural volumes. Additionally, the prior-year period.Company does not expect all markets and product lines to improve at the same rate based on the level of recurrence of COVID-19 and its associated impact on the pace of procedure recovery and economic normalization.
Gross margin was $235.4 million for the three-month periodMargin
For three months ended September 30,March 31, 2021 and 2020, a decrease of $1.0 million from $236.5 million for the same period last year. Grossgross margin as a percentage of total revenuerevenues was 59.5% and 62.3%, respectively. The decrease in gross margin percentage was due to increased to 63.6% foramortization associated with technology-based intangible assets, inventory step-up amortization in connection with the third quarter of 2020 from 62.4% in the same period last year. This increase is primarily attributable to favorableACell Inc. acquisition, revenue mix and lower costs as a result of cost-savings measures implementedhigher manufacturing costs. The product revenue mix was impacted by the Company.timing of the Extremity Orthopedics divestiture relative to the partial quarter benefit from ACell, and a higher mix of international revenue, which has lower gross margins than that of domestic revenue. The higher manufacturing costs were mainly due to higher idle capacity relating to the impact of COVID resurgences on our workforce.

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Operating Expenses
The following is a summary of operating expenses as a percent of total revenues: 
 Three Months Ended March 31,
 20212020
Research and development6.2 %5.9 %
Selling, general and administrative43.5 %46.8 %
Intangible asset amortization1.3 %2.0 %
  Total operating expenses51.0 %54.7 %
 Three Months Ended September 30,
 2020
2019
Research and development5.3%
5.0%
IPR&D expense% 15.8%
Selling, general and administrative40.5%
45.7%
Intangible asset amortization2.3%
1.3%
  Total operating expenses48.0%
67.8%
Total operating expenses, which consist of research and development, selling, general and administrative, expenses, research and development expenses, IPR&D expense and amortization expenses, decreased by $79.2$10.2 million, or 30.8%5.3% to $177.9$183.5 million in the three months ended September 30, 2020,March 31, 2021, compared to $257.0$193.7 million in the same period in 2019.2020. The Company has continued to manage its operating costs as a result of the impact of the COVID-19 pandemic. We also began to benefit from synergies as a result of the ACell Inc. acquisition and the sale of the Extremity Orthopedic business.
Research and Development
Research and development expenses for the three months ended September 30, 2020March 31, 2021 increased by $0.5$1.6 million as compared to the same period in prior year. The increase in research and development was driven by costs related to product development, including product development for the new acquisitions completed in 2019. The Company continues to invest in R&D programs with spending at prior year levels despite the challenges from the COVID-19 pandemic. IPR&D expense decreased by $59.9 million as compared to the prior year due to the Rebound transaction which occurred during the third quarter of 2019.
Selling, General and Administrative
Selling, general and administrative costs decreased by $23.0$9.3 million as compared to the same period in prior year.year resulting from less spending on travel, events and other discretionary expenses, as well as benefits from synergies as a result of the ACell Inc. acquisition and the sale of the Extremity and Orthopedic business. The decreaseCompany has continued to manage its operating costs as a result of the impact of the COVID-19 pandemic.
Intangible Asset Amortization
Amortization expense (excluding amounts reported in selling, general and administrative expensescost of product revenues for technology-based intangible assets) for the three months ended March 31, 2021 was driven by overall cost$4.5 million compared to $7.0 million for the same period in prior year primarily due to a reduction actions along with lower commission and selling costsin amortization expense associated with lower revenueintangible assets sold in conjunction with the sale of the business during the current year and accelerated amortization expense associated with an intangible asset recorded in the quarter.prior year.
Although expenses were still below prior year levels duringWe may discontinue certain products in the third quarterfuture as we continue to assess the profitability of 2020, the Company restored employee wagesour product lines. As our profitability assessment evolves, we may make further decisions about our trade names and beganincur additional impairment charges or accelerated amortization. We expect total annual amortization expense to increase other spendingbe approximately $78.8 million in line with the sequential revenue improvements during the period. Revenues for the third quarter of 2020, sequentially increased approximately 43.1% as compared to the second quarter of 2020.2022, $78.0 million in 2023, $77.3 million in 2024, $77.3 million in 2025, $77.2 million in 2026 and $582.7 million thereafter.
Non-Operating Income and Expenses
The following is a summary of non-operating income and expenses:
 Three Months Ended March 31,
 20212020
 (In thousands)
Interest income$1,748 $2,570 
Interest expense(12,929)(17,752)
Gain from the sale of business42,876 — 
Other income, net4,869 (479)
Total non-operating income and expense$36,564 $(15,661)
38

 Three Months Ended September 30,
 2020 2019
 (In thousands)
Interest income$2,273
 $2,913
Interest expense(20,796) (13,962)
Other income, net2,492
 4,127
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Interest ExpenseIncome
Interest expenseincome for the three months ended September 30, 2020 increasedMarch 31, 2021 decreased by $6.8$0.8 million as compared to the same period last year.
Gain from the sale of business
On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business to Smith & Nephew and recognized a gain of $42.9 million for the three months ended March 31, 2021.
Interest Expense
Interest expense for the three months ended March 31, 2021 decreased by $4.8 million as compared to the same period in the prior year primarily due to an increase inthe elimination of the non-cash interest expense dueas the result of the adoption ASU 2020-06 and the expenses associated with Amended and Restated Senior Credit Agreement which occurred in the prior period. See Note 1. Basis of Presentation for details in relation to the issuanceadoption of the Convertible Senior Notes.ASU 2020-06.
Other Income, net
Other income, net for the three months ended September 30, 2020, decreasedMarch 31, 2021 increased by $1.6$5.3 million compared to the same period lastin the prior year primarily driven from a legal settlement received duringdue to income associated with the three months ended September 30, 2019.transition services agreement with Smith and Nephew and favorable impact of foreign exchange.
Income Taxes
Three Months Ended September 30, Three Months Ended March 31,
2020 2019 20212020
(In thousands) (In thousands)
Income before income taxes$41,511
 $(27,509)Income before income taxes$67,278 $11,442 
Income tax (benefit) expense9,174
 101
Income tax (benefit) expense21,884 2,262 
Effective tax rate22.1% (0.4)%Effective tax rate32.5 %19.8 %
The Company’s effective income tax rates for the three months ended September 30,March 31, 2021 and 2020 were 32.5% and 2019 were 22.1% and (0.4)%19.8%, respectively.
For the three months ended September 30,March 31, 2021, the primary driver of the higher tax rate is the tax impact of the gain from the sale of the business, which closed during the first quarter.

For the three months ended March 31, 2020, the primary drivers of the higher tax rate arewere lower income impacted by the jurisdictional mix of income alongCOVID-19 pandemic, coupled with a $4.2$3.3 million recognition of avaluation allowance on certain foreign deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business, offset by a $3.2 million benefit from a reversal of the French valuation allowance. For the three months ended September 30, 2019, the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense. This amount was not deductible for tax purposes.assets.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities. We consider these factors and others, including the Company's history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis.

While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of a particular issue would usually require the use of cash. A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. The Company's tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.
Nine Months Ended September 30, 2020 as Compared to Nine Months Ended September 30, 2019
Revenues and Gross Margin
For the nine months ended September 30, 2020, total revenues decreased by $139.2 million to $983.2 million from $1,122.4 million for the same period in 2019. Domestic revenues decreased by $101.2 million, or 13%, to $695.2 million and were 71% of total revenues for the nine months ended September 30, 2020. International revenues decreased by $38.0 million, or 12% to $288.0 million for the nine months ended September 30, 2020 compared to $326.0 million during the same period in the prior year. The net decrease of $139.2 million was a result of decline in both segments due to disruption from the COVID-19 pandemic and $17.3 million due to discontinued and divested product offset by $0.2 million due to favorable impact of foreign exchange.
Codman Specialty Surgical revenues were $640.5 million, a decrease of $96.3 million, or 13.1% from the prior-year period. Orthopedics and Tissue Technologies revenues were $342.7 million, a decrease of $42.9 million, or 11.1% from the prior-year period. The decrease in both segments is primarily due to disruption caused by the COVID-19 pandemic across all franchises.
Gross margin was $609.5 million for the nine-month period ended September 30, 2020, a decrease of $97.8 million from $707.2 million for the same period last year. Gross margin as a percentage of total revenue decreased to 62.0% for the nine months ended September 30, 2020 from 63.0% in the same period last year. This decrease is primarily attributable to the disruption caused by the COVID-19 pandemic partially offset by favorable revenue mix and lower costs as a result of cost-savings measures implemented by the Company during the second quarter of 2020.
Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:
39
 Nine Months Ended September 30,
 2020
2019
Research and development5.6%
4.9%
IPR&D expense% 5.3%
Selling, general and administrative44.0%
45.7%
Intangible asset amortization2.4%
1.9%
  Total operating expenses51.9%
57.8%

Total operating expenses, which consist
Table of selling, general and administrative expenses, research and development expenses, IPR&D expense and amortization expenses, decreased by $138.8 million, or 21.4% to $510.7 million in the nine months ended September 30, 2020, compared to $649.5 million in the same period in 2019.
Other Income, net
Other income, net for the nine months ended September 30, 2020, decreased by $5.5 million as compared to the same period last year primarily due to unfavorable impact of foreign exchange and a legal settlement received during the nine months ended September 30, 2019.
Income Taxes
 Nine Months Ended September 30,
 2020 2019
 (In thousands)
Income before income taxes$54,604
 $33,697
Income tax (benefit) expense13,456
 (1,185)
Effective tax rate24.6% (3.5)%
The Company’s effective income tax rates for the nine months ended September 30, 2020 and 2019 were 24.6% and (3.5)%, respectively.


For the nine months ended September 30, 2020, the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business. For the nine months ended September 30, 2019, the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense. This amount is not deductible for tax purposes. This was offset by a tax benefit of $10.8 million related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 31, 2019. The Company received a federal tax credit in Switzerland of 12 million CHF, which may be used over a seven year period, ending in 2024.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act includes certain income tax provisions for corporations and individuals, among other provisions. The Company does not expect the CARES Act to have a significant impact on the income tax provision. The Company continues to monitor the issuance of new legislation, regulations, and case law that may impact federal, state, and international tax positions.
The Company expects its effective income tax rate for the full year to be approximately 24.6%, driven primarily by the jurisdictional mix of income and the incremental impact of the $4.2 million expense related to an outside tax basis from the sale of the Extremity Orthopedics business.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities. We consider these factors and others, including the Company's history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis.
While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of a particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. The tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items we expect to pay in the coming year, which would be classified as current income taxes payable.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS
The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,
2020 2019 2020 2019 20212020
(In thousands) (In thousands) (In thousands)
United States$266,477
 $266,280
 $695,179
 $796,397
United States$247,793 $246,852 
Europe45,995
 49,242
 123,917
 148,753
Europe45,819 45,896 
Asia Pacific40,473
 42,079
 113,934
 114,810
Asia Pacific47,295 39,960 
Rest of World17,287
 21,494
 50,191
 62,470
Rest of World19,164 21,616 
Total Revenues$370,232
 $379,095
 $983,221
 $1,122,430
Total Revenues$360,071 $354,324 
The Company generates significant revenues outside the U.S., a portion of which are U.S. dollar-denominated transactions conducted with customers whothat generate revenue in currencies other than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar and the currencies in which those customers do business could have an impact on the demand for the Company's products in foreign countries. Local economic conditions, regulatory compliance or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the U.S.
Domestic revenues increased by $0.2$0.9 million for the three months ended September 30, 2020March 31, 2021 compared to the same period last year. European sales decreased by $3.2$0.1 million for the three months ended September 30, 2020March 31, 2021 compared to the same period last year. Sales to customers in Asia Pacific increased by $7.3 million for the three months ended March 31, 2021 driven by accelerated recovery in both the Japan and theChina markets in relation to otherwise negative COVID-19 impacts. The Rest of the World for the three months ended September 30, 2020March 31, 2021 decreased by $5.8$2.5 million compared to the same period last year. The revenues globally continue to be impacted by the COVID-19 pandemic across all of the franchises.
Domestic revenues decreased by $101.2 million for the nine months ended September 30, 2020 compared to the same period last year. European sales decreased by $24.8 million for the nine months ended September 30, 2020 compared to the same period last year. Sales to customers in Asia Pacific and the Rest of the World for the nine months ended September 30, 2020 decreased by

$13.2 million compared to the same period last year. The decrease in revenues globally wasyear primarily due to adverse effects of the COVID-19 pandemic across all franchises.pandemic.

LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The working capital as of March 31, 2021 and December 31, 2020 was $626.8 million and $836.2 million, respectively. Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.
Cash and Marketable Securities
The Company had cash and cash equivalents totaling approximately $396.3$409.0 million and $198.9$470.2 million at September 30, 2020March 31, 2021 and December 31, 20192020 respectively, which are valued based on Level 1 measurements in the fair value hierarchy. At September 30, 2020,March 31, 2021, our non-U.S. subsidiaries held approximately $231.4$251.6 million of cash and cash equivalents that are available for use outside the U.S. The Company asserts that it has the ability and intends to indefinitely reinvest the undistributed earnings from its foreign operations unless there is no material tax cost to remit the earnings into the U.S. The Company does not anticipate the need to repatriate earnings from foreign subsidiaries as a result of the impact of the COVID-19 pandemic.
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Cash Flows
Nine Months Ended September 30, Three Months Ended March 31,
2020 2019 20212020
(In thousands) (In thousands)
Net cash provided by operating activities$123,570
 $142,249
Net cash provided by operating activities$69,081 $20,814 
Net cash used in investing activities(32,152) (142,059)Net cash used in investing activities(117,566)(21,485)
Net cash provided by financing activities100,403
 73,226
Net cash (used) provided by financing activitiesNet cash (used) provided by financing activities(3,015)162,005 
Effect of exchange rate fluctuations on cash5,547
 (4,273)Effect of exchange rate fluctuations on cash(9,690)(2,533)
Cash Flows Provided by Operating Activities
Operating cash flows for the ninethree months ended September 30, 2020 decreasedMarch 31, 2021 increased by $48.3 million compared to the same period in 2019.2020. For the ninethree months ended September 30, 2020,March 31, 2021, net income after removing the impact of the gain on sale of business and non-cash adjustments decreased by approximately $21.3 million to $174.4 million from $195.7 million when compared$10.1 million. Tto the same period in 2019 primarily due to adverse effects of the COVID-19 pandemic. Thehe changes in assets and liabilities net of business acquisitions, decreasedincreased cash flows fromby $26.0 million primarily due to operating activities by $50.8 millioncash flow contributions of accounts receivable for the ninethree months ended September 30, 2020March 31, 2021 when compared to a decrease of $53.5 million for the same period in 2019. The decrease in 2020 is attributable toprior year. In addition, the increase was also driven by an increase in inventory to improve safety stock of select products. In addition, decreases were also driven by reducedaccounts payables, offset by decreases in accounts receivable due to lower revenueaccrued expenses and continued collection efforts.other current liabilities for the three months ended March 31, 2021.
Cash Flows Used in Investing Activities
During the ninethree months ended September 30, 2020,March 31, 2021, we paid $30.5a net cash amount of $302.6 million in relation to the acquisition of ACell Inc. and received net proceeds of $191.7 million for the sale of the Extremity Orthopedics business. The Company also paid for $6.7 million capital expenditures mostto support operations improvement initiatives at a number of which were directed to our manufacturing facilities located in Mansfield, MA; Boston, MA; Memphis, TN; and Princeton, NJ.other information technology investments.
During the ninethree months ended September 30, 2019,March 31, 2020, the Company paid $47.3$16.5 million for capital expenditures, most of which were directed to our Mansfield, MAMassachusetts facility, our Princeton, NJNew Jersey facility and commercial expansion. Further, we paid $95.5expansion, as well as $5.0 million payment related to the first developmental milestone for the Arkis Acquisition and Rebound Transaction, net of cash acquired.Rebound.
Cash Flows Used in Financing Activities
Our principal sourcesUses of cash from financing activities in the ninethree months ended September 30,March 31, 2021 were $2.2 million proceeds from the exercise of stock options which was partially offset by net repayments of $1.6 million on the Securitization Facility offset and $3.6 million cash taxes paid in net equity settlement.
Sources of cash from financing activities in the three months ended March 31, 2020 were $515.3 million proceeds from the issuance of Convertible Senior Notes including the call and warrant transactions, and $151.3$113.2 million borrowing under our Senior Credit Facility and Securitization Facility.Facility and $2.3 million in proceeds from the exercise of stock options. These were offset by repayments of $441.0$344.2 million on the revolving portion of our Senior Credit Facility and Securitization Facility, $24.3$20.3 million debt issuance costs related to the Amended and Restated Senior Credit Agreement, and the issuance of Convertible Senior Notes and $100.0$100 million purchases of treasury stock.
Our principal sources ofstock and $4.3 million cash from financing activitiestaxes paid in the nine months ended September 30, 2019 were $215.8 million from borrowings under our Senior Credit Facility and Securitization Facility. These were offset by repayments of $143.3 million on the revolving portion of our Senior Credit Facility and Securitization Facility.net equity settlement.
Amended and Restated Senior Credit Agreement, Convertible Senior Notes, Securitization and Related Hedging Activities
See Note 76, - Debt to the current period’s condensed consolidated financial statements for a discussion of our Amended and Restated Senior Credit Agreement, Convertible Senior Notes and Securitization Facility and Note 8 -7, Derivative Instruments for discussion of our hedging activities.
We are forecasting that for the next twelve months, sales and earnings will be sufficient to remain in compliance with our financial covenants under the terms of the February 2020 Amendment and July 2020 Amendment to the Senior Credit Facility. The Company entered into the July 2020 amendment to increase financial flexibility in light of the unprecedented impact and

uncertainty of the COVID-19 pandemic on the global economy. If the downturn is more severe and prolonged than we currently expect, we may need to take further steps to reduce our costs.
Share Repurchase Plan
On December 11, 2018,7, 2020, the Board of Directors authorized the Company to repurchase up to $225.0$225 million of the Company’s common stock. The program allows the Company to repurchase its shares opportunistically from time to time. The repurchase authorization expires in December 2020.2022. The Company has $225.0 million remaining under the share repurchase of its Common Stock. The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

During the nine monthsyear ended September 30,December 31, 2020, the Company repurchased 2.1 million shares of Integra’s common stock as a part of our existingprevious share repurchase authorization. The Company utilized $100.0 million of net proceeds from the offering of the
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Convertible Senior Notes to execute the share repurchase transactions. This included $7.6 million from certain purchasers of the convertible notes in conjunction with the closing of the offering. On February 5, 2020, the Company entered into a
$92.4 $92.4 million accelerated share repurchase ("ASR") to complete the remaining $100.0 million of share repurchase. The Company received 1.3 million shares through the ASR, which represented approximately 80% of the expected total shares. Upon settlement of the ASR in June 2020, the Company received an additional 0.6 million shares determined using the volume-weighted average price of the Company's common stock during the term of the transaction.

The Company has $125.0 million remaining under the share repurchase of its Common Stock. The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.
Dividend Policy
The Company has not paid any cash dividends on our common stock since our formation. Our Senior Credit Facility limits the amount of dividends that we may pay. Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board.
Capital Resources
We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the foreseeable future. Our future capital requirements will depend on many factors, including the growth of our business, the timing and introduction of new products and investments, strategic plans and acquisitions, among others. Additional sources of liquidity available to us include short term borrowings and the issuance of long term debt and equity securities. Further, as part of our actions to manage the impacts of the COVID-19 pandemic on our business, the Company has significantly reduced our capital expenditures by approximately $16.9 million as compared to the prior year.
We currently do not anticipate disruptions to our suppliers and their supply chains due to the COVID-19 pandemic for the fourth quarter, 2020 and beyond.
Off-Balance Sheet Arrangements
The Company has noWe do not have any off–balance sheet financing arrangements during the ninethree months ended September 30, 2020March 31, 2021 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.
Contractual Obligations and Commitments
As of September 30, 2020,March 31, 2021, the Company is obligated to pay the following amounts under various agreements:

   Payments Due by Calendar Year

Total Remaining 2020 2021-2022 2023-2024 Thereafter
 (In millions)
Revolving Credit Facility (1)$97.5
 $

$
 $
 $97.5
Term Loan877.5
 

78.8
 129.4
 669.3
Securitization Facility (1)92.3



92.3




Convertible Debt (4)575.0
 
 
 
 575.0
Interest (2)55.4
 6.7

25.5
 22.2
 1.0
Employment Agreements (3)1.2
 0.2

1.0
 
 
Operating Leases140.4
 3.8

27.0
 21.4
 88.2
Purchase Obligations6.4
 1.0

4.2
 1.2
 
Other4.5
 1.1

0.7
 1.6
 1.1
Total$1,850.2
 $12.8

$229.5
 $175.8
 $1,432.1
Payments Due by Calendar Year
TotalRemaining 20212022-20232024-2025Thereafter
(In millions)
Revolving Credit Facility (1)$97.5 $— $— $97.5 $— 
Term Loan877.6 33.8 106.9 736.9 — 
Securitization Facility (1)111.5 111.5 — — — 
Convertible Debt (4)575.0 — — 575.0 — 
Interest (2)54.5 9.5 23.4 21.6 — 
Employment Agreements (3)0.8 0.8 — — — 
Operating Leases148.3 11.9 29.9 22.8 83.7 
Purchase Obligations4.9 1.6 3.3 — — 
Other4.3 1.2 0.4 1.6 1.1 
Total$1,874.4 $170.3 $163.9 $1,455.4 $84.8 
(1(1))The Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.
(2(2))Interest is calculated on the term loan portion of the Senior Credit Facility based on current interest ratesLIBOR plus the spread paid by the Company. [AsAs the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.]
(3(3))Amounts shown under Employment Agreements do not include compensation resulting from a change in control.
(4(4))
On February 4, 2020, the Company issued $575.0 million aggregate principal amount of its of 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 Notes. See Note 7, 6,Debt, for the details on the 2025 Notes.
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The Company has excluded its contingent consideration obligation related to a prior and current year acquisitions from the contractual obligations table above; this liability had a total estimated fair value of $14.4$39.6 million at September 30, 2020.March 31, 2021. This liability has been excluded because the amount to be paid and the potential payment date is not fixed.
The Company has excluded its option to acquire Integrated Shoulder Collaboration Inc., which becomes mandatory upon achievement of a certain sales threshold, for an amount not to exceed $80.0 million. This liability has been excluded because the amount to be paid and the potential payment date is not fixed. In connection with the sale of the Company's Extremity Orthopedic business, the Company will pay $41.5 million to CFO pursuant to the terms of certain agreements between Integra and CFO relating to the development of shoulder arthroplasty products. See Note 2, Assets and Liabilities Held for Sale, for details of the transaction.
The Company has excluded its future pension contribution obligations and deferred compensation obligations from the table above. This has been excluded because the future amounts to be paid and the potential payment dates are not fixed.
The Company has excluded the liability for uncertain tax benefits from the contractual obligations table above, including interest and penalties, totaling $1.0$0.9 million at September 30, 2020.March 31, 2021. This liability for uncertain tax benefits has been excluded because we cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

OTHER MATTERS
Critical Accounting Estimates
The critical accounting estimates included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 have not materially changed.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 1 - Basis of Presentation to the current period’s condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes.
Foreign Currency Exchange and Other Rate Risks

We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros ("EUR"), British pounds ("GBP"), Swiss francs ("CHF"), Canadian dollars, Japanese yen, Mexican pesos, Brazilian reais, Australian dollars and Chinese yuan. We manage the foreign currency exposure centrally, on a combined basis, which allows us to net exposures and to take advantage of any natural offsets. To mitigate the impact of currency fluctuations on transactions denominated in nonfunctional currencies, we periodically enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. We temporarily record realized and unrealized gains and losses on these contracts that qualify as cash flow hedges in other comprehensive income, and then recognize them in other income or expense when the hedged item affects net earnings.

From time to time, we enter into foreign currency forward exchange contracts to manage currency exposures for transactions denominated in a currency other than an entity’s functional currency. As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 8,7, Derivative Instrumentsfor further information.

We maintain written policies and procedures governing our risk management activities. With respect to derivatives, changes in hedged items are generally expected to be completely offset by changes in the fair value of hedge instruments. Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged.

The results of operations discussed herein have not been materially affected by inflation.
Interest Rate Risk
Cash and Cash Equivalents - We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents. A hypothetical 100 basis pointpoints movement in interest rates applicable to our cash and cash equivalents outstanding at September 30, 2020March 31, 2021 would increase interest income by approximately $4.0$4.1 million on an annual basis. basis. No significant decrease in interest income would be expected as our cash balances are earning interest at rates of approximately one basis point. We are subject to foreign currency exchange risk with respect to cash balances maintained in foreign currencies.
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Debt - Our interest rate risk relates primarily to U.S. dollar LIBOR-indexed borrowings. We use interest rate swap derivative instruments to manage our earnings and cash flow exposure to changes in interest rates. These interest rate swaps fix the interest rate on a portion of our expected LIBOR-indexed floating-rate borrowings. See Note 8, Derivative Instruments, for the details ofThese interest rate swaps.
swaps were designated as cash flow hedges as of March 31, 2021. The total notional amount ofamounts related to the Company’s interest rate swaps in effectwere $1.9 billion with $975.0 million effective as of September 30, 2020 was $975.0 million.March 31, 2021. Based on our outstanding borrowings at September 30, 2020,March 31, 2021, a 100 basis points change in interest rates would have impacted interest expense on the unhedged portion of the debt by $0.9$1.1 million on an annualized basis.basis.See Note 7, Derivative Instruments, for the details of interest rate swaps.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has designed our disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.
As required by Exchange Act Rule 13a-15(b), the Company has carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020.March 31, 2021. Based upon this evaluation, our

principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2020March 31, 2021 to provide such reasonable assurance.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In response to business integration activities, the Company has and will continue to further align and streamline the design and operation of the financial control environment to be responsive to the changing business model.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to legal proceedings can be found in Note 17. 16. Commitment and Contingencies.Contingencies.

ITEM 1A. RISK FACTORS
The following risk factors arefactor is in addition to the risks described in the Company’s Form 10-K under Item 1A, “Risk Factors” for its fiscal year ended December 31, 20192020 and in its subsequent periodic reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. The risk factorsfactor described below may have the effect of heightening many of the risks contained in the Company’s Form 10-K and other periodic reports.

Changes in the calculation and or complete replacement of LIBOR could have an impact on our business.

The saleUnited Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. This announcement and global financial benchmark reforms generally have resulted in the future of the Extremity Orthopedics business is subject to customary closing conditions, including an employee consultation process in France, and may not be completed on a timely basis, or at all.

On September 29, 2020, the Company and certain of its subsidiaries entered into an agreement to sell to Smith & Nephew USD Limited. the Company’s upper and lower extremity orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines (See FN 2 Assets and Liabilities for Sale). We cannot assure you that the conditions to the closing of the sale will be satisfied and, if those conditions are neither satisfied nor, where permissible, waived on a timely basis or at all, weinterest rate benchmarks being more uncertain. LIBOR may be unabledisrupted, materially change, or no longer be published in the future. In March 2021, the FCA provided clarity on the future of LIBOR by announcing that GBP, EUR, CHF, JPY Libor and 1-week and 2-month USD LIBOR will cease on December 31, 2021 while the remaining USD LIBOR settings will end on June 30, 2023. We have multiple debt facilities and swap contracts which utilizes a variable rate equal to complete the sale of the Extremity Orthopedics business, or such completion may be delayed or completed on terms that are less favorable, perhaps materially, to us than the terms currently contemplated.
If the proposed saleEurodollar LIBOR rate as a component of our Extremity Orthopedics business is completed, the announcement and pendency of the sale may be disruptive to our businesses (including the Extremity Orthopedics business) and may adversely affect our existing relationships with current and prospective employees and business partners,interest rate. The upcoming transition away from LIBOR as well as with customers. Uncertainties related to the pending sale may also impair our ability to attract, retain and motivate key personnel and could divert the attention of our management and other employees from its day-to-day business and operations in preparation for and during the sale. If we are unable to effectively manage these risks, the business, results of operations, financial condition and prospects of our businesses could be adversely affected.
If the proposed sale of the Extremity Orthopedics business is delayed or not completed for any reason, including due to our or Smith & Nephew's inability to satisfy the closing conditions set fortha common reference rate in the Definitive Agreements or industry or economic conditions outside ofglobal financial market could have a material, adverse effect on our control, including those relatedbusiness. Management continues to monitor the ongoing COVID-19 pandemic, investor confidence could decline. Moreover, in the event of a failed transaction due, for example, to our inability to successfully go through the employee consultation process in France in timely fashion, we will incur costsstatus and will have expended significant management resources in an effort to complete the sale. Accordingly, if the proposed sale of the Extremity Orthopedics business is not completed on the timeline or terms currently contemplated, or at all, our business, results of operations, financial condition, cash flows and stock price may be adversely affected.discussions regarding LIBOR.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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Information pertaining to our common stock under the repurchase program can be found in Note 12. 11. Treasury Stock.Stock.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION

Not applicable.
ITEM 6. EXHIBITS
Reference is hereby made to the Exhibit Index on page 4947.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
Date:OctoberApril 29, 20202021/s/ Peter J. Arduini
Peter J. Arduini
President and Chief Executive Officer
(Principal Executive Officer)
Date:OctoberApril 29, 20202021/s/ Carrie L. Anderson
Carrie L. Anderson
Executive Vice President, and Chief Financial Officer, and Treasurer
(Principal Financial Officer)
Date:OctoberApril 29, 20202021/s/ Jeffrey A. Mosebrook
Jeffrey A. Mosebrook
Senior Vice President, Finance
(Principal Accounting Officer)


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Exhibits
Exhibits
*2.131.1

*31.1
*31.2
*32.1
*32.2
*†101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*†101.SCHXBRL Taxonomy Extension Schema Document
*†101.CALXBRL Taxonomy Extension Calculation Linkbase Document
*†101.DEFXBRL Definition Linkbase Document
*†101.LABXBRL Taxonomy Extension Labels Linkbase Document
*†101.PREXBRL Taxonomy Extension Presentation Linkbase Document
 
*Filed herewith
#Indicates a management contract or compensatory plan or arrangement.

† The financial information of Integra LifeSciences Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2020March 31, 2021 filed on OctoberApril 29, 20202021 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, is furnished electronically herewith.

 




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