e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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COMMISSION FILE
NO. 0-26224
INTEGRA LIFESCIENCES HOLDINGS
CORPORATION
(EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER)
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Delaware
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51-0317849
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(STATE OR OTHER JURISDICTION
OF
INCORPORATION OR ORGANIZATION)
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(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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311 Enterprise Drive
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08536
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PLAINSBORO, NEW JERSEY
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(ZIP CODE)
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE:
(609) 275-0500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of Each Class
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Name of Exchange on Which Registered
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Common Stock, Par Value $.01 Per Share
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The Nasdaq Stock Market LLC
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2009, the aggregate market value of the
registrants common stock held by non-affiliates was
approximately $541.3 million based upon the closing sales
price of the registrants common stock on The Nasdaq Global
Market on such date. The number of shares of the
registrants Common Stock outstanding as of
February 24, 2010 was 28,679,106.
DOCUMENTS
INCORPORATED BY REFERENCE:
Certain portions of the registrants definitive proxy
statement relating to its scheduled May 19, 2010 Annual
Meeting of Stockholders are incorporated by reference in
Part III of this report.
PART I
OVERVIEW
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.
Integra, headquartered in Plainsboro, New Jersey, is a world
leader in regenerative medicine. We employ approximately
3,000 people around the world who are dedicated to
improving patient quality of life through the development,
manufacturing and marketing of surgical implants and medical
instruments. Our products are used to treat millions of patients
every year, primarily in neurosurgery, orthopedics and general
surgery. Revenues grew to $682.5 million in 2009, an
increase of 4% from $654.6 million in 2008.
Founded in 1989, Integra has grown to be a leader in developing
medical devices, particularly for neurosurgery, spinal surgery,
and orthopedic surgery, and is one of the largest surgical
instrument companies in the United States.
STRATEGY
Our goal is to become a global leader in the development,
manufacturing and marketing of medical devices, implants and
instruments. Key elements of our strategy include:
Focusing on our customers. We work with
customers whose time is at a premium. We are committed to limit
uncertainty by ensuring that we have the best trained staff,
on-time delivery of our products and responsive service.
Marketing innovative medical devices. We
develop innovative medical devices for orthopedic surgery,
neurosurgery and general surgery.
Investing in sales distribution channels to increase market
penetration. We have built a large sales team of
approximately 350 sales professionals in the United States. Our
European sales force consists of approximately 90 professionals
and our
rest-of-world
sales force consists of approximately 30 professionals.
Developing innovative products based on core
technologies. We are a leader in regenerative
technology. Our proprietary highly purified collagen scaffold
technology provides the foundation of our products for
duraplasty, dermal regeneration, nerve and tendon repair, and
bone repair and regeneration.
Acquiring products that fit existing sales
channels. We acquire new products and businesses
to increase the efficiency and size of our sales force,
stimulate the development of new products, and extend the
commercial lives of existing products. We have completed 10
acquisitions since the beginning of 2007, have demonstrated that
we can quickly and profitably integrate new products and
businesses and have an active program to evaluate more such
opportunities.
Our strategy allows us to expand our presence in hospitals and
other health care facilities, to integrate acquired products
effectively, to create strong sales platforms and to drive
short- and long-term revenue and earnings growth.
SALES AND
DISTRIBUTION
In the United States, we have three sales channels
Integra Orthopedics, Integra NeuroSciences and Integra Medical
Instruments. Within our Integra Orthopedics sales channel, we
sell through a large direct sales organization, and through
specialty distributors focused on their respective surgical
specialties. Integra NeuroSciences sells products through
directly-employed sales representatives. The Integra Medical
Instruments sales channel sells directly and through
distributors, and wholesalers.
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PRODUCTS
OVERVIEW
Integra is a fully integrated medical device company offering
thousands of products for the medical specialties which we
target. Our objective is to develop, acquire or otherwise
provide any product that will improve our service to our
customers. These products include implants, instruments and
equipment for neurosurgery, orthopedic surgery and general
surgery. We distinguish ourselves by emphasizing the importance
of the relatively new field of regenerative medicine.
In 2009, approximately 22% of our revenues came from surgical
implants derived from our proprietary collagen matrix
technology. While these products vary in composition and
structure, they operate under similar principles. We build our
matrix products from collagen, which is the basic structural
protein that binds cells together in the body. Our matrices
(whether for the dura mater, dermis, peripheral nerves, tendon
or bone) provide a scaffold to support the infiltration of the
patients own cells and the growth of blood vessels.
Eventually, those infiltrating cells consume the collagen of the
implanted matrix and lay down new native extracellular
matrix. In their interaction with the patients body,
our collagen matrices inhibit the formation of scar tissue, so
the implant is absorbed over time, leaving healthy native tissue
in its place. This basic technology can be applied to many
different procedures. We sell regenerative medicine products
through most of our sales channels.
ORTHOPEDICS
PRODUCT PORTFOLIO
Our orthopedics market category includes products sold by our
Integra Extremity Reconstruction and our Integra Spine and
OrthoBiologics sales organizations.
Integra
Extremity Reconstruction Product Portfolio
Extremity reconstruction is a growing area of the orthopedic
market. We define extremity reconstruction to mean the repair of
soft tissue and the orthopedic reconstruction of bone in the
foot, ankle and leg below the knee, and the hand, wrist, elbow
and arm below the shoulder.
Dermal Regeneration and Engineered Wound
Dressings. Our dermal repair and regeneration
products
(INTEGRA®
Dermal Regeneration Template,
INTEGRAtm
Bilayer Matrix Wound Dressing,
INTEGRAtm
Matrix Wound Dressing,
Integratm
Flowable Wound Matrix) and the
INTEGRAtm
Bilayer Wound Matrix are used to treat the chronic wounds that
can form on the foot, ankle and lower leg, severe burns, and
scar contractures.
Integras matrix wound dressings are indicated for the
management of wounds including partial and full-thickness
wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic
vascular ulcers, tunneled/undermined wounds, surgical wounds
(donor sites/grafts, post-laser surgery, podiatric, and wound
dehiscence), trauma wounds (abrasions, lacerations,
second-degree burns, and skin tears) and draining wounds. We
estimate that the market opportunity for products used to treat
trauma and chronic wounds in the United States is approximately
$1 billion.
There are currently 18 million people with diabetes in the
United States. Approximately 15% of these patients incur one or
more diabetic foot ulcers during their lifetime. This population
is also 15 times more likely to suffer an amputation due to
non-healing diabetic foot ulcers. However, approximately 85% of
all amputations are preventable if proper intervention is
provided. Approximately 500,000 adults seek treatment for venous
leg ulcers annually in the United States.
Nerve and Tendon. Surgeons who
specialize in foot or hand orthopedic surgery often have to
repair nerves and tendons. To address these needs, we offer the
NeuraGen®
Nerve Guide and the
NeuraWraptm
Nerve Protector for peripheral nerve repair and protection, and
the
TenoGlide®
Tendon Protector Sheet, all of which are based on our
regenerative matrix technology platform. In 2009, we added to
this family of products with the launch of the
Inforce®
Reinforcement Matrix, which may be used for any type of tendon
injury that requires surgical reconstruction. We estimate that
the worldwide market for the repair of severed, injured,
compressed and scarred peripheral nerves is between $40 and
$70 million. Tendon and ligament injuries are some of the
most common musculoskeletal disorders. Industry sources estimate
that there are approximately 700,000 tendon and ligament repair
procedures in the United States annually, representing a
$1.2 billion market.
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Bone and Joint Fixation Devices and
Instruments. We offer the extremity
reconstruction surgeon a comprehensive set of bone and joint
fixation devices for upper and lower extremity reconstruction,
including orthopedic implants and surgical devices for small
bone and joint procedures involving the foot, ankle, hand, wrist
and elbow. Our products address both the trauma and
reconstructive segments of the extremities market, an
approximately $900 million market in the United States.
We are a leading developer and manufacturer of specialty
implants and instruments specifically designed for foot and
ankle surgery. In reconstruction of the lower extremities, our
leading brands include
Newdeal®,
the
Uni-CPtm
Compression Plate, the
BOLD®
Cannulated Compression Screw, the
Uni-Clip®,
the
Advansys®
Mid and Hind Foot Plating Systems, the
Hallu®-Fix
System, the
PANTA®
Nail, and
Qwix®
and Large
Qwix®
stabilization screws, the
HINTEGRA®
total ankle prosthesis (sold outside the United States), and the
Subtalar
MBA®
Implant System (Maxwell-Brancheau Arthroereisis System).
Customers include orthopedic and podiatric surgeons specializing
in lower extremity injuries, of which there are 2,300 and 6,200,
respectively, in the United States. In 2009, we launched several
new products, including the
Hallu®-Lock
MTP Arthrodesis System, multiple product line extensions to the
highly successful
Uni-CPtm
Compression System, and the
Panta®
XL Arthrodesis Nail.
For upper extremity reconstruction, we offer the
Universal2tm
Total Wrist Implant System, which is recognized as the premier
implant for wrist arthroplasty, a procedure that restores the
function of the arthritic wrist. Other leading products offered
include the
Katalysttm
Bipolar Radial Head System for elbow reconstruction, the
Spidertm
Limited Wrist Fusion System for intercarpal arthrodesis, the
Viper®
Distal Radius Plate for fracture fixation, the
Kompressortm
Compression Screw System for small bone fixation, the
SafeGuard®
Mini Carpal Tunnel Release System for treatment of carpal tunnel
syndrome, and the
EndoReleasetm
Endoscopic Cubital Tunnel System for treatment of cubital tunnel
syndrome.
Bone Graft Substitutes for Extremity
Reconstruction. Our comprehensive line of
synthetic bone graft substitutes and demineralized bone matrix
products includes three distinct product lines
Integra
OS®
Osteoconductive Scaffold, a bone void filler manufactured from
beta tri-calcium phosphate and type I bovine collagen;
Trel-Xtm
demineralized bone matrix; and
Trel-XC®,
demineralized bone matrix premixed with cancellous bone.
Bone graft substitutes are used in many of the more than 700,000
extremity fusion and osteotomy procedures annually. The
extremity reconstruction bone graft market is estimated at more
than $50 million annually in the United States.
Integra
Spine and OrthoBiologics Product Portfolio
In 2008, the United States spinal implant market, consisting of
thoracolumbar fusion devices, cervical fusion devices, interbody
fusion devices, and motion preservation technologies, was valued
at approximately $4.2 billion, represents one of the most
dynamic and growing segments of the orthopedic industry. Integra
Spine provides comprehensive spinal solutions from the occiput
to the sacrum, and has 15 spinal fusion systems, a full line of
synthetic orthobiologics, minimally invasive spine solutions and
motion preservation devices in development.
Spinal Fusion Devices. Many people
suffer from chronic back pain, which may be alleviated
surgically with a spinal fusion, the process of removing the
disc material and fusing two vertebrae together. However, the
vertebrae cannot fuse unless bone touches bone. To create this
union, surgeons utilize two types of fusion devices -
supplemental fixation systems and interbody/vertebral body
replacements.
Supplemental fixation devices are plate and rod systems used to
keep the vertebra in place, securing the bone to bone union.
Interbody/vertebral body replacements are shaped like a cage and
used to hold the bone graft in place. They are placed in the
disc space and filled with bone graft or bone type material.
Successful spinal fusion requires the combination of
supplemental fixation and interbody/vertebral body replacement
devices. Integra Spine offers each type of device for the
different areas of the spine and specific types of diseases.
Supplemental Fixation
Systems. According to industry sources, in
2008 the cervical market was valued at more than
$700 million. The market consists of posterior and anterior
fixation devices, which include plating and rod systems. Integra
Spine offers several supplemental fixation systems for cervical
procedures. We offer the
Tethertm
anterior cervical plating system for the anterior side, the
Atolltm
Occipital-Cervical-Thoracic (OCT) system for the
posterior side, and the Manta
Raytm
System in the United States, an anterior cervical plate that
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provides a unique locking ring on the screw, which eliminates
the need for a secondary locking mechanism. With the addition of
the
Atolltm
OCT System in May 2009, Integra Spine now offers spinal fusion
solutions throughout the entire spine, from occiput to sacrum.
The degenerative disc market is the largest market segment
within the spinal implant market. The majority of the procedures
are for patients with degenerative disc disease requiring fusion
in the lower lumbar region of the spine. Lower back pain affects
approximately 80% of Americans at some point in their lives.
When back pain is severe, a pedicle screw system may be used to
alleviate the chronic back pain and limited mobility caused by
various spinal disorders, including spinal tumors. We address
this market with the
Coraltm
Spinal System used for the correction and stabilization of the
lumbar or lower region of the spine, and to correct spinal
deformities. In 2009, we introduced the
Coraltm
Extended Tab Spinal Screw Series for the correction of spinal
deformities, such as spondylolisthesis and scoliosis, and 5.5m
Coraltm
cobalt chrome rods for use in spinal correction and fusion
procedures. For 2010, the United States deformity market is
estimated to be approximately $539 million.
Interbody/vertebral body
replacements. Integra Spine offers a number
of interbody/vertebral body replacement devices
(IBD). These include Vu
e-PODtm,
Vu
L-PODtm,
L-PODtm,
Vu
c-PODtm
and Vu
Meshtm
devices. Each of these devices is a small cage with a unique
shape. They are used to hold the graft in place to ensure a
successful fusion.
In 2009, the Vu
e-PODtm
and Vu
L-PODtm
devices received clearance from the FDA to be marketed as a
spinal IBD. Prior to receiving the IBD status, the devices were
cleared by the FDA as spinal vertebral body replacement devices
(VBR). The dual classification gives the surgeon a broader range
of usages: as an adjunct to fusion in patients with degenerative
disc, as well as to replace a collapsed, damaged or otherwise
unstable vertebral body due to tumor or trauma. The IBD market
for 2008 was estimated at $1.05 billion.
OrthoBiologics. Integra offers a
comprehensive family of orthobiologic products and deploys an
established network of distributors focusing on orthopedic
surgeons. We market and sell a range of innovative bone graft
substitutes and other related medical devices that are used to
enhance the repair and regeneration of bone in spinal and trauma
surgery, total joint replacements and dental applications.
Integra is one of the largest companies in the world focused on
advanced technology in orthobiologics. We believe that our
product portfolio consists of some of the most well-established
orthobiologic brands, such as Integra
Mozaiktm
Osteoconductive Scaffold, the
Accell®
family of demineralized bone matrix products, which includes
Accell
Evo3®,
launched in 2009, and
DynaGraft®
II and
OrthoBlast®
II. Our synthetic bone product line consists of beta-tricalcium
phosphate (TCP) grafts and putty and is manufactured
with the patented
TheriForm®
technology, which controls the porosity and structure of the
product, makes the product unique, and enhances its performance.
The United States market size for bone graft substitutes in
orthopedic spinal procedures is estimated at $1.4 billion.
Additional opportunities exist in orthopedic reconstructive
applications.
Minimally Invasive Solutions. In
September 2009, we acquired certain assets and liabilities of
Innovative Spinal Technologies, Inc. (IST). IST
designed, developed, manufactured and sold spinal implant
products focused on minimally invasive surgery and motion
preservation techniques. Minimally invasive fixation systems
offer surgeons an opportunity to deliver pedicle screws with a
small incision, potentially reducing blood loss and recovery
time. This acquisition provided us with innovative products that
were available soon after acquisition, as well as intellectual
property that will support a pipeline of new products,
particularly in the rapidly growing field of minimally invasive
spine surgery.
The product lines acquired in the acquisition of ISTs
assets include the
Paramount®
MIS/Open system for percutaneous lumbar fusion procedures, the
Paramount®
interbody fusion system, and the
Cordanttm
anterior cervical plating system, as well as the product
development assets related to ISTs
Axienttm
product line for posterior dynamic stabilization. In addition,
to the
Paramount®
system, we offer a posterior lumbar mini-open retractor system,
the iPASSAGE. This unique retractor offers a number of blade
options as well as a light source.
NEUROSCIENCES
PRODUCT PORTFOLIO
Our Integra NeuroSciences sales organization sells a full line
of products for neurosurgery. We have products for each step of
a cranial procedure and the care of the patient after the
operation. We sell equipment used in the
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neurosurgery operating room and neurosurgery intensive care unit
(ICU). We also offer a wide array of implants for
neurosurgery and spine surgery, including a complete set of
duraplasty products and biomaterials for spine surgery.
Duraplasty Products. In the United
States, over 225,000 craniotomy procedures are performed each
year. Most of these surgeries breach the dura mater, which is
the tough, fibrous membrane that surrounds and protects the
tissue of the brain and spinal cord. The breach must be
repaired, either by suturing or applying a dural graft to
prevent cerebrospinal fluid leaks and facilitate wound healing.
Since the introduction of the
DuraGen®
Dural Graft Matrix in 1999, the first onlay collagen graft for
dural repair, we have become the market leader in sutureless
closure of dural defects in the United States. We subsequently
launched DuraGen
Plus®
Dural Regeneration Matrix in 2003, Suturable
DuraGentm
Dural Regeneration Matrix in 2005, and DuraGen
XStm
Dural Regeneration Matrix in 2007, demonstrating our sustained
commitment to providing the neurosurgical community with
innovative technology and materials for the management of dural
defects. These products are alternatives to autologous tissue
grafts taken from elsewhere in the patients body.
Tissue Ablation Equipment. Ultrasonic
surgery uses high frequency acoustic pulses to selectively
dissect soft tissues according to their density, leaving fibrous
tissues, such as nerves and blood vessels, relatively
unaffected. As a result, it facilitates the ablation of unwanted
tissue adjacent or attached to vital structures. Integras
CUSA®
tissue ablation system has been a leading ultrasonic surgical
aspirator for over 25 years. Our product offerings include
the CUSA
EXcel®,
CUSA
Selector®
and CUSA
Dissectrontm
(sold internationally). In 2009, we introduced the CUSA Excel
Ultrasonic Surgical Ablation System and the CUSA
NXTtm
Ultrasonic Tissue Ablation System. Accessories for and features
of these systems include the
TissueSelecttm,
the CUSA Electrosurgery Module
(CEMtm)
and the newly introduced CUSA
ShearTiptm.
Our market-leading
CUSA®
tissue ablation systems are used in over 100,000 procedures
annually, at over 2,000 centers around the world for the removal
of brain tumors, epilepsy foci, as well as gynecological and
liver tumors. According to industry sources, the total United
States market for ultrasonic tissue ablation products is over
$60 million. Applications for ultrasonic tissue ablation
technology continue to expand, both within neurosurgery and in
other surgical specialties, and we are developing accessories,
such as new tips and handpieces, to meet these new clinical
applications. We expect the market to continue to grow.
Cerebral Spinal Fluid (CSF) Management
Devices. CSF drainage is an important
component of managing the intracranial pressure of a
neuro-compromised patient or a patient undergoing abdominal
aortic aneurysm surgery. In 2007, over 300,000 procedures in the
United States were performed using lumbar or ventricular
drainage systems, representing an estimated $100 million
market.
Hydrocephalus is a condition in which the primary characteristic
is excessive accumulation of CSF in the brain. It is most
commonly treated by inserting a shunt into the ventricular
system of the brain. The shunt is designed to divert the flow of
CSF out of the brain to an appropriate drainage site, such as
the peritoneal cavity or the hearts right atrium, and
through a pressure valve to maintain a normal level of CSF
within the ventricles. Each year there are approximately 50,000
new implants and revision cases to treat hydrocephalus. Integra
currently offers a diverse line of hydrocephalus management
products, including a wide variety of valves and ventricular,
lumbar, peritoneal and cardiac catheters.
Cranial Stabilization Equipment. Most
neurosurgery procedures require that the head is held rigidly
during the operation. The
MAYFIELD®
line of cranial stabilization equipment fixes the head in an
orientation determined by the surgeon; the device contacts the
head via skull pins that are held in a frame that is anchored to
the operating table and can be adjusted in multiple planes of
movement.
The
MAYFIELD®
system is used worldwide in over 200,000 brain procedures
annually. Treatments using
MAYFIELD®
include head trauma injuries, pediatric disorders such as
hydrocephalus, biopsies, cancer removal, and treatments for
cerebrovascular disorders such as aneurysms, and
neurodegenerative disorders such as Parkinsons disease or
epilepsy. In 2009, we launched the
MAYFIELD®
Infinity XR2 Radiolucent Cranial Stabilization System.
Intracranial Monitoring Equipment. The
neurosurgical intensive care unit monitors a patients
post-operative condition, following most neurosurgical
procedures involving craniotomy. We offer the leading products
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for monitoring intracranial pressure (the
Camino®
ICP monitor) and metabolic activity
(LICOX®
brain tissue monitoring system) and equipment for the drainage
of excess CSF (the
AccuDrain®
Extermal Ventricular Drainage Systems).
Our
Camino®
and
LICOX®
monitoring systems are also used in the treatment of Traumatic
Brain Injury (TBI). TBI is a major public health
problem and costs the United States an estimated
$56 billion a year. More than five million Americans alive
today have had a TBI, resulting in a permanent need for help in
performing daily activities, and TBI survivors are often left
with significant cognitive, behavioral, and communicative
disabilities. Research has shown that not all brain damage
occurs at the moment of impact, but frequently evolves over the
ensuing hours and days after the initial injury. The secondary
damage may be controlled, in part, by monitoring and managing
intracranial pressure and brain tissue oxygen.
MEDICAL
INSTRUMENTS PRODUCT PORTFOLIO
We are one of the leading surgical instrument companies in the
United States, providing more than 60,000 instrument patterns
and surgical products to hospitals, surgery centers, and dental,
podiatry, veterinary and physician offices.
Integra
Surgical
Integra Surgical is a leading supplier of innovative,
high-quality operating room instrumentation and surgical
lighting. The
Jarit®
instrument line offers a comprehensive selection of reusable
surgical instruments that provides a complete solution for
laparoscopic, general, cardiovascular, neuro, gynecological, and
orthopedic surgical specialties.
Luxtec®
products lead the surgical illumination market. These products
include market leading Xenon illumination systems, digital video
recording systems, fiber optic cables and surgical loupes.
Innovative market-leading
Omni-Tract®
Surgical table retractor systems offer surgeons and operating
rooms the benefits of light weight, fewer parts, and fast, easy
set up.
Miltex
Miltex, Inc. has established itself as one of the largest and
most respected suppliers of hand-held instruments in the
alternate site market, which includes surgical, dental, podiatry
and animal health markets. Our extensive product portfolio of
over 30,000 line items, in combination with our strong
distributor partnerships, allows us to reach a broad spectrum of
providers, both domestically as well as internationally.
Miltexs extensive product portfolio of hand-held surgical
instrumentation encompasses all of the clinical specialties that
are significant within the non-acute setting including female
patient care, the aesthetics marketplace, ENT, ophthalmology and
all other venues that provide surgical care outside of the
hospital. We also are a major player in veterinary specialties,
such as dentistry and orthopedics, as well in the emerging life
sciences sector.
Miltex is recognized as a premium manufacturer of dental
instruments related to hygiene, oral surgery, periodontal and
endodontic instrumentation. The Miltex dental portfolio contains
the well recognized premium brand names, Miltex, Thompson, Moyco
and Union Broach. We offer the dental market the largest array
of choices in extraction forceps, market leadership in
sterilization cassettes and unique intra-oral lighting
technologies. Miltex has successfully incorporated one of
Integras regenerative collagen materials into its oral
surgery and periodontal offerings and continues to work in
consort to bring additional opportunities to the industry.
RESEARCH
AND DEVELOPMENT STRATEGY
We spent $44.3 million, $60.5 million and
$30.7 million in 2009, 2008 and 2007, respectively, on
research and development activities. The 2009 amount includes
$0.3 million of in-process research and development charges
recorded in connection with the IST acquisition. The 2008 amount
includes $25.2 million of in-process research and
development charges recorded in connection with the acquisition
of Theken Spine, LLC, Theken Disc, LLC and Therics, LLC
(collectively Integra Spine). The 2007 amount
includes $4.6 million in-process research and development
charges recorded in connection with the IsoTis acquisition.
Increases in research and development
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expenditures will accelerate the development of new devices for
neurosurgery, extremity reconstruction and orthobiologics.
Our research and development activities focus on identifying and
evaluating unmet surgical needs and product improvement
opportunities to drive the development of innovative solutions
and products. We apply our technological and developmental core
competencies to develop regenerative products for neurosurgical,
orthopedic and spinal applications, neuro-monitoring and CSF
management, cranial stabilization and closure, tissue ablation,
surgical instruments and spine, soft tissue, extremity small
bone, and joint fixation. Our activities include both internal
product development initiatives and the acquisition of
proprietary rights to strategic technological platforms.
Regenerative Products. Because implants
represent a fast-growing, high-margin market segment for us, a
large portion of our research and development expenditure is
allocated to the development of these products. Our regenerative
product development portfolio focuses on applying our expertise
in biomaterials and collagen matrices to support the development
of innovative products targeted at neurosurgical, orthopedic and
spinal surgery applications, as well as dermal regeneration,
nerve repair, and wound dressing applications. Our focus on
technological advancement, product segmentation and
differentiation activities will continue to drive our activities
in each of these areas.
Neurosurgery. We have prioritized our
portfolio to align with the largest, fastest growing and most
profitable segments of the neurosurgical markets we serve. Our
2010 research and product development efforts are focused on
extending our leadership positions in dural repair, and
developing the next tissue ablation system, a new critical care
neuromonitoring system and an advanced shunt for the management
of hydrocephalus. We serve many segments of the neurosurgical
market place and have other projects in place to enhance our
existing brain mapping, tissue ablation and stereotactic devices.
Extremity Reconstruction. We continue to build
and expand the capabilities of our product development team,
focusing on the development of fixation devices for upper and
lower extremity reconstruction, skin, nerve and soft tissue
products, and have structured a robust product development
program that will advance our product offerings. This program
includes the development of devices for both the upper and lower
extremities. In 2009, we launched five significant extremities
products: three for use in lower extremity procedures, one for
soft tissue reinforcement, and one new skin product offering.
Spine. Our 2008 acquisition of Integra Spine
expanded our product development engine with a strong
engineering team, prototyping and mechanical testing
capabilities and a portfolio of active spine implant product
developments. We continued our growth strategy in 2009 with the
acquisition of most of the assets of IST, which gave us an
entrée into the rapidly growing, minimally invasive spine
market. In 2009, Integra Spine introduced five products,
including the
Paramount®
minimally invasive spine system, a series of interbody spinal
implants made of
PEEK-Optima®
polymers from Invibio Limited, two additions to the
Coraltm
Spinal System and the
Atolltm
Occipital-Cervical-Thoracic (OCT) System, a posterior cervical
spinal fixation system. With the addition of the
Atolltm
OCT System, we now offer spinal fusion solutions throughout the
entire spine, from occiput to sacrum.
OrthoBiologics. We have built a strong
orthobiologic product development capability that leverages our
Accell®
family of demineralized bone matrix product lines and our
Integra
Mozaiktm
Osteoconductive Scaffold, resorbable bone void filler product
line. We continue to develop line extensions based on these
foundation technologies that further complete our offerings. In
2009, we expanded our Accell
Evo3®
product line, offering a smaller size option for surgeons, which
is particularly useful in procedures where smaller amounts of
demineralized bone matrix are required. We integrated the
Therics research and development program, which was acquired as
part of the 2008 Integra Spine acquisition, into the overall
orthobiologics research and development program. We will look to
further develop products based on this technology to create
synthetic materials with unique architecture and chemistry.
7
COMPETITION
Competitors in the spine and orthobiologics markets include
Alphatec Spine, Inc., Johnson & Johnson, Globus
Medical Inc., Medtronic, Inc., NuVasive, Inc., Orthofix, Stryker
Corporation, Synthes, Inc., and Zimmer, Inc., and also include
several smaller, biologic-focused companies, such as Orthovita
and Osteotech.
Our competitors in the neurosurgery markets are the Aesculap
division of B. Braun, Johnson & Johnson, Medtronic,
Inc. and Stryker Corporation. In addition, many of our
neurosurgery product lines compete with smaller specialized
companies and larger companies that do not otherwise focus on
neurosurgery.
Our competition in extremity reconstruction includes
Johnson & Johnson, Small Bone Innovations, Inc.,
Synthes, Inc., Stryker Corporation, Tornier, Inc., Wright
Medical Group, Inc. and Zimmer, Inc., as well as other major
orthopedic companies that carry a full line of small bone and
joint fixation and soft tissue products.
We believe that we are the second largest reusable surgical
instrument company in the United States. We compete with the
Aesculap division of B. Braun, as well as the largest reusable
instrument business, V. Mueller, a division of CareFusion. In
addition, we compete with Johnson & Johnson and many
smaller instrument companies in the reusable and disposable
specialty instruments markets. We rely on the depth and breadth
of our sales and marketing organization and our procurement
operation to maintain our competitive position in surgical
instruments.
Finally, in certain cases our products compete primarily against
medical practices that treat a condition without using a medical
device or any particular product, such as medical practices that
use autograft tissue instead of our dermal regeneration
products, duraplasty products and nerve repair products.
Depending on the product line, we compete on the basis of our
products features, strength of our sales force or
distributor, sophistication of our technology and cost
effectiveness of our solution to the customers medical
requirements.
GOVERNMENT
REGULATION
As a manufacturer and marketer of medical devices, we are
subject to extensive regulation by the FDA and the Center for
Medicare Services of the U.S. Department of Health and
Human Services and other federal governmental agencies and, in
some jurisdictions, by state and foreign governmental
authorities. These regulations govern the introduction of new
medical devices, the observance of certain standards with
respect to the design, manufacture, testing, labeling, promotion
and sales of the devices, the maintenance of certain records,
the ability to track devices, the reporting of potential product
defects, the import and export of devices, and other matters. We
believe that we are in substantial compliance with these
governmental regulations.
The regulatory process of obtaining product approvals and
clearances can be onerous and costly. The FDA requires, as a
condition to marketing a medical device in the United States,
that we secure a Premarket Notification clearance pursuant to
Section 510(k) of the Federal Food, Drug and Cosmetic Act
(the FFDCA), an approved Premarket Approval
application (or supplemental PMA application) or an approved
Product Development Protocol. Obtaining these approvals and
clearances can take up to several years and involves preclinical
studies and clinical testing. The FDA has announced that it is
reviewing the 510(k) Premarket Notification process which may
result in more extensive testing and clinical trial
requirements. To perform clinical trials for significant risk
devices in the United States on an unapproved product, we are
required to obtain an Investigational Device Exemption
(IDE) from the FDA. The FDA may also require a
filing for FDA approval prior to marketing products that are
modifications of existing products or new indications for
existing products. Moreover, after clearance/approval is given,
if the product is shown to be hazardous or defective, the FDA
and foreign regulatory agencies have the power to withdraw the
clearance or require us to change the device, its manufacturing
process or its labeling, to supply additional proof of its
safety and effectiveness or to recall, repair, replace or refund
the cost of the medical device. Because we currently export
medical devices manufactured in the United States that have not
been approved by the FDA for distribution in the United States,
we are required to obtain approval/registration in the country
we are exporting to and maintain certain records relating to
exports and make these available to the FDA for inspection, if
required.
The FDA Medical Device User Fee and Modernization Act of 2002
and the FDA Amendments Act of 2007 established regulations
governing user fees for certain regulatory submissions to the
FDA. Currently user fees are required for 510(k) PMAs,
certain PMA supplements, PMA annual reports, FDA establishment
registrations and
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other regulatory submissions. There may be increases in user
fees on an annual basis as well as additional user fees
established by the FDA.
Human
Cells, Tissues and Cellular and Tissue-Based
Products
Integra manufactures medical devices derived from human tissue
(demineralized bone tissue).
The 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. Examples
include bone, ligament, skin and cornea.
Some HCT/Ps also meet the definition of a biological product,
medical device or drug regulated under the FFDCA. These
biologic, device or drug HCT/Ps must comply both with the
requirements exclusively applicable to HCT/Ps and, in addition,
with requirements applicable to biologics, devices or drugs,
including premarket clearance or approval from FDA.
Section 361 of the Public Health Service Act
(PHSA), authorizes the FDA to issue regulations to
prevent the introduction, transmission or spread of communicable
disease. HCT/Ps regulated as 361 HCT/Ps are subject
to requirements relating to registering facilities and listing
products with FDA, screening and testing for tissue donor
eligibility, Good Tissue Practice when processing, storing,
labeling, and distributing HCT/Ps, including required labeling
information, stringent record keeping, and adverse event
reporting.
Some states have their own tissue banking regulation. We are
licensed or have permits for tissue banking in California,
Florida, New York and Maryland. In addition, tissue banks may
undergo voluntary accreditation by the American Association of
Tissue Banks (AATB). The AATB has issued operating
standards for tissue banking. Compliance with these standards is
a requirement in order to become an AATB-accredited tissue
establishment.
National Organ Transplant Act. Procurement of
certain human organs and tissue for transplantation is subject
to the restrictions of the National Organ Transplant Act
(NOTA), which prohibits the transfer of certain
human organs, including skin and related tissue for valuable
consideration, but permits the reasonable payment associated
with the removal, transportation, implantation, processing,
preservation, quality control and storage of human tissue and
skin. We reimburse tissue banks for their expenses associated
with the recovery, storage and transportation of donated human
tissue that they provide to us for processing. We include in our
pricing structure amounts paid to tissue banks to reimburse them
for their expenses associated with the recovery and
transportation of the tissue, in addition to certain costs
associated with processing, preservation, quality control and
storage of the tissue, marketing and medical education expenses,
and costs associated with development of tissue processing
technologies. NOTA payment allowances may be interpreted to
limit the amount of costs and expenses that we may recover in
our pricing for our products, thereby reducing our future
revenue and profitability. If we were to be found to have
violated NOTAs prohibition on the sale or transfer of
human tissue for valuable consideration, we would potentially be
subject to criminal enforcement sanctions, which could
materially and adversely affect our results of operations.
Postmarket Requirements. After a device is
cleared or approved for commercial distribution, numerous
regulatory requirements apply. These include the FDA Quality
System Regulations which cover the procedures and documentation
of the design, testing, production, control, quality assurance,
labeling, packaging, sterilization, storage and shipping of
medical devices; the FDAs general prohibition against
promoting products for unapproved or off-label uses;
the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur; and the Reports of
Corrections and Removals regulation, which require manufacturers
to report recalls and field corrective actions to the FDA if
initiated to reduce a risk to health posed by the device or to
remedy a violation of the FFDCA.
We are also required to register with the FDA as a medical
device manufacturer. As such, our manufacturing sites are
subject to periodic inspection by the FDA for compliance with
the FDAs Quality System Regulations. These regulations
require that we manufacture our products and maintain our
documents in a prescribed manner with respect to design,
manufacturing, testing and control activities. Further, we are
required to comply with various FDA requirements and other legal
requirements for labeling and promotion. If the FDA believes
that a company is
9
not in compliance with applicable regulations, it may issue a
warning letter, institute proceedings to detain or seize
products, issue a recall order, impose operating restrictions,
enjoin future violations and assess civil penalties against that
company, its officers or its employees and may recommend
criminal prosecution to the Department of Justice.
Medical device regulations also are in effect in many of the
countries outside the United States in which we do business.
These laws range from comprehensive medical device approval and
Quality System requirements for some or all of our medical
device products to simpler requests for product data or
certifications. The number and scope of these requirements are
increasing. Under the European Union Medical Device Directive,
medical devices must meet the Medical Device Directive standards
and receive CE Mark Certification prior to marketing in the
European Union (the EU). CE Mark Certification
requires a comprehensive Quality System program, comprehensive
technical documentation and data on the product, which are then
reviewed by a Notified Body. A Notified Body is an organization
designated by the national governments of the European Union
member states to make independent judgments about whether a
product complies with the protection requirements established by
each CE marking directive. The Medical Device Directive, ISO
9000 series and ISO 13485 are recognized international quality
standards that are designed to ensure that we develop and
manufacture quality medical devices. The EU has revised the
Medical Device Directive (93/42/EC as amended by 2007/47/EC) and
these revised regulations are effective March 21, 2010.
Compliance with these regulations requires extensive
documentation and clinical reports for all of our products sold
in the EU, as well as revisions to labeling and other
requirements to comply with the revisions. A recognized Notified
Body audits our facilities annually to verify our compliance
with these standards. Australia, China, Japan and other
countries have issued new regulations and requirements for
obtaining approval of medical devices, including requirements
governing the conduct of clinical trials, the manufacturing of
products and the distribution of products for medical devices
with which we must comply with in order to sell our products in
those countries.
In the EU, our products that contain human derived tissue,
including those containing demineralized bone material, are not
medical devices as defined in the Medical Device Directive
(93/42/EC). They are also not medicinal products as defined in
Directive 2001/83/EC. Today, regulations, if applicable, are
different from one EU member state to the next. Due to the
absence of a harmonized regulatory framework and the proposed
regulation for advanced therapy medicinal products in the EU,
the approval process for human-derived cell or tissue-based
medical products may be extensive, lengthy, expensive, and
unpredictable.
Certain countries, as well as the EU, have issued regulations
that govern products that contain materials derived from animal
sources. Regulatory authorities are particularly concerned with
materials infected with the agent that causes bovine spongiform
encephalopathy (BSE), otherwise known as mad cow
disease. These regulations affect our dermal regeneration
products, duraplasty products, biomaterial products for the
spine, nerve and tendon repair products and certain other
products, all of which contain material derived from bovine
tissue. Although we take great care to provide that our products
are safe and free of agents that can cause disease, products
that contain materials derived from animals, including our
products, may become subject to additional regulation, or even
be banned in certain countries, because of concern over the
potential for prion transmission. Significant new regulations,
or a ban of our products, could have a material adverse effect
on our current business or our ability to expand our business.
See Item 1A. Risk Factors Certain Of Our
Products Contain Materials Derived From Animal Sources And May
Become Subject To Additional Regulation.
We are subject to laws and regulations pertaining to healthcare
fraud and abuse, including anti-kickback laws and physician
self-referral laws that regulate the means by which companies in
the health care industry may market their products to hospitals
and health care professionals and may compete by discounting the
prices of their products. The delivery of our products is
subject to regulation regarding reimbursement, and federal
healthcare laws apply when a customer submits a claim for a
product that is reimbursed under a federally funded healthcare
program. These rules require that we exercise care in
structuring our sales and marketing practices and customer
discount arrangements. See Item 1A. Risk
Factors Oversight Of The Medical Device Industry
Might Affect The Manner In Which We May Sell Medical
Devices.
Our international operations subject us to laws regarding
sanctioned countries, entities and persons, customs,
import-export, laws regarding transactions in foreign countries
and the U.S. Foreign Corrupt Practices Act and local
10
laws regarding interactions with healthcare professionals. Among
other things, these laws restrict, and in some cases prohibit,
United States companies from directly or indirectly selling
goods, technology or services to people or entities in certain
countries. In addition, these laws require that we exercise care
in structuring our sales and marketing practices in foreign
countries.
Our research, development and manufacturing processes involve
the controlled use of certain hazardous materials. We are
subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal
of these materials and certain waste products. Although we
believe that our safety procedures for handling and disposing of
these materials comply with the standards prescribed by the
controlling laws and regulations, the risk of accidental
contamination or injury from these materials cannot be
eliminated. In the event of this type of accident, we could be
held liable for any damages that may result and any liability
could exceed our resources. Although we believe that we are in
compliance in all material respects with applicable
environmental laws and regulations, we could incur significant
costs to comply with environmental laws and regulations in the
future, and our operations, business or assets could be
materially adversely affected by current or future environmental
laws or regulations.
In addition to the above regulations, we are and may be subject
to regulation under federal and state laws, including, but not
limited to, requirements regarding occupational health and
safety, laboratory practices and the maintenance of personal
information, including personal health information. As a public
company, we are subject to the securities laws and regulations,
including the Sarbanes-Oxley Act of 2002. We also are subject to
other present, and could be subject to possible future, local,
state, federal and foreign regulations.
Third-Party Reimbursement. Healthcare
providers that purchase medical devices generally rely on
third-party payers, including the Medicare and Medicaid programs
and private payers, such as indemnity insurers, employer group
health insurance programs and managed care plans, to reimburse
all or part of the cost of the products. As a result, demand for
our products is and will continue to be dependent in part on the
coverage and reimbursement policies of these payers. The manner
in which reimbursement is sought and obtained varies based upon
the type of payer involved and the setting in which the product
is furnished and utilized. Reimbursement from Medicare, Medicaid
and other third-party payers may be subject to periodic
adjustments as a result of legislative, regulatory and policy
changes as well as budgetary pressures. Possible reductions in,
or eliminations of, coverage or reimbursement by third-party
payers as a result of these changes may affect our
customers revenue and ability to purchase our products.
Any changes in the healthcare regulatory, payment or enforcement
landscape relative to our customers healthcare services
has the potential to significantly affect our operations and
revenue.
PATENTS
AND INTELLECTUAL PROPERTY
We seek patent protection for our key technology, products and
product improvements, both in the United States and in selected
foreign countries. When determined appropriate, we have enforced
and plan to continue to enforce and defend our patent rights. In
general, however, we do not rely on our patent estate to provide
us with any significant competitive advantages as it relates to
our existing product lines. We rely upon trade secrets and
continuing technological innovations to develop and maintain our
competitive position. In an effort to protect our trade secrets,
we have a policy of requiring our employees, consultants and
advisors to execute proprietary information and invention
assignment agreements upon commencement of employment or
consulting relationships with us. These agreements also provide
that all confidential information developed or made known to the
individual during the course of their relationship with us must
be kept confidential, except in specified circumstances.
AccuDrain®,
Accell®,
Accell
Evo3®,
Atolltm,
Auragentm
Bold®,
Buzztm,
Camino®,
CRW®,
Coraltm,
CUSA®,
CUSA
Excel®,
DenLite®,
Dissectrontm,
DuraGen®,
DuraGen
Plus®,
DynaGraft®
II,
Hallu®
-Fix,
HINTEGRA®,
ICOStm,
Inforce®,
Integra®,
Integra
Mozaiktm,
Integra
OS®,
Jarit®,
LICOX®,
LimiTorrtm,
Luxtec®,
Manta
Raytm,
Miltex®,
NeuraGen®,
NeuraWraptm,
Newdeal®,
OmniSight®,
OmniTract®,
OrthoBlast®
II, OSV
II®,
Qwix®,
Padgett®,
Panta®,
Paramount®,
Radionics®,
Redmondtm,
Rugglestm,
Safeguard®,
Selector®,
Subtalar
MBA®,
TenoGlide®,
Tethertm,
Trel-Xtm,
Trel-XC®,
Tibiaxys®,
Uni-Clip®,
Ventrixtm,
XKnife®
and the Integra wave logo are some of the material trademarks of
Integra LifeSciences Corporation and its subsidiaries.
MAYFIELD®
is a registered trademark of SM USA, Inc., and is used by
Integra under license.
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EMPLOYEES
At December 31, 2009, we had approximately
3,000 employees engaged in production and production
support (including warehouse, engineering and facilities
personnel), quality assurance/quality control, research and
development, regulatory and clinical affairs, sales, marketing,
administration and finance. Except for certain employees at our
facilities in France and Mexico, none of our employees is
subject to a collective bargaining agreement.
FINANCIAL
INFORMATION ABOUT GEOGRAPHIC AREAS
Financial information about our geographical areas is set forth
under Item 7. Managements Discussion and
Analysis of Financial Condition and Results of
Operations International Revenues and
Operations and in our financial statements Note 14,
Segment and Geographic Information, to our
Consolidated Financial Statements.
SOURCES
OF RAW MATERIALS
In general, raw materials essential to our businesses are
readily available from multiple sources. For reasons of quality
assurance, availability, or cost effectiveness, certain
components and raw materials are available only from a sole
supplier. Our policy is to maintain sufficient inventory of
components so that our production will not be significantly
disrupted even if a particular component or material is not
available for a period of time.
Certain of our products, including our dermal regeneration
products, duraplasty products, biomaterial products for the
spine, nerve and tendon repair products and certain other
products, contain material derived from bovine tissue. We take
great care to provide that our products are safe and free of
agents that can cause disease. In particular, the collagen used
in the products that Integra manufactures is derived only from
the deep flexor tendon of cattle less than 24 months old
from New Zealand, a country that has never had a case of bovine
spongiform encephalopathy, or from the United States. We are
also qualifying sources of collagen from another country that is
considered BSE-free. The World Health Organization classifies
different types of cattle tissue for relative risk of BSE
transmission. Deep flexor tendon is in the lowest-risk category
for BSE transmission (the same category as milk, for example),
and is therefore considered to have a negligible risk of
containing the agent that causes BSE.
Certain of our demineralized bone matrix products contain human
tissue in the form of ground cortical and cancellous bone. We
source the bone tissue only from FDA and the American
Association of Tissue Banks (AATB) registered and
inspected tissue banks. The donors are rigorously screened,
tested, and processed in accordance with the FDA and AATB
requirements. Only donated tissue from FDA and AATB registered,
inspected, non-profit tissue banks is qualified to source for
our raw materials. Additionally, each donor must pass all of the
FDA-specified bacterial and viral testing before the raw
material is distributed to Integra for further processing. We
receive with each donor lot a certification of the safety of the
raw material from the tissue banks medical director.
As an added assurance of safety, each lot of bone is released
into the manufacturing process only after our staff of quality
assurance microbiologists screens the incoming bone and serology
test records. During our manufacturing process, the bone
particles are subjected to our proprietary process and
terminally sterilized. We have demonstrated through our testing
that this type of rigorous processing further enhances the
safety and effectiveness of our demineralized bone material
products.
SEASONALITY
Revenues during our fourth quarter tend to be stronger than
other quarters because many hospitals increase their purchases
of our products during the fourth quarter to coincide with the
end of their budget cycles.
AVAILABLE
INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the Exchange
Act). In accordance with the Exchange Act, we file annual,
quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may
view our financial information, including the information
contained in this report, and other reports we file with the
Securities and Exchange Commission, on the Internet, without
charge as soon as reasonably practicable after we file them with
the
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Securities and Exchange Commission, in the SEC
Filings page of the Investor Relations section of our
website at www.Integra-LS.com. You may also obtain a copy
of any of these reports, without charge, from our investor
relations department, 311 Enterprise Drive, Plainsboro, NJ
08536. Alternatively, you may view or obtain reports filed with
the Securities and Exchange Commission at the SEC Public
Reference Room at 100 F Street, N.E. in
Washington, D.C. 20549, or at the Securities and Exchange
Commissions Internet site at www.sec.gov. Please
call the Securities and Exchange Commission at
1-800-SEC-0330
for further information on the operation of the public reference
facilities.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this report, including statements
under Business and Managements
Discussion and Analysis of Financial Condition and Results of
Operations that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and
Section 21E of the Exchange Act. These forward-looking
statements are subject to a number of risks, uncertainties and
assumptions about us including, among other things:
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general economic and business conditions, both nationally and in
our international markets;
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our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
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anticipated trends in our business;
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anticipated demand for our products, particularly capital
equipment products;
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our expectations concerning our ongoing restructuring,
integration and manufacturing transfer and expansion activities;
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existing and future regulations affecting our business;
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our ability to obtain additional debt and equity financing to
fund capital expenditures and working capital requirements and
acquisitions;
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physicians willingness to adopt our recently launched and
planned products, third-party payors willingness to
provide or continue reimbursement for these products and our
ability to secure regulatory approval for products in
development;
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initiatives launched by our competitors;
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our ability to protect our intellectual property, including
trade secrets;
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our ability to complete acquisitions, integrate operations
post-acquisition and maintain relationships with customers of
acquired entities;
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work stoppages at our facilities; and
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other risk factors described in the section entitled Risk
Factors in this report.
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You can identify these forward-looking statements by
forward-looking words such as believe,
may, could, might,
will, estimate, continue,
anticipate, intend, seek,
plan, expect, should,
would and similar expressions 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. In light of these risks
and uncertainties, the forward-looking events and circumstances
discussed in this report may not occur and actual results could
differ materially from those anticipated or implied in the
forward-looking statements.
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Risks
Related to Our Business
Our
operating results may fluctuate.
Our operating results, including components of operating results
such as gross margin and cost of product sales, may fluctuate
from time to time, and such fluctuations could affect our stock
price. Our operating results have fluctuated in the past and can
be expected to fluctuate from time to time in the future. Some
of the factors that may cause these fluctuations include:
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current economic conditions, which could affect the ability of
hospitals and other customers to purchase our products and could
result in a reduction in elective and non-reimbursed operative
procedures;
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the impact of acquisitions;
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the impact of our restructuring activities;
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the timing of significant customer orders, which tend to
increase in the fourth quarter to coincide with the end of
budget cycles for many hospitals;
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market acceptance of our existing products, as well as products
in development;
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the timing of regulatory approvals;
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changes in the rates of exchange between the U.S. dollar
and other currencies of foreign countries in which we do
business, such as the euro and the British pound;
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expenses incurred and business lost in connection with product
field corrections or recalls;
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changes in the cost or decreases in the supply of raw materials,
including energy and steel;
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our ability to manufacture our products efficiently;
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the timing of our research and development expenditures;
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reimbursement for our products by third-party payors such as
Medicare, Medicaid and private health insurers; and
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inspections of our manufacturing facilities for compliance with
Quality System Regulations (Good Manufacturing Practices) which
could result in Form 483 observations, warning letters,
injunctions or other adverse findings from the FDA or from
equivalent regulatory bodies.
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The
industry and market segments in which we operate are highly
competitive, and we may be unable to compete effectively with
other companies.
In general, there is intense competition among medical device
companies. We compete with established medical technology
companies in many of our product areas. Competition also comes
from early-stage companies that have alternative technological
solutions for our primary clinical targets, as well as
universities, research institutions and other non-profit
entities. Many of our competitors have access to greater
financial, technical, research and development, marketing,
manufacturing, sales, distribution, administrative, consulting
and other resources than we do. Our competitors may be more
effective at developing commercial products. Our competitors may
be able to gain market share by offering lower-cost products or
by offering products that enjoy better reimbursement
methodologies from third-party payors, such as Medicare,
Medicaid and private healthcare insurance.
Our competitive position will depend on our ability to achieve
market acceptance for our products, develop new products,
implement production and marketing plans, secure regulatory
approval for products under development, obtain and maintain
reimbursement coverage under Medicare, Medicaid and private
healthcare insurance and obtain patent protection. We may need
to develop new applications for our products to remain
competitive. Technological advances by one or more of our
current or future competitors or their achievement of superior
reimbursement from Medicare, Medicaid and private healthcare
insurance could render our present or future
14
products obsolete or uneconomical. Our future success will
depend upon our ability to compete effectively against current
technology as well as to respond effectively to technological
advances. Competitive pressures could adversely affect our
profitability. For example, competitors have launched and have
been developing products to compete with our duraplasty
products, extremity reconstruction implants, neuro critical care
monitors and ultrasonic tissue ablation devices, among others.
Our largest competitors in the neurosurgery markets are
Medtronic, Inc., Johnson & Johnson, Stryker
Corporation and the Aesculap division of B. Braun Medical Inc.
In addition, many of our neurosurgery product lines compete with
smaller specialized companies or larger companies that do not
otherwise focus on neurosurgery. Our competitors in extremity
reconstruction include Johnson & Johnson, Synthes,
Inc. and Stryker Corporation, as well as other major orthopedic
companies that carry a full line of reconstructive products. We
also compete with Wright Medical Group, Inc., Small Bone
Innovations, Inc., Tornier, Inc. and other companies in the
extremity reconstruction market category. Our competitors in the
spinal implant market include Medtronic, Inc.,
Johnson & Johnson, Synthes, Inc., Stryker Corporation,
Zimmer, Inc., NuVasive, Inc., Globus Medical, Inc., Alphatec
Spine, Inc. and Orthofix. In surgical instruments, we compete
with V. Mueller, as well as Aesculap. In addition, we compete
with Johnson & Johnson and many smaller instrument
companies in the reusable and disposable specialty instruments
markets. The competitors in our orthobiologics market include
such well-established companies as Medtronic, Inc., Synthes Inc.
and Johnson & Johnson and also include several
smaller, biologic-focused companies, such as Osteotech and
Orthovita. Our private-label products face diverse and broad
competition, depending on the market addressed by the product.
Finally, in certain cases our products compete primarily against
medical practices that treat a condition without using a device
or any particular product, such as the medical practices that
use autograft tissue instead of our dermal regeneration
products, duraplasty products and nerve repair products.
Our
current strategy involves growth through acquisitions, which
requires us to incur substantial costs and potential liabilities
for which we may never realize the anticipated
benefits.
In addition to internally generated growth, our current strategy
involves growth through acquisitions. Since the beginning of
2007, we have acquired 10 businesses or product lines at a total
cost of approximately $285.3 million.
We may be unable to continue to implement our growth strategy,
and our strategy ultimately may be unsuccessful. A significant
portion of our growth in revenues has resulted from, and is
expected to continue to result from, the acquisition of
businesses complementary to our own. We engage in evaluations of
potential acquisitions and are in various stages of discussion
regarding possible acquisitions, certain of which, if
consummated, could be significant to us. Any new acquisition
could result in material transaction expenses, increased
interest and amortization expense, increased depreciation
expense and increased operating expense, any of which could have
a material adverse effect on our operating results. Certain
businesses that we acquire may not have adequate financial,
disclosure, regulatory, quality or other compliance controls at
the time we acquire them. As we grow by acquisition, we must
manage and integrate the new businesses to bring them into our
systems for financial, disclosure, compliance, regulatory and
quality control, realize economies of scale, and control costs.
In addition, acquisitions involve other risks, including
diversion of management resources otherwise available for
ongoing development of our business and risks associated with
entering markets in which our marketing and sales force has
limited experience or where experienced distribution alliances
are not available. Our future profitability will depend in part
upon our ability to develop further our resources to adapt to
these new products or business areas and to identify and enter
into or maintain satisfactory distribution networks. We may not
be able to identify suitable acquisition candidates in the
future, obtain acceptable financing or consummate any future
acquisitions. If we cannot integrate acquired operations, manage
the cost of providing our products or price our products
appropriately, our profitability could suffer. In addition, as a
result of our acquisitions of other healthcare businesses, we
may be subject to the risk of unanticipated business
uncertainties, regulatory and other compliance matters or legal
liabilities relating to those acquired businesses for which the
sellers of the acquired businesses may not indemnify us, for
which we may not be able to obtain insurance (or adequate
insurance), or for which the indemnification may not be
sufficient to cover the ultimate liabilities.
15
Our
future financial results could be adversely affected by
impairments or other charges.
Since we have grown through acquisitions, we had
$261.9 million of goodwill and $50.0 million of
indefinite-lived intangible assets as of December 31, 2009.
Under the authoritative guidance for determining the useful life
of intangible assets, we are required to test both goodwill and
indefinite-lived intangible assets for impairment on an annual
basis based upon a fair value approach, rather than amortizing
them over time. We are also required to test goodwill and
indefinite-lived intangible assets for impairment between annual
tests if an event occurs such as a significant decline in
revenues or cash flows for certain products, or we experience a
significant change in discount rates used in the calculations of
discounted cash flow, or circumstances change that would more
likely than not reduce our enterprise fair value below its book
value. If such a decline, rate change or circumstance were to
materialize, we may record an impairment of these intangible
assets that could be material to the financial statements. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates of this report.
The guidance on long-lived assets requires that we assess the
impairment of our long-lived assets, including definite-lived
intangible assets, whenever events or changes in circumstances
indicate that the carrying value may not be recoverable as
measured by the sum of the expected future undiscounted cash
flows. As of December 31, 2009, we had $161.1 million
of definite-lived intangible assets.
The value of medical device businesses is often volatile, and
the assumptions underlying our estimates made in connection with
our assessments under the guidance may change as a result of
that volatility or other factors outside our control and may
result in impairment charges. The amount of any such impairment
charges could be significant and could have a material adverse
effect on our reported financial results for the period in which
the charge is taken and could have an adverse effect on the
market price of our securities, including the notes and the
common stock into which they may be converted.
Current
economic conditions may adversely affect the ability of
hospitals, other customers, suppliers and distributors to access
funds or otherwise have available liquidity, which could reduce
orders for our products or interrupt our production or
distribution or result in a reduction in elective and
non-reimbursed operative procedures.
Current economic conditions may adversely affect the ability of
hospitals and other customers to access funds to enable them to
fund their operating and capital budgets. As a result, hospitals
and other customers may reduce budgets or put all or part of
their budgets on hold or close their operations, which could
have a negative effect on our sales, particularly the sales of
more expensive capital equipment such as our ultrasonic surgical
aspirators, neuromonitors and stereotactic products, or result
in a reduction in elective and non-reimbursed procedures.
The
disruption in the global financial markets and the economic
downturn may adversely impact the availability and cost of
credit.
Our ability to refinance our indebtedness and to obtain
financing for acquisitions or other general corporate and
commercial purposes will depend on our operating and financial
performance and is also subject to prevailing economic
conditions and to financial, business and other factors beyond
our control. In the fall of 2008, global credit markets and the
financial services industry experienced a period of
unprecedented turmoil characterized by the bankruptcy, failure
or sale of various financial institutions, a general tightening
of credit, and an unprecedented level of market intervention
from the United States and other governments.
To
market our products under development we will first need to
obtain regulatory approval. Further, if we fail to comply with
the extensive governmental regulations that affect our business,
we could be subject to penalties and could be precluded from
marketing our products.
As a manufacturer and marketer of medical devices, we are
subject to extensive regulation by the FDA and the Center for
Medicare Services of the U.S. Department of Health and
Human Services and other federal governmental agencies and, in
some jurisdictions, by state and foreign governmental
authorities. These regulations govern the introduction of new
medical devices, the observance of certain standards with
respect to the design, manufacture, testing, labeling, promotion
and sales of the devices, the maintenance of certain records,
the ability to track devices,
16
the reporting of potential product defects, the import and
export of devices and other matters. We are facing an increasing
amount of scrutiny and compliance costs as more states are
implementing regulations governing medical devices,
pharmaceuticals
and/or
biologics which affect many of our products. As a result, we
have been implementing additional procedures, controls and
tracking and reporting processes, as well as paying additional
permit and license fees, where required.
Our products under development are subject to FDA approval or
clearance prior to marketing for commercial use. The process of
obtaining necessary FDA approvals or clearances can take years
and is expensive and uncertain. The FDA has announced that it is
reviewing the 510(k) Premarket Notification process, and there
may be requirements for more extensive testing
and/or
clinical trials required for products cleared to market under
the 510(k) process. The FDA may also require the more extensive
PMA process for certain products. Our inability to obtain
required regulatory approval on a timely or acceptable basis
could harm our business. Further, approval or clearance may
place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed, warnings
that may be required to accompany the product or additional
restrictions placed on the sale
and/or use
of the product. Further studies, including clinical trials and
FDA approvals, may be required to gain approval for the use of a
product for clinical indications other than those for which the
product was initially approved or cleared or for significant
changes to the product. These studies could take years to
complete and could be expensive, and there is no guarantee that
the results will convince the FDA to approve or clear the
additional indication. Any negative outcome in our clinical
trials, including as a result of any interim analysis which we
may do with respect to our clinical trials from time to time,
could adversely affect our ability to launch new products, which
could affect our sales and our ability to achieve reimbursement
for new or existing products. In addition, for products with an
approved PMA, the FDA requires annual reports and may require
post-approval surveillance programs
and/or
studies to monitor the products safety and effectiveness.
Results of post-approval programs may limit or expand the
further marketing of the product. We are also seeing third-party
intermediaries require clinical trial data for products cleared
through the 510(k) process in order to continue reimbursement
coverage. These clinical trials could take years to complete and
be expensive and there is no guarantee that the FDA will approve
the additional indications for use. There is also no guarantee
that the intermediaries will agree to continue reimbursement or
provide additional coverage based upon these clinical trials. If
the FDA does not approve the additional indications for use, our
ability to obtain reimbursement for these products and our
ability to compete against alternative products or technologies
could suffer and, consequently, affect our sales.
Another risk of application to the FDA relates to the regulatory
classification of new products or proposed new uses for existing
products. In the filing of each application, we make a judgment
about the appropriate form and content of the application. If
the FDA disagrees with our judgment in any particular case and,
for example, requires us to file a PMA application rather than
allowing us to market for approved uses while we seek broader
approvals or requires extensive additional clinical data, the
time and expense required to obtain the required approval might
be significantly increased or approval might not be granted.
Our manufacturing facilities must be in compliance with FDA
Quality System Regulations (Good Manufacturing Practices). In
addition, approved products are subject to continuing FDA
requirements relating to quality control and quality assurance,
maintenance of records, reporting of adverse events and product
recalls, documentation, and labeling and promotion of medical
devices. For example, some of our orthobiologics products are
subject to FDA and certain state regulations regarding human
cells, tissues, and cellular or tissue-based products, which
include requirements for establishment registration and listing,
donor eligibility, current good tissue practices, labeling,
adverse-event reporting, and inspection and enforcement. Some
states have their own tissue banking regulation. We are licensed
or have permits as a tissue bank in California, Florida, New
York and Maryland. In addition, tissue banks may undergo
voluntary accreditation by the AATB. The AATB has issued
operating standards for tissue banking. Compliance with these
standards is a requirement in order to become a licensed
tissue bank.
The FDA and foreign regulatory authorities require that our
products be manufactured according to rigorous standards. These
and future regulatory requirements could significantly increase
our production or purchasing costs and could even prevent us
from making or obtaining our products in amounts sufficient to
meet market demand. If we or a third-party manufacturer change
our approved manufacturing process, the FDA may require a new
approval before that process may be used. Failure to develop our
manufacturing capability could mean that, even if we were
17
to develop promising new products, we might not be able to
produce them profitably, as a result of delays and additional
capital investment costs.
All of our manufacturing facilities, both international and
domestic, are also subject to inspections by or under the
authority of the FDA and other regulatory agencies. Failure to
comply with applicable regulatory requirements could subject us
to issuance of Form 483 observations, warning letters or
enforcement action by the FDA or other agencies, including
product seizures, recalls, withdrawal of clearances or
approvals, restrictions on or injunctions against marketing our
product or products based on our technology, cessation of
operations and civil and criminal penalties, any of which could
materially affect our business.
We are also subject to the regulatory requirements of countries
outside the United States where we do business. For example,
under the European Union Medical Device Directive, all medical
devices must meet the Medical Device Directive standards in
order to obtain CE Mark Certification prior to marketing in the
EU. CE Mark Certification requires a comprehensive Quality
System program, comprehensive technical and clinical
documentation and data on the product, which a Notified Body in
the EU reviews. In addition, we must be certified to the ISO
13485:2003 Quality System standards and maintain this
certification in order to market our products in the EU, Canada,
Japan, Latin America, countries in the Asia-Pacific region and
most other countries outside the United States. Additionally,
the EU has revised the Medical Device Directive (93/42/EC as
amended by 200747/EC) and these revised regulations are
effective March 21, 2010. Compliance with these regulations
requires extensive documentation, clinical reports for all of
our products sold in the EU, as well as revisions to labeling
and other requirements to comply with the revisions. Compliance
with these regulations will be costly and are mandatory in order
to market our products in the EU. Many other countries have
instituted new medical device regulations
and/or
revised current medical device regulations. These regulations
often require extensive documentation, including clinical data
and may require audits of our manufacturing facilities in order
to gain approval to sell our products in that country. There are
also associated fees with these new regulations. These
regulations are required for all new products and
re-registration of our medical devices, and may involve lengthy
and expensive reviews.
Our products that contain human derived tissue, including those
containing de-mineralized bone matrices, are not medical devices
in the EU as defined in the Medical Device Directive (93/42/EC).
They are also not medicinal products as defined in Directive
2001/83/EC. Today, regulations, if applicable, differ from one
EU member state to the next. Because of the absence of a
harmonized regulatory framework and the proposed regulation for
advanced therapy medicinal products in the EU, as well as for
other countries, the approval process for human-derived cell or
tissue based medical products may be extensive, lengthy,
expensive, and unpredictable. Among others, some of our
orthobiologics products are subject to European Union member
states regulations that govern the donation, procurement,
testing, coding, traceability, processing, preservation,
storage, and distribution of human tissues and cells and
cellular or tissue-based products. These European Union member
states regulations include requirements for registration,
listing, labeling, adverse-event reporting, and inspection and
enforcement. Some EU member states have their own tissue banking
regulations.
Certain
of our products contain materials derived from animal sources
and may become subject to additional regulation.
Certain of our products, including our dermal regeneration
products, duraplasty products, biomaterial products for the
spine, nerve and tendon repair products and certain other
products, contain material derived from bovine tissue. Products
that contain materials derived from animal sources, including
food, pharmaceuticals and medical devices, are increasingly
subject to scrutiny in the media and by regulatory authorities.
Regulatory authorities are concerned about the potential for the
transmission of disease from animals to humans via those
materials. This public scrutiny has been particularly acute in
Japan and Western Europe with respect to products derived from
animal sources, because of concern that materials infected with
the agent that causes bovine spongiform encephalopathy,
otherwise known as BSE or mad cow disease, may, if ingested or
implanted, cause a variant of the human Creutzfeldt-Jakob
Disease, an ultimately fatal disease with no known cure. Cases
of BSE in cattle discovered in Canada and the United States have
increased awareness of the issue in North America.
We take care to provide that our products are safe and free of
agents that can cause disease. In particular, we have qualified
our source of collagen from a country outside the United States
that is considered BSE-free. The
18
World Health Organization classifies different types of cattle
tissue for relative risk of BSE transmission. Deep flexor tendon
is in the lowest-risk categories for BSE transmission (the same
category as milk, for example), and is therefore considered to
have a negligible risk of containing the agent that causes BSE
(an improperly folded protein known as a prion). Nevertheless,
products that contain materials derived from animals, including
our products, may become subject to additional regulation, or
even be banned in certain countries, because of concern over the
potential for the transmission of prions. Significant new
regulation, or a ban of our products, could have a material
adverse effect on our current business or our ability to expand
our business.
Certain countries, such as Japan, China, Taiwan and Argentina,
have issued regulations that require our collagen products be
processed from bovine tendon sourced from countries where no
cases of BSE have occurred, and the European Union has requested
that our dural replacement products and other products that are
used in neurological tissue be sourced from bovine tendon
sourced from a country where no cases of BSE have occurred.
Currently, we purchase our tendon from the United States and New
Zealand. We received approval in the EU, Japan, Taiwan, China
and Argentina for the use of New Zealand-sourced tendon in the
manufacturing of our products. If we cannot continue to use or
qualify a source of tendon from New Zealand or another country
that has never had a case of BSE, we will not be permitted to
sell our collagen products in certain countries.
Certain
of our products are derived from human tissue and are subject to
additional regulations and requirements.
We manufacture medical devices derived from human tissue
(demineralized bone tissue). The 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. Examples include bone, ligament, skin and
cornea.
Some HCT/Ps also meet the definition of a biological product,
medical device or drug regulated under the FFDCA.
Section 361 of the PHSA authorizes the FDA to issue
regulations to prevent the introduction, transmission or spread
of communicable disease. HCT/Ps regulated as 361
HCT/Ps are subject to requirements relating to registering
facilities and listing products with FDA, screening and testing
for tissue donor eligibility, Good Tissue Practice, or GTP, when
processing, storing, labeling, and distribution HCT/Ps,
including required labeling information, stringent record
keeping; and adverse event reporting. These biologic, device or
drug HCT/Ps must comply both with the requirements exclusively
applicable to 361 HCT/Ps and, in addition, with requirements
applicable to biologics, devices or drugs, including premarket
clearance or approval.
Some states have their own tissue banking regulation. We are
licensed or have permits as a tissue bank in California,
Florida, New York and Maryland. In addition, tissue banks may
undergo voluntary accreditation by the American Association of
Tissue Banks, or the AATB. The AATB has issued operating
standards for tissue banking. Compliance with these standards is
a requirement in order to become a licensed tissue bank.
In the EU, regulations, if applicable, differ from one EU member
state to the next. Because of the absence of a harmonized
regulatory framework and the proposed regulation for advanced
therapy medicinal products in the EU, as well as for other
countries, the approval process for human derived cell or tissue
based medical products may be extensive, lengthy, expensive, and
unpredictable. Among others, some of our orthobiologics products
are subject to European Union member states regulations
that govern the donation, procurement, testing, coding,
traceability, processing, preservation, storage, and
distribution of human tissues and cells and cellular or
tissue-based products. These European Union member states
regulations include requirements for registration, listing,
labeling, adverse-event reporting, and inspection and
enforcement. Some EU member states have their own tissue banking
regulations.
Lack
of market acceptance for our products or market preference for
technologies that compete with our products could reduce our
revenues and profitability.
We cannot be certain that our current products or any other
products that we may develop or market will achieve or maintain
market acceptance. Certain of the medical indications that can
be treated by our devices can also be treated by other medical
devices or by medical practices that do not include a device.
The medical community widely accepts many alternative
treatments, and certain of these other treatments have a long
history of
19
use. For example, the use of autograft tissue is a
well-established means for repairing the dermis, and it competes
for acceptance in the market with the
Integra®
Dermal Regeneration Template.
We cannot be certain that our devices and procedures will be
able to replace those established treatments or that either
physicians or the medical community in general will accept and
utilize our devices or any other medical products that we may
develop. For example, market acceptance of our bone graft
substitutes will depend on our ability to demonstrate that our
bone graft substitutes and technologies are an attractive
alternative to existing treatment options. Additionally, if
there are negative events in the industry, whether real or
perceived, there could be a negative impact on the industry as a
whole. For example, we believe that some in the medical
community have lingering concerns over the risk of disease
transmission through the use of natural bone graft substitutes.
In addition, our future success depends, in part, on our ability
to develop additional products. Even if we determine that a
product candidate has medical benefits, the cost of
commercializing that product candidate could be too high to
justify development. Competitors could develop products that are
more effective, achieve or maintain more favorable reimbursement
status from third-party payors, including Medicare, Medicaid and
third-party health insurance, cost less or are ready for
commercial introduction before our products. If we are unable to
develop additional commercially viable products, our future
prospects could be adversely affected.
Market acceptance of our products depends on many factors,
including our ability to convince prospective collaborators and
customers that our technology is an attractive alternative to
other technologies, to manufacture products in sufficient
quantities and at acceptable costs, and to supply and service
sufficient quantities of our products directly or through our
distribution alliances. In addition, unfavorable reimbursement
methodologies, or adverse determinations of third-party payors,
including Medicare, Medicaid and third-party health insurance,
against our products or third-party determinations that favor a
competitors product over ours, could harm acceptance or
continued use of our products. The industry is subject to rapid
and continuous change arising from, among other things,
consolidation, technological improvements, the pressure on
third-party payors and providers to reduce healthcare costs, and
healthcare reform legislation. One or more of these factors may
vary unpredictably, and such variations could have a material
adverse effect on our competitive position. We may not be able
to adjust our contemplated plan of development to meet changing
market demands.
Our
intellectual property rights may not provide meaningful
commercial protection for our products, potentially enabling
third parties to use our technology or very similar technology
and could reduce our ability to compete in the
market.
To compete effectively, we depend, in part, on our ability to
maintain the proprietary nature of our technologies and
manufacturing processes, which includes the ability to obtain,
protect and enforce patents on our technology and to protect our
trade secrets. We own or have licensed patents that cover
aspects of some of our product lines. Our patents, however, may
not provide us with any significant competitive advantage.
Others may challenge our patents and, as a result, our patents
could be narrowed, invalidated or rendered unenforceable.
Competitors may develop products similar to ours that our
patents do not cover. In addition, our current and future patent
applications may not result in the issuance of patents in the
United States or foreign countries. Further, there is a
substantial backlog of patent applications at the
U.S. Patent and Trademark Office, and the approval or
rejection of patent applications usually takes approximately
three years.
Our
competitive position depends, in part, upon unpatented trade
secrets which we may be unable to protect.
Our competitive position also depends upon unpatented trade
secrets, which are difficult to protect. We cannot assure you
that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
gain access to our trade secrets, that our trade secrets will
not be disclosed or that we can effectively protect our rights
to unpatented trade secrets.
In an effort to protect our trade secrets, we require our
employees, consultants and advisors to execute confidentiality
and invention assignment agreements upon commencement of
employment or consulting relationships with us. These agreements
provide that, except in specified circumstances, all
confidential information developed or made known to the
individual during the course of their relationship with us must
be kept confidential.
20
We cannot assure you, however, that these agreements will
provide meaningful protection for our trade secrets or other
proprietary information in the event of the unauthorized use or
disclosure of confidential information.
Our
success will depend partly on our ability to operate without
infringing or misappropriating the proprietary rights of
others.
We may be sued for infringing the intellectual property rights
of others. In addition, we may find it necessary, if threatened,
to initiate a lawsuit seeking a declaration from a court that we
do not infringe the proprietary rights of others or that their
rights are invalid or unenforceable. If we do not prevail in any
litigation, in addition to any damages we might have to pay, we
would be required to stop the infringing activity or obtain a
license for the proprietary rights involved. Any required
license may be unavailable to us on acceptable terms, if at all.
In addition, some licenses may be nonexclusive and allow our
competitors to access the same technology we license.
If we fail to obtain a required license or are unable to design
our product so as not to infringe on the proprietary rights of
others, we may be unable to sell some of our products, and this
potential inability could have a material adverse effect on our
revenues and profitability.
We may
be involved in lawsuits relating to our intellectual property
rights and promotional practices, which may be
expensive.
To protect or enforce our intellectual property rights, we may
have to initiate or defend legal proceedings, such as
infringement suits or interference proceedings, against or by
third parties. In addition, we may have to institute proceedings
regarding our competitors promotional practices or defend
proceedings regarding our promotional practices. Litigation is
costly, and, even if we prevail, the cost of that litigation
could affect our profitability. In addition, litigation is
time-consuming and could divert management attention and
resources away from our business. Moreover, in response to our
claims against other parties, those parties could assert
counterclaims against us.
It may
be difficult to replace some of our suppliers.
Outside vendors, some of whom are sole-source suppliers, provide
key components and raw materials used in the manufacture of our
products. Although we believe that alternative sources for many
of these components and raw materials are available, any
interruption in supply of a limited or sole-source component or
raw material could harm our ability to manufacture our products
until a new or alternative source of supply is identified and
qualified. In addition, an uncorrected defect or suppliers
variation in a component or raw material, either unknown to us
or incompatible with our manufacturing process, could harm our
ability to manufacture products. We may not be able to find a
sufficient alternative supplier in a reasonable time period, or
on commercially reasonable terms, if at all, and our ability to
produce and supply our products could be impaired. We believe
that these factors are most likely to affect the following
products that we manufacture:
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our collagen-based products, such as the
Integra®
Dermal Regeneration Template and wound dressing products, the
DuraGen®
family of products, and our Absorbable Collagen Sponges;
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our products made from silicone, such as our neurosurgical
shunts and drainage systems and hemodynamic shunts; and
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products which use many different electronic parts from numerous
suppliers, such as our intracranial monitors and catheters.
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In addition, some of our orthobiologics products rely on a small
number of tissue banks accredited by the American Association of
Tissue Banks, or AATB, for the supply of human tissue, a crucial
component of our bone graft substitutes. We cannot be certain
that these tissue banks will be able to fulfill our requirements
or that we will be able to successfully negotiate with other
accredited tissue facilities on satisfactory terms.
If we were suddenly unable to purchase products from one or more
of these companies, we would need a significant period of time
to qualify a replacement, and the production of any affected
products could be disrupted. While it is our policy to maintain
sufficient inventory of components so that our production will
not be significantly disrupted even if a particular component or
material is not available for a period of time, we remain at
risk that we
21
will not be able to qualify new components or materials quickly
enough to prevent a disruption if one or more of our suppliers
ceases production of important components or materials.
If any
of our manufacturing facilities were damaged and/or our
manufacturing or business processes interrupted, we could
experience lost revenues and our business could be seriously
harmed.
Damage to our manufacturing, development or research facilities
because of fire, natural disaster, power loss, communications
failure, unauthorized entry or other events, such as a flu or
other health epidemic, could cause us to cease development and
manufacturing of some or all of our products. In particular, our
San Diego and Irvine, California facilities are susceptible
to earthquake damage, wildfire damage and power losses from
electrical shortages as are other businesses in the Southern
California area. Our Anasco, Puerto Rico plant, where we
manufacture collagen, silicone and our private-label products,
is vulnerable to hurricane, storm, earthquake and wind damage.
Although we maintain property damage and business interruption
insurance coverage on these facilities, our insurance might not
cover all losses under such circumstances, and we may not be
able to renew or obtain such insurance in the future on
acceptable terms with adequate coverage or at reasonable costs.
In addition, certain of our surgical instruments have some
manufacturing processes performed by third parties in Pakistan,
which is subject to political instability and unrest, and we
purchase a much smaller amount of instruments directly from
vendors there. Such instability could interrupt our ability to
sell surgical instruments to our customers and could have a
material adverse effect on our revenues and earnings. While we
have developed a relationship with an alternative provider of
these services in another country, and continue to work to
develop other providers in other countries, we cannot guarantee
that we will be completely successful in achieving all of these
relationships. Even if we are successful in establishing all of
these alternative relationships, we cannot guarantee that we
will be able to do so at the same level of costs or that we will
be able to pass along additional costs to our customers.
We implemented an enterprise business system to support certain
of our transaction processing for accounting and financial
reporting, supply chain and manufacturing. A third party hosts
and maintains this system. Currently, we do not have a
comprehensive disaster recovery plan for the Companys
infrastructure but we have adopted alternative solutions to
mitigate business risk, including backup equipment, power and
communications. We also implemented a comprehensive backup and
recovery process for our key software applications. Our global
production and distribution operations are dependent on the
effective management of information flow between facilities. An
interruption of the support provided by our enterprise business
systems could have a material adverse effect on the business.
We are
exposed to a variety of risks relating to our international
sales and operations, including fluctuations in exchange rates,
local economic conditions and delays in collection of accounts
receivable.
We generate significant revenues outside the United States in
multiple foreign currencies including euros, British pounds,
Swiss francs, Canadian dollars, Japanese yen and Australian
dollars, and in U.S. dollar-denominated transactions
conducted with customers who generate revenue in currencies
other than the U.S. dollar. For those foreign customers who
purchase our products in U.S. dollars, currency
fluctuations between the U.S. dollar and the currencies in
which those customers do business may have a negative impact on
the demand for our products in foreign countries where the
U.S. dollar has increased in value compared to the local
currency.
Since we have operations based outside the United States and we
generate revenues and incur operating expenses in multiple
foreign currencies including euros, British pounds, Swiss
francs, Canadian dollars, Japanese yen and Australian dollars,
we experience currency exchange risk with respect to those
foreign currency-denominated revenues and expenses.
Although we address currency risk management through regular
operating and financing activities, and, on a limited basis,
through the use of derivative financial instruments, those
actions may not prove to be fully effective. For a description
of our use of derivative financial instruments, see Note 6,
Derivative Instruments.
22
We cannot predict the consolidated effects of exchange rate
fluctuations upon our future operating results because of the
number of currencies involved, the variability of currency
exposure and the potential volatility of currency exchange rates.
Our international operations subject us to laws regarding
sanctioned countries, entities and persons, customs,
import-export, laws regarding transactions in foreign countries
and the U.S. Foreign Corrupt Practices Act and local laws
regarding interactions with healthcare professionals. Among
other things, these laws restrict, and in some cases prohibit,
U.S. companies from directly or indirectly selling goods,
technology or services to people or entities in certain
countries. In addition, these laws require that we exercise care
in structuring our sales and marketing practices in foreign
countries.
Local economic conditions, legal, regulatory or political
considerations, the effectiveness of our sales representatives
and distributors, local competition and changes in local medical
practice could also affect our sales to foreign markets.
Relationships with customers and effective terms of sale
frequently vary by country, often with longer-term receivables
than are typical in the United States.
Changes
in the healthcare industry may require us to decrease the
selling price for our products, may reduce the size of the
market for our products, or may eliminate a market, any of which
could have a negative impact on our financial
performance.
Trends toward managed care, healthcare cost containment and
other changes in government and private sector initiatives in
the United States and other countries in which we do business
are placing increased emphasis on the delivery of more
cost-effective medical therapies that could adversely affect the
sale and/or
the prices of our products. For example:
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|
|
|
|
major third-party payors of hospital services and hospital
outpatient services, including Medicare, Medicaid and private
healthcare insurers, annually revise their payment
methodologies, which can result in stricter standards for
reimbursement of hospital charges for certain medical procedures
or the elimination of reimbursement;
|
|
|
|
Medicare, Medicaid and private healthcare insurer cutbacks could
create downward price pressure on our products;
|
|
|
|
recently effected local Medicare coverage determinations will
eliminate reimbursement for certain of our matrix wound dressing
products in most regions, negatively affecting our market for
these products, and future determinations could eliminate
reimbursement for these products in other regions and could
eliminate reimbursement for other products;
|
|
|
|
potential legislative proposals have been considered that would
result in major reforms in the United States healthcare system
that could have an adverse effect on our business, including a
proposed excise tax on United States sales of medical devices,
which, if enacted in accordance with certain proposals in
pending legislation, could have a material adverse effect on our
earnings;
|
|
|
|
there has been a consolidation among healthcare facilities and
purchasers of medical devices in the United States who prefer to
limit the number of suppliers from whom they purchase medical
products, and these entities may decide to stop purchasing our
products or demand discounts on our prices;
|
|
|
|
we are party to contracts with group purchasing organizations,
which negotiate pricing for many member hospitals, that require
us to discount our prices for certain of our products and limit
our ability to raise prices for certain of our products,
particularly surgical instruments;
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|
|
there is economic pressure to contain healthcare costs in
domestic and international markets;
|
|
|
|
there are proposed and existing laws, regulations and industry
policies in domestic and international markets regulating the
sales and marketing practices and the pricing and profitability
of companies in the healthcare industry;
|
23
|
|
|
|
|
proposed laws or regulations that will permit hospitals to
provide financial incentives to doctors for reducing hospital
costs (known as gainsharing) and to award physician efficiency
(known as physician profiling) could reduce prices; and
|
|
|
|
there have been initiatives by third-party payors to challenge
the prices charged for medical products that could affect our
ability to sell products on a competitive basis.
|
Both the pressures to reduce prices for our products in response
to or despite these trends and the decrease in the size of the
market as a result of these trends could adversely affect our
levels of revenues and profitability of sales.
Oversight
of the medical device industry might affect the manner in which
we may sell medical devices.
There are laws and regulations that govern the means by which
companies in the healthcare industry may market their products
to healthcare professionals and may compete by discounting the
prices of their products, including for example, the federal
Anti-Kickback Statute, the federal False Claims Act, the federal
Health Insurance Portability and Accountability Act of 1996,
state law equivalents to these federal laws that are meant to
protect against fraud and abuse and analogous laws in foreign
countries. Violations of these laws are punishable by criminal
and civil sanctions, including, but not limited to, in some
instances civil and criminal penalties, damages, fines,
exclusion from participation in federal and state healthcare
programs, including Medicare and Medicaid. Although we exercise
care in structuring our sales and marketing practices and
customer discount arrangements to comply with those laws and
regulations, we cannot assure you that:
|
|
|
|
|
government officials charged with responsibility for enforcing
those laws will not assert that our sales and marketing
practices or customer discount arrangements are in violation of
those laws or regulations; or
|
|
|
|
government regulators or courts will interpret those laws or
regulations in a manner consistent with our interpretation.
|
In January 2004, AdvaMed, the principal United States trade
association for the medical device industry, put in place a
model code of conduct that sets forth standards by
which its members should abide in the promotion of their
products. AdvaMed issued a revised code of conduct
effective July 1, 2009. We have in place policies and
procedures for compliance that we believe are at least as
stringent as those set forth in the revised AdvaMed Code, and we
provide routine training to our sales and marketing personnel on
our policies regarding sales and marketing practices. Pursuant
to the revised AdvaMed Code, we have certified our adoption of
the revised AdvaMed Code. Nevertheless, the sales and marketing
practices of our industry have been the subject of increased
scrutiny from federal and state government agencies, and we
believe that this trend will continue. For example, proposed
federal legislation and recent state legislation would require
detailed disclosure of gifts and other remuneration made to
health care professionals. In addition, prosecutorial scrutiny
and governmental oversight, on the state and federal levels,
over some major device companies regarding the retention of
healthcare professionals as consultants has limited the manner
in which medical device companies may retain healthcare
professionals as consultants. We have in place policies to
govern how we may retain healthcare professionals as consultants
that reflect the current climate on this issue and provide
training on these policies. Finally, various hospital
organizations, medical societies and trade associations are
establishing their own practices that may require detailed
disclosures of relationships between healthcare professionals
and medical device companies or ban or restrict certain
marketing and sales practices such as gifts and business meals.
Our
private-label product lines depend significantly on key
relationships with third parties, which we could be unable to
establish and maintain.
Our private-label business depends in part on our entering into
and maintaining collaborative or alliance agreements with third
parties concerning product marketing, as well as research and
development programs. The third parties with whom we have
entered into agreements might terminate these agreements for a
variety of reasons, including developing other sources for the
products that we supply. Termination of any of our alliances
would require us to develop other means to distribute the
affected products and could adversely affect our expectations
for the growth of private-label products.
24
We may
have significant product liability exposure and our insurance
may not cover all potential claims.
We are exposed to product liability and other claims in the
event that our technologies or products are alleged to have
caused harm. We may not be able to obtain insurance for the
potential liability on acceptable terms with adequate coverage
or at reasonable costs. Any potential product liability claims
could exceed the amount of our insurance coverage or may be
excluded from coverage under the terms of the policy. Our
insurance may not be renewed at a cost and level of coverage
comparable to that then in effect.
We are
subject to requirements relating to hazardous materials which
may impose significant compliance or other costs on
us.
Our research, development and manufacturing processes involve
the controlled use of certain hazardous materials. In addition,
we own
and/or lease
a number of facilities at which hazardous materials have been
used in the past. Finally, we have acquired various companies
that historically have used certain hazardous materials and that
have owned
and/or
leased facilities at which hazardous materials have been used.
For all of these reasons, we are subject to federal, state,
foreign, and local laws and regulations governing the use,
manufacture, storage, handling, treatment, remediation, and
disposal of hazardous materials and certain waste products
(Environmental Laws). For example, our allograft
bone tissue processing may generate waste materials, which in
the United States, are classified as medical waste under
Environmental Laws. Although we believe that our procedures for
handling and disposing of hazardous materials comply with the
Environmental Laws, the Environmental Laws may be amended in
ways that increase our cost of compliance, perhaps materially.
Furthermore, the risk of accidental contamination or injury from
these materials cannot be eliminated, and there is also a risk
that such contamination previously has occurred in connection
with one of our facilities or in connection with one of the
companies we have purchased. In the event of such an accident,
or contamination we could be held liable for any damages that
result and any related liability could exceed the limits or fall
outside the coverage of our insurance and could exceed our
resources. We may not be able to maintain insurance on
acceptable terms or at all.
The
loss of key personnel could harm our business.
We believe our success depends on the contributions of a number
of our key personnel, including Stuart M. Essig, our President
and Chief Executive Officer. If we lose the services of key
personnel, those losses could materially harm our business. We
maintain key person life insurance on Mr. Essig and two
other members of management.
25
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our principal executive offices are located in Plainsboro, New
Jersey. Principal manufacturing and research facilities are
located in New Jersey, Massachusetts, Ohio, California,
Pennsylvania, Puerto Rico, United Kingdom, Ireland, France,
Germany and Mexico. Our instrument procurement operations are
located in Germany. Our primary distribution centers are located
in Nevada, New York, Ohio, Pennsylvania, France, Belgium, Canada
and Australia. In addition, we lease several smaller facilities
to support additional administrative, assembly, and distribution
operations. Third parties own and operate the facilities in
Nevada and Belgium. We lease all of our facilities other than
certain facilities in Ohio, and our facilities in Pennsylvania,
United Kingdom, and Biot, France, which we own. We also have
repair centers in California, Ohio, Massachusetts and Germany.
Our manufacturing facilities are registered with the FDA. Our
facilities are subject to FDA inspection to assure compliance
with Quality System regulations. We believe that our
manufacturing facilities are in substantial compliance with
Quality System regulations, suitable for their intended purposes
and have capacities adequate for current and projected needs for
existing products. Some capacity of the plants is being
converted, with any needed modification, to meet the current and
projected requirements of existing and future products.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Various lawsuits, claims and proceedings are pending or have
been settled by us. The most significant of these is described
below.
In May 2006, Codman & Shurtleff, Inc., a subsidiary of
Johnson & Johnson, commenced an action in the United
States District Court for the District of New Jersey for
declaratory judgment against us with respect to United States
Patent No. 5,997,895 (the 895 Patent)
held by us. Our 895 Patent describes dural repair
technology related to our
DuraGen®
family of duraplasty products. In August 2009, the parties
settled the litigation for an immaterial amount and entered into
covenants not to sue and mutual releases.
In January 2010, we received a notice from the sellers
representative of the former Theken companies of a disagreement
in the calculation of trade sales used in
calculating a revenue performance payment that we made in
November 2009. The notice alleges that we owe an additional
$6.7 million. We are reviewing this matter.
In addition to these matters, we are subject to various claims,
lawsuits and proceedings in the ordinary course of business,
including claims by current or former employees, distributors
and competitors and with respect to our products. 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 our financial condition. However, it is
possible that our results of operations, financial position and
cash flows in a particular period could be materially affected
by these contingencies.
26
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information, Holders and Dividends
Our common stock trades on The NASDAQ Global Market under the
symbol IART. The following table lists the high and
low sales prices for our common stock for each quarter for the
last two years:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Fourth Quarter
|
|
$
|
37.41
|
|
|
$
|
29.69
|
|
|
$
|
46.27
|
|
|
$
|
26.03
|
|
Third Quarter
|
|
$
|
36.20
|
|
|
$
|
24.77
|
|
|
$
|
49.89
|
|
|
$
|
42.76
|
|
Second Quarter
|
|
$
|
27.49
|
|
|
$
|
22.15
|
|
|
$
|
46.29
|
|
|
$
|
39.21
|
|
First Quarter
|
|
$
|
36.00
|
|
|
$
|
18.97
|
|
|
$
|
45.97
|
|
|
$
|
39.50
|
|
We have not paid any cash dividends on our common stock since
our formation. Our credit facility limits the amount of
dividends that we may pay. See Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources Senior Secured Revolving Credit
Facility. Any future determinations to pay cash dividends
on the common stock will be at the discretion of our Board of
Directors and will depend upon our results of operations, cash
flows, and financial condition and other factors deemed relevant
by the Board of Directors.
The number of stockholders of record as of February 24,
2010 was approximately 874, which includes stockholders whose
shares were held in nominee name.
Sales of
Unregistered Securities
The Company committed 310,000 unregistered shares of the
Companys common stock (of which 135,000 were issued on
December 22, 2008, with the remainder issued in January
2009), valued at $10.7 million, as part of the purchase
price for the acquisition of Omni-Tract. The shares of common
stock issued were offered and issued pursuant to a private
placement in reliance upon the exemption from registration
pursuant to Rule 506 under the Securities Act. Each person
to whom shares were issued (each, an Investor), is
an accredited investor as defined in
Rule 501(a) and each Investor has represented to the
Company that such Investor is acquiring the securities for
investment purposes for such Investors own account and not
with a view toward distribution of the securities. The Company
advised each Investor that the securities issued to them have
not been registered under the Securities Act and may not be sold
unless they are registered under the Securities Act or sold
pursuant to a valid exemption from registration under the
Securities Act. The certificates representing the shares of
common stock issued to the Investors contain a legend that such
shares of common stock have not been registered under the
Securities Act and state the restrictions on transfer and resale
as described above. Additionally, the Company did not engage in
any general solicitation or advertisement in connection with the
issuance of the above described shares of common stock.
Issuer
Purchases of Equity Securities
On October 30, 2007, our Board of Directors authorized us
to repurchase shares of our common stock for an aggregate
purchase price not to exceed $75.0 million through
December 31, 2008. We purchased 500,000 shares of our
common stock under this repurchase program during the three
months ended December 31, 2007. See Note 7,
Treasury Stock. On October 30, 2008, our Board
of Directors terminated the repurchase authorization it adopted
in October 2007 and authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed
$75.0 million through December 31, 2010. Shares may be
purchased either in the open market or in privately negotiated
transactions. We did not repurchase any shares of our common
stock in 2009 or 2008. As of December 31, 2009, there
remained $75.0 million available for share repurchases
under this authorization.
27
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The information set forth below should be read in conjunction
with Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this report. We have acquired numerous
businesses and product lines during the previous five years. As
a result of these acquisitions, the consolidated financial
results and balance sheet data for certain of the periods
presented below may not be directly comparable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
$
|
550,459
|
|
|
$
|
419,297
|
|
|
$
|
277,935
|
|
Costs and expenses(1)
|
|
|
584,663
|
|
|
|
607,193
|
|
|
|
483,171
|
|
|
|
360,553
|
|
|
|
221,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
97,824
|
|
|
|
47,411
|
|
|
|
67,288
|
|
|
|
58,744
|
|
|
|
56,105
|
|
Interest income (expense), net(2)
|
|
|
(22,596
|
)
|
|
|
(27,971
|
)
|
|
|
(23,561
|
)
|
|
|
(10,304
|
)
|
|
|
(265
|
)
|
Other income (expense), net
|
|
|
(2,076
|
)
|
|
|
(905
|
)
|
|
|
2,971
|
|
|
|
(2,010
|
)
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
73,152
|
|
|
|
18,535
|
|
|
|
46,698
|
|
|
|
46,430
|
|
|
|
55,101
|
|
Provision for (benefit from) income taxes
|
|
|
22,197
|
|
|
|
(9,192
|
)
|
|
|
20,949
|
|
|
|
18,108
|
|
|
|
17,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
$
|
25,749
|
|
|
$
|
28,322
|
|
|
$
|
37,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
|
$
|
0.86
|
|
|
$
|
0.96
|
|
|
$
|
1.15
|
|
Weighted average common shares outstanding for diluted net
income per share(3)
|
|
|
29,292
|
|
|
|
28,378
|
|
|
|
29,373
|
|
|
|
32,685
|
|
|
|
34,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents
|
|
$
|
71,891
|
|
|
$
|
183,546
|
|
|
$
|
57,339
|
|
|
$
|
22,697
|
|
|
$
|
46,889
|
|
Marketable securities(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,495
|
|
Total assets
|
|
|
940,102
|
|
|
|
1,026,014
|
|
|
|
819,788
|
|
|
|
613,618
|
|
|
|
448,432
|
|
Long-term borrowings under senior credit facility(5)
|
|
|
160,000
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(5)
|
|
|
148,754
|
|
|
|
299,480
|
|
|
|
286,742
|
|
|
|
508
|
|
|
|
118,378
|
|
Retained earnings
|
|
|
167,161
|
|
|
|
116,206
|
|
|
|
89,368
|
|
|
|
65,251
|
|
|
|
36,929
|
|
Stockholders equity
|
|
|
444,885
|
|
|
|
372,309
|
|
|
|
287,594
|
|
|
|
301,783
|
|
|
|
289,818
|
|
|
|
|
(1) |
|
In 2008, we recorded an in-process research and development
charge of $25.2 million in connection with the Integra
Spine acquisition and, we also recorded an $18.0 million
stock-based compensation charge related to restricted stock
units that were vested on the date of grant. In 2007 and 2006,
we recorded similar in process research and development charges
of $4.6 million for the IsoTis acquisition, and
$5.9 million for the KMI acquisition, respectively. |
|
(2) |
|
On January 1, 2009, we adopted the authoritative guidance
for accounting for convertible debt instruments that may be
settled in cash upon conversion (FSP APB
14-1).
The guidance requires that the liability and equity components
of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) be separately
accounted for in a manner that reflects an issuers
nonconvertible debt borrowing rate. Furthermore, the guidance
requires retrospective application to all periods presented. The
adoption of the guidance changed the historical accounting for
our convertible senior notes. Accordingly, the financial
statements included herein have been previously restated to
reflect retroactive adoption. |
28
|
|
|
(3) |
|
Effective January 1, 2009, the Company adopted the
authoritative guidance for determining whether instruments
granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included
in the earnings allocation in computing EPS under the two-class
method and the guidance requires retrospective application for
all periods presented. Under the guidance, the Companys
unvested share-based payment awards, which contain
non-forfeitable rights to dividends, whether paid or unpaid, are
considered to be participating securities and are now included
in the computation of EPS pursuant to the two-class method. |
|
(4) |
|
In 2006, all marketable securities were liquidated. |
|
(5) |
|
In 2003, we issued $120.0 million of 2.5% contingent
convertible subordinated notes due 2008. The net proceeds
generated by the notes, after expenses, were
$115.9 million. In 2006, we exchanged $119.5 million
of these notes for the equivalent amount of new notes. Because
the closing price of our stock at the issuance date was higher
than the market price trigger of the new notes, the new notes
were classified as a current liability. In March 2008, these
notes matured and we repaid the principal amount in cash and
issued approximately 768,000 shares of our common stock.
Additionally in 2008 and 2009, we classified $160.0 million
of our senior credit facility borrowings as long-term debt based
on our current intent and ability to repay. In 2007, we issued
$165.0 million of 2.75% senior convertible notes due
2010 (the 2010 Notes) and $165.0 million of
2.375% senior convertible notes due 2012 (the 2012
Notes and, collectively with the 2010 Notes, the
Notes). We expect to satisfy any conversion of the
notes with cash up to the principal amount of the applicable
series of notes pursuant to the net share settlement mechanism
set forth in the applicable indenture and, with respect to any
excess conversion value, with shares of our common stock. At
December 31, 2009, we have $160.0 million outstanding
on our senior credit facility. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis of our financial condition
and results of operations should be read together with the
selected consolidated financial data and our financial
statements and the related notes appearing elsewhere in this
report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of many factors,
including but not limited to those under the heading Risk
Factors.
GENERAL
Integra is a market-leading, innovative medical device company
focused on helping the medical professional enhance the standard
of care for patients. Integra provides customers with clinically
relevant, innovative and cost-effective products that improve
the quality of life for patients. We focus on cranial and spinal
procedures, small bone and joint injuries, the repair and
reconstruction of soft tissue, and instruments for surgery.
We present revenues in three market categories: Orthopedics,
NeuroSciences and Medical Instruments. Our orthopedics products
include specialty metal implants for surgery of the extremities
and spine, orthobiologics products for repair and grafting of
bone, dermal regeneration products and tissue-engineered wound
dressings and nerve and tendon repair products. Our
neurosciences products group includes, among other things, dural
grafts that are indicated for the repair of the dura mater,
ultrasonic surgery systems for tissue ablation, cranial
stabilization and brain retraction systems, systems for
measurement of various brain parameters and devices used to gain
access to the cranial cavity and to drain excess cerebrospinal
fluid from the ventricles of the brain. Our medical instruments
products include a wide range of specialty and general surgical
and dental instruments and surgical lighting for sale to
hospitals, outpatient surgery centers, and physician,
veterinarian and dental practices.
We manage these product groups and distribution channels on a
centralized basis. Accordingly, we report our financial results
under a single operating segment the development,
manufacture and distribution of medical devices.
29
We manufacture many of our products in plants located in the
United States, Puerto Rico, France, Germany, Ireland, the United
Kingdom and Mexico. We also source most of our handheld surgical
instruments and specialty metal implants through specialized
third-party vendors.
In the United States, we have three sales channels. Within the
Integra Orthopedics sales channel, we sell through a large sales
organization. Integra NeuroSciences sells products through
directly-employed sales representatives. The Integra Medical
Instruments sales channel sells directly and through
distributors and wholesalers.
We also market certain products through strategic partners.
Our objective is to continue to build a customer-focused and
profitable medical device company by developing or acquiring
innovative medical devices and other products to sell through
our sales channels. Our strategy entails substantial growth in
revenues through both internal means by launching
new and innovative products and selling existing products more
intensively and by acquiring existing businesses or
already successful product lines.
We aim to achieve this growth in revenues while maintaining
strong financial results. While we pay attention to any
meaningful trend in our financial results, we pay particular
attention to measurements that are indicative of long-term
profitable growth. These measurements include revenue growth
(derived through acquisitions and products developed
internally), gross margins on total revenues, operating margins
(which we aim to continually expand as we leverage our existing
infrastructure), operating cash flows (which we aim to increase
through improved working capital management), and earnings per
diluted share of common stock.
We believe that we are particularly effective in the following
aspects of our business:
|
|
|
|
|
Developing metal implants for bone and joint repair, fixation
and fusion. Through acquisitions, particularly
those of Integra Spine in 2008 and Newdeal Technologies SAS in
2005, we have acquired significant expertise in developing metal
implants for use in bone and joint repair, fixation and fusion
and in successfully bringing those products to market.
|
|
|
|
Developing, manufacturing and selling specialty regenerative
technology products. We have a broad technology
platform for developing products that regenerate or repair soft
tissue and bone. We believe that we have a particular advantage
in developing, manufacturing and selling tissue repair products
derived from bovine collagen. These products comprised 22%, 22%
and 24% of revenues in the years ended December 31, 2009,
2008 and 2007, respectively.
|
|
|
|
Acquiring and integrating new product lines and complementary
businesses. Since 2007, we have acquired and
integrated more than 10 product lines or businesses through a
disciplined acquisition program that focuses on acquiring
companies or product lines at reasonable valuations which
complement our existing product lines or can be used to leverage
our broad technology platform in tissue regeneration and metal
implants. We also employ a seasoned team of managers and
executives who are quite adept at successfully integrating the
acquired product lines and businesses.
|
ACQUISITIONS
Our strategy for growing our business includes the acquisition
of complementary product lines and companies. Our recent
acquisitions of businesses, assets and product lines may make
our financial results for the year ended December 31, 2009
not directly comparable to those of the corresponding prior year
periods. See Note 3, Acquisitions, to the
financial statements for a further discussion. Additionally, our
implementation of the authoritative guidance for business
combinations that became effective on January 1, 2009
significantly changes the accounting for business combinations
by requiring that we expense most transaction and restructuring
costs as they are incurred, whereas we previously capitalized
such costs if certain criteria were met, and capitalize the fair
value
30
of acquired research and development assets, whereas we
previously determined the acquisition-date fair value and then
immediately charged the value to expense.
From January 2007 through December 2009, we have acquired the
following businesses, assets and product lines:
In December 2009, we acquired certain assets as well as the
distribution rights for our
Newdeal®
product lines in the United Kingdom from Athrodax Healthcare
International Ltd. (Athrodax), for approximately
$3.3 million (2.0 million British Pounds) in cash,
subject to certain working capital adjustments. For the previous
10 years Athrodax had been our distributor of extremity
reconstruction products in the United Kingdom. The acquisition
provides us with the opportunity to become closer to our United
Kingdom customers and includes an experienced sales team in the
foot and ankle surgery market that had successfully developed
our brand in the United Kingdom.
In August 2009, we acquired certain assets and liabilities of
Innovative Spinal Technologies, Inc. (IST) for
approximately $9.3 million in cash and $0.2 million in
acquisition expenses. IST had filed for Chapter 7
bankruptcy protection in May 2009 and the acquisition results
from an auction process that the bankruptcy trustee conducted
and that a U.S. Bankruptcy Judge for the District of
Massachusetts approved. ISTs focus was on spinal implant
products related to minimally invasive surgery and motion
preservation techniques. We acquired three product lines,
various product development assets for posterior dynamic
stabilization, various patents and trademarks, inventory, and we
assumed certain of ISTs patent license agreements and
related obligations. The assets and liabilities acquired did not
meet the definition of a business under the authoritative
guidance for business combinations. Accordingly, the assets and
liabilities have been recognized at cost and the acquired
in-process research and development was immediately charged to
expense.
In December 2008, we acquired Minnesota Scientific, Inc., doing
business as Omni-Tract Surgical (Omni-Tract), for
$6.4 million in cash paid at closing, 310,000 unregistered
shares of our common stock valued at $10.7 million (of
which 135,000 shares were issued at closing, with the
remainder issued in January 2009), and $0.3 million in
transaction related costs, subject to certain adjustments. At
the time of acquisition, Omni-Tract was a global leader in the
development and manufacture of table-mounted retractors and is
based in St. Paul, Minnesota. Omni-Tract markets and sells these
retractor systems for use in vascular, bariatric, general,
urologic, orthopedic, spine, pediatric, and laparoscopic
surgery. We integrated Omni-Tracts product lines into our
combined offering of
Jarit®,
Padgett®,
R&B
Redmondtm,
and
Luxtec®
lines of surgical instruments and illumination systems sold by
the Integra Medical Instruments sales organization.
In October 2008, we acquired Integra Neurosciences Pty Ltd. in
Australia and Integra Neurosciences Pty Ltd. in New Zealand
(collectively, Integra Neurosciences Pty Ltd.) for
$4.0 million (6.0 million Australian dollars) in cash
at closing, $0.3 million in acquisition expenses and
working capital adjustments, and up to $2.1 million
(3.1 million Australian dollars) in future payments based
on the performance of business in the three years after closing.
We paid approximately $0.9 million (1.0 million
Australian dollars) of this performance obligation in December
2009. With this acquisition of the Companys long-standing
distributor, the Company has a direct selling presence in
Australia and New Zealand.
In August 2008, we acquired Theken Spine, LLC, Theken Disc, LLC
and Therics, LLC (collectively, Integra Spine) for
$75.0 million in cash, subject to certain adjustments,
acquisition expenses of $2.4 million, working capital
adjustments of $3.9 million, and up to $125.0 million
in future payments based on the revenue performance of the
business in the two years after closing. We paid approximately
$52.0 million of this potential revenue performance
obligation in November 2009. Integra Spine, based in Akron,
Ohio, designs, develops and manufactures spinal fixation
products, synthetic bone substitute products and spinal
arthroplasty products. With Integra Spine, we acquired a unique
and comprehensive portfolio of spinal implant products with a
robust technology pipeline, demonstrated product development
capacity, an established network of spinal hardware distributors
with established access to the orthopedic spine market, and a
strong management team with extensive experience in the
orthopedic spine market. Integra Spine does not currently sell
its products outside of the United States. Accordingly, we
expect the business to benefit from Integras large
international presence.
31
In December 2007, we acquired all of the outstanding stock of
the Precise Dental family of companies (Precise) for
$10.5 million in cash, subject to certain adjustments and
acquisition expenses of $0.6 million. At the time of
acquisition, the Precise Dental family of companies developed,
manufactured, procured, marketed and sold endodontic materials
and dental accessories, including the manufacture of absorbable
paper points, gutta percha and dental mirrors. Together these
companies had procurement and distribution operations in Canoga
Park, California and manufacturing operations at multiple
locations in Mexico. In 2008, we integrated the acquired Canoga
Park procurement and distribution functions into our York,
Pennsylvania dental operations. We continue to manage the
manufacturing operations in Mexico.
In October 2007, we acquired all of the outstanding stock of
IsoTis, Inc. and its subsidiaries (IsoTis), a leader
in regenerative medicine, for $64.0 million in cash,
subject to certain adjustments and acquisition expenses of
$4.7 million. IsoTis, based in Irvine, California, brought
to Integra a comprehensive family of orthobiologic products and
an established network of distributors focusing on orthopedic
surgeons. IsoTis develops, manufacturers and markets proprietary
products for the treatment of musculoskeletal diseases and
disorders. IsoTis orthobiologics products are bone graft
substitutes that promote the regeneration of bone and are used
to repair natural, trauma-related and surgically-created defects
common in orthopedic procedures, including spinal fusions. The
Accell®
line of products represents the next generation in bone graft
substitution. By integrating the IsoTis products with
Integras own osteoconductive scaffold product line, we
strengthened our position as a global leader in orthobiologics.
In May 2007, we acquired certain assets of the pain management
business of Physician Industries, Inc. (Physician
Industries) for approximately $4.0 million in cash,
subject to certain adjustments and acquisition expenses of
$0.1 million. In addition, we may pay additional amounts
over the next four years depending on the performance of the
business. At the time of acquisition, Physician Industries,
located in Salt Lake City, Utah, assembled, marketed, and sold a
comprehensive line of pain management products for acute and
chronic pain, including customized trays for spinal, epidural,
nerve block, and biopsy procedures. The Physician Industries
business has been combined with our similar Spinal Specialties
product line and the products are sold under the name Integra
Pain Management.
In May 2007, we acquired the shares of LXU Healthcare, Inc.
(LXU) for $30.0 million in cash paid at closing
and $0.5 million of acquisition-related expenses. LXU was
based in West Boylston, Massachusetts, and was comprised of
three distinct businesses: the market-leading manufacturer of
fiber optic headlight systems for the medical industry; a
leading specialty surgical products distributor which had a
sales force calling on surgeons and key clinical decision
makers; and a critical care products distributor which had
direct sales coverage in the southeastern United States.
We have integrated the LXU Medical sales force and distributor
network with the Integra Medical Instruments sales and
distribution organization. As was the intention at the time of
the acquisition, we subsequently wound down LXUs Bimeco
business and discontinued many of the LXU Medical distributed
product lines, which were not aligned with our core strategy.
In January 2007 we acquired the
DenLite®
product line from Welch Allyn in an asset purchase for
$2.2 million in cash paid at closing and approximately
$35,000 of acquisition-related expenses.
DenLite®
is a lighted mouth mirror used in dental procedures.
RESTRUCTURING,
INTEGRATION, AND MANUFACTURING AND DISTRIBUTION TRANSFER AND
EXPANSION ACTIVITIES
Because of our ongoing acquisition strategy and significant
growth in recent years, we have undertaken many cost-saving
initiatives to consolidate manufacturing and distribution
facilities and activities, implement a global enterprise
resource planning system, eliminate duplicative positions, and
realign various sales and marketing activities, and to expand
and upgrade production capacity for our collagen-based products.
In 2008, we transferred the assembly of our Spinal Specialties
brand of customized pain management kits from our
San Diego, California manufacturing facility to our pain
management kit assembly facility in Salt Lake City, Utah that
was included in the assets acquired from Physician Industries,
Inc. in May 2007. Additionally, in January
32
2008, we completed the integration of the LXU Healthcare
acquisition and closed its administrative facility in Tucson,
Arizona.
During 2007, we expanded our collagen manufacturing capacity in
our Puerto Rico plant and, in 2008 we transferred certain
manufacturing processes of some of our collagen-based product
lines from our Plainsboro plant to the Puerto Rico plant. In
connection with the acquisition of IsoTis, we closed the IsoTis
facilities in Lausanne, Switzerland and Bilthoven, Netherlands,
eliminated various sales, marketing and administrative positions
in Europe and reduced various duplicative positions in Irvine,
California. In connection with the acquisition of Precise
Dental, we closed its facility in Canoga Park, California and
integrated Precises procurement and distribution
operations into our York, Pennsylvania dental operations. In
2007 we also closed the Alabama distribution facility acquired
in the LXU Healthcare acquisition.
In connection with these restructuring activities, we recorded
$0.4 million and $0.5 million in 2009 and 2008,
respectively, for the estimated costs of employee termination
benefits to be provided to the affected employees and related
facility exit costs.
While we expect a positive impact from ongoing restructuring,
integration and manufacturing transfer and expansion activities,
such results remain uncertain.
RESULTS
OF OPERATIONS
Net income in 2009 was $51.0 million, or $1.74 per diluted
share, as compared to $27.7 million, or $0.96 per diluted
share in 2008, and $25.7 million, or $0.86 per diluted
share in 2007.
33
Special
Charges
Income before taxes for 2009, 2008 and 2007 include the
following special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
SPECIAL CHARGES
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development
|
|
$
|
277
|
|
|
$
|
25,240
|
|
|
$
|
4,600
|
|
Stock-based compensation charge from renewal of Chief Executive
Officers employment agreement and other related charges
|
|
|
|
|
|
|
18,356
|
|
|
|
|
|
Inventory fair market value purchase accounting adjustments
|
|
|
4,611
|
|
|
|
6,667
|
|
|
|
4,238
|
|
Impairment of inventory and other assets related to discontinued
or withdrawn product lines
|
|
|
246
|
|
|
|
1,207
|
|
|
|
2,806
|
|
Incremental professional and bank fees related to
(a) the delayed filing of financial statements and
(b) waivers or possibility of obtaining waivers under our
revolving credit facility
|
|
|
350
|
|
|
|
1,041
|
|
|
|
1,389
|
|
Facility consolidation, manufacturing and distribution transfer,
and system integration costs
|
|
|
768
|
|
|
|
1,035
|
|
|
|
1,106
|
|
Involuntary employee termination costs
|
|
|
674
|
|
|
|
|
|
|
|
(388
|
)
|
Other acquisition-related costs
|
|
|
712
|
|
|
|
346
|
|
|
|
|
|
Charges related to litigation matters or disputes
|
|
|
(254
|
)
|
|
|
437
|
|
|
|
|
|
Charges recorded in connection with terminating defined benefit
plans
|
|
|
|
|
|
|
372
|
|
|
|
|
|
Intangible asset impairment charges
|
|
|
1,519
|
|
|
|
|
|
|
|
1,688
|
|
Non-cash interest expense related to the application of the
current convertible debt accounting guidance
|
|
|
9,900
|
|
|
|
12,471
|
|
|
|
13,364
|
|
Foreign exchange loss on intercompany loan(1)
|
|
|
1,876
|
|
|
|
|
|
|
|
|
|
Gain related to early extinguishment of convertible notes
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,210
|
|
|
$
|
67,172
|
|
|
$
|
28,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This foreign exchange loss is associated with our intercompany
loan set up in connection with the restructuring of a German
subsidiary in the fourth quarter of 2008. Net income for 2009
and prior periods includes foreign exchange gains and losses
associated with intercompany loans not related to any
restructuring. |
Of these amounts, $7.2 million, $8.8 million, and
$8.7 million were charged to cost of product revenues for
the years ended December 31, 2009, 2008 and 2007,
respectively, $0.6 million, $25.2 million, and
$4.6 million were charged to research and development
expense for the same periods, and $1.2 million,
$20.7 million, and $1.7 million were charged to
selling, general and administrative expenses for the same
periods. The remaining amounts were primarily charged to
amortization expense, interest expense and other expense.
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, against the
business model objectives established by management, and against
other companies in our industry. We provide this information to
investors so 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 their valuation of Integra.
Special charges are typically defined as charges for which the
amounts
and/or
timing of such expenses may vary significantly from
period-to-period,
depending upon our acquisition, integration, and restructuring
activities, or for which the amounts are not expected to recur
at the same magnitude as we further expand our finance
department and implement certain tax planning strategies. We
believe that, given our ongoing strategy of seeking
34
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, certain of the special charges discussed
above could recur with similar materiality in the future.
Beginning in 2010, we expect to invest significant resources and
funds over the next few years in expanding the global
implementation of a single enterprise resource planning system.
A substantial portion of those costs will be capitalized;
however, a portion of those costs will be recorded as operating
expenses.
Total
Revenues and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Integra Orthopedics
|
|
$
|
262,170
|
|
|
$
|
217,953
|
|
|
$
|
143,917
|
|
Integra NeuroSciences
|
|
|
256,544
|
|
|
|
256,869
|
|
|
|
242,631
|
|
Integra Medical Instruments
|
|
|
163,773
|
|
|
|
179,782
|
|
|
|
163,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
682,487
|
|
|
|
654,604
|
|
|
|
550,459
|
|
Cost of product revenues
|
|
|
244,918
|
|
|
|
252,826
|
|
|
|
214,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
437,569
|
|
|
$
|
401,778
|
|
|
$
|
335,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of revenues
|
|
|
64
|
%
|
|
|
61
|
%
|
|
|
61
|
%
|
In 2009, total revenues increased $27.9 million, or 4%,
over 2008 to $682.5 million. Sales of products acquired
since the beginning of 2008 comprised approximately
$39.8 million of this increase, and changes in foreign
currency exchange rates had a $7.6 million unfavorable
effect on 2009 revenues.
Orthopedics revenues increased $44.2 million to
$262.1 million, or 20%. Sales of our spine implants from
our August 2008 Integra Spine acquisition provided most of the
year-over-year
growth as sales of extremity reconstruction products for
skin/wound, mid/hindfoot, and upper extremity applications, and
orthobiologics products grew within our expectations.
NeuroSciences revenues decreased $0.3 million, or less than
1%, to $256.5 million. Reduced capital spending by
hospitals negatively affected sales of our image-guided surgery
and stereotactic radio surgery systems and neuro monitoring
equipment. This was offset by increased revenues from implants,
particularly our
DuraGen®
family of products.
Medical Instruments revenues decreased $16.0 million, or
9%, to $163.8 million. We continued to eliminate
distributed lines, and discontinued our OEM surgical lighting
business. Sales of hospital-based instruments increased as a
result of the acquisition of Omni-Tract in December 2008, but
all other lines were down.
In 2008, total revenues increased $104.1 million, or 19%,
over 2007 to $654.6 million. Sales of products acquired
since the beginning of 2007 constituted approximately
$86.2 million of this increase, and changes in foreign
currency exchange rates had a $5.6 million favorable effect
on 2008 revenues. Sales of our extremity reconstruction
implants,
Integratm
dermal repair products and Integra
Mozaiktm
osteoconductive scaffold for spinal fusion contributed
significantly to revenue growth in 2008 and increased in excess
of 20% over 2007. This growth resulted primarily from the
continued expansion of our direct sales force. Modest increases
in sales of our intracranial monitoring systems,
DuraGen®
family of dural repair products,
MAYFIELD®
cranial stabilization systems,
Jarit®
line of handheld surgical instruments, and image-guided surgery
and stereotactic radio surgery system primarily drove the
remainder of the growth in revenues in 2008.
With our global reach, we generate revenues in multiple foreign
currencies, including euros, British pounds, Swiss francs,
Canadian dollars, Japanese yen and Australian dollars.
Accordingly, we will experience currency exchange risk with
respect to those foreign currency denominated revenues.
We have generated our revenue growth primarily through
acquisitions. We expect to drive future revenue growth by
continuing to launch new products, acquiring businesses and
products that can be sold through our existing sales
organizations, gaining additional market share through the
expansion of our Integra Extremity
35
Reconstruction and Integra Spine sales organizations in the
United States and by the introduction of our spine products
internationally through our European direct sales channel and
distribution network. We also expect to leverage the
distribution channels of our Integra Spine and OrthoBiologics
sales organizations to broaden our access to spine surgeons. We
believe that the biggest opportunities for revenue growth exist
in the extremity reconstruction and spine markets.
We expect that slower growth in spending by hospitals on capital
equipment and the occurrence of fewer elective surgical
procedures in the current global economic environment will
continue to temper sales growth in the short term. That said, we
do expect these factors to produce a benefit to our gross margin
as a percentage of revenue because most of the related products
tend to generate lower gross margins as compared to our other
products. While most of our products are not used in elective
surgical procedures, approximately 10% of our revenues in 2009
consisted of sales of capital equipment, and, as global economic
conditions improve, hospital spending on capital equipment is
expected to grow modestly in 2010. Adjusted for the full year
effect of acquisitions, revenues related to products used in
non-elective surgical procedures are expected to see slightly
higher growth in 2010 over 2009 as we continue to expand market
share in our orthopedics markets.
Gross margin as a percentage of revenues was 64% in 2009, 61% in
2008 and 61% in 2007. This increase results from a higher
proportion of product sales coming from higher margin implants,
particularly products for spine and extremity reconstruction, in
combination with reduced sales of lower margin instruments,
distributed and capital products in 2009. Cost of product
revenues in 2009, 2008 and 2007, respectively, included
$4.6 million, $6.7 million and $4.2 million in
fair value inventory purchase accounting adjustments recorded in
connection with acquisitions. The following charges negatively
affected our gross margin: in 2009, $0.9 million
technology-related intangible asset impairments; in 2008,
$1.2 million associated with discontinued or withdrawn
product lines; and, in 2007, $2.8 million associated with
discontinued or withdrawn product lines and $0.8 million
technology-related intangible asset impairments. In 2009, 2008
and 2007, respectively, cost of product revenues included
$6.6 million, $4.8 million and $4.2 million of
intangible asset amortization for technology-based intangible
assets.
In 2010, we expect our consolidated gross margin to increase
because we expect sales of our higher gross margin metal and
biomaterial implant products, particularly those from our
orthopedic lines, to continue to increase as a proportion of
total revenues. We expect to invest a portion of the gross
margin improvements in capital and operating expenses related to
a significant increase in collagen production capacity in 2010
and 2011, and minimizing our risk exposure to single source
suppliers in our procurement and manufacturing processes.
Although we continuously identify and implement programs to
reduce costs at our manufacturing plants and to manage our
inventory more efficiently, gross margin improvements in our
business are expected to continue primarily from changes in the
sales mix.
Other
Operating Expenses
The following is a summary of other operating expenses as a
percent of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Research and development
|
|
|
6
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
Selling, general and administrative
|
|
|
41
|
%
|
|
|
43
|
%
|
|
|
41
|
%
|
Intangible asset amortization
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
RESEARCH AND DEVELOPMENT. Research and
development expenses decreased to $44.3 million in 2009,
compared to $60.5 million in 2008 and increased from
$30.7 million in 2007. Research and development expenses in
2009, 2008 and 2007, respectively, included $0.3 million,
$25.2 million and $4.6 million of in-process research
and development charges related to the IST, Integra Spine and
IsoTis acquisitions, respectively. Excluding the in-process
research and development charges, the net increase of
$8.7 million in 2009 arose largely from the full year
effect of the acquisitions of Integra Spine and Omni-Tract, with
the balance of the increase related to increased head count and
project expenditures focused on orthopedic product development
and other regulatory activities.
In 2008, research and development expenses as a percentage of
revenue increased three percentage points to 9%. The
$29.8 million increase to $60.5 million resulted
largely from the $25.2 million (approximately 4% of
revenue) in-process research and development charge recorded in
connection with the Integra Spine acquisition.
36
The remaining increase primarily derives from ongoing expenses
from the Integra Spine business, from owning the IsoTis business
for a full year in 2008, and from increased spending on our
DuraGen
Plus®
Adhesion Barrier Matrix clinical trial.
The $25.2 million in-process research and development
charge recorded in connection with the Integra Spine acquisition
represents the estimated fair value of acquired development
projects that had not yet reached technological feasibility and
had no alternative future use. We determined the fair value of
this in-process research and development by estimating the costs
to develop the acquired technology into commercially viable
products and estimating the net present value of the resulting
net cash flows from these projects. These cash flows represent
our best estimates of revenue, cost of sales, research and
development costs, selling, general and administrative costs and
income taxes from the development projects. The following is a
summary of the estimates used to calculate the net cash flows
for the projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
|
|
Year Net Cash
|
|
Including Factor
|
|
|
|
|
In-Flows
|
|
to Account for
|
|
Acquired In-
|
|
|
Expected to
|
|
Uncertainty of
|
|
Process Research
|
Project
|
|
Begin
|
|
Success
|
|
and Development
|
|
eDisc artificial lumbar disc
|
|
|
2013
|
|
|
|
23
|
%
|
|
$
|
13.0 million
|
|
eDisc artificial cervical disc
|
|
|
2016
|
|
|
|
23
|
%
|
|
|
7.2 million
|
|
Spinal fixation implants
|
|
|
2009
|
|
|
|
15
|
%
|
|
|
4.7 million
|
|
All other
|
|
|
2009
|
|
|
|
15
|
%
|
|
|
0.3 million
|
|
Currently, we are reassessing our original plans with respect to
the development of the eDisc products. Of the 13 implant systems
in development at the time of the Integra Spine acquisition, 11
were successfully launched and two are still in development.
We continuously monitor our research and development projects.
We believe that the assumptions used in the valuation of these
acquired development projects represent a reasonably reliable
estimate of the future benefits attributable to the acquired
in-process research and development. We cannot assure you that
actual results will not deviate from those assumptions in future
periods.
Excluding acquisition-related and other special charges, we
target future spending on research and development to be between
6% and 7% of total revenues. We are concentrating most of our
planned spending for 2010 on product development efforts for our
spine, neurosurgery and extremity reconstruction product lines,
for which we have more than 50 active development projects
planned. We do not generally invest in product development for
the majority of our hand-held surgical instruments.
SELLING, GENERAL AND ADMINISTRATIVE. In 2009,
selling, general and administrative expenses as a percentage of
revenue decreased two percentage points to 41%. The
$0.1 million increase in 2009 to $281.1 million was
offset by an $18.0 million stock-based compensation charge
recorded in connection with the renewal of our chief executive
officers employment agreement in 2008. Excluding the
effect of the compensation charge, our selling, general and
administrative expenses increased $18.1 million in 2009
primarily from a full year of our Integra Spine, Omni-Tract and
Integra Neurosciences Pty Ltd. acquisitions, which accounted for
an increase of $19.2 million. Integra Spine, in particular,
has substantially higher selling expense as a percentage of
revenue than most of our product lines.
In 2008, selling, general and administrative expenses as a
percentage of revenue increased two percentage points to 43%
over the prior year. The $55.8 million increase in 2008 to
$281.0 million reflected the $18.0 million
(approximately 3% of revenue) non-cash, stock-based compensation
charge recorded in connection with the renewal of our chief
executive officers employment agreement and additional
increases from a significant expansion of our corporate staff,
particularly in our finance department, to address multiple
material weaknesses in our internal controls over financial
reporting, $11.3 million of ongoing operating expenses from
the acquired Integra Spine business, from owning the businesses
acquired in 2007 for a full year in 2008, increased expenses
associated with headcount expansion in our European headquarters
in Lyon, France and from the higher sales commission structure
of the Integra Spine distribution channel. In the fourth quarter
of 2008, we reduced approximately $4.6 million of cash
bonuses that had been accrued through the first three quarters
of the year
37
because we decided not to pay cash bonuses for 2008 to most of
our employees. Based on our improved outlook on the state of the
economy and the stability of credit markets, we have accrued
cash bonuses for most of our employees in 2009.
For 2009, 2008 and 2007, respectively, we reported
$15.0 million, $31.7 million (inclusive of a
stock-compensation charge and related expenses of
$18.4 million relating to grants made in connection with
the renewal of our CEOs employment agreement), and
$14.3 million of stock-based compensation charges in
selling, general and administrative expenses.
For 2010, we expect that the increase in our Orthopedics
revenues relative to our total revenue will result in higher
selling and marketing costs, as the selling model relies on
distribution with relatively high commission costs compared to
our direct sales forces and as we focus on these high-growth,
high-margin opportunities. In addition, we also expect to focus
on new initiatives related to upgrading our enterprise resource
planning system. Excluding special charges, we target future
selling, general and administrative expenses at between 40% and
42% of revenues.
Additionally, the implementation of the guidance for business
combinations that became effective on January 1, 2009 could
result in an increase in future selling, general and
administrative and other operating expenses, depending upon the
extent of our acquisition-related activities going forward. This
guidance changed the practice for accounting for business
combinations, such as requiring that we (1) expense
transaction costs as incurred, rather than capitalizing them as
part of the purchase price; (2) record contingent
consideration arrangements and pre-acquisition contingencies,
such as legal issues, at fair value at the acquisition date,
with subsequent changes in fair value recorded in the income
statement; (3) capitalize the fair value of acquired
research and development assets, whereas we previously
determined the acquisition-date fair value and then immediately
charged the value to expense; and (4) limit the conditions
under which restructuring expenses can be accrued in the opening
balance sheet of a target to only those where certain
requirements would have been met at the acquisition date.
INTANGIBLE ASSET AMORTIZATION. In 2009,
amortization expense (excluding amounts reported in cost of
product revenues for technology-based intangible assets)
increased $1.5 million to $14.4 million, resulting
from amortization on intangible assets acquired through our
business acquisitions and $0.6 million of impairment
charges recorded against certain tradename intangible assets. In
2008, amortization expense (excluding amounts reported in cost
of product revenues) increased to $12.9 million because of
amortization on intangible assets acquired through our business
acquisitions.
Including the impact of intangible assets acquired in 2009, we
expect total annual amortization expense (including amounts
reported in cost of product revenues) to be approximately
$17.0 million in 2010, $16.7 million in 2011,
$16.4 million in 2012, $13.8 million in 2013,
$12.8 million in 2014, and $84.5 million thereafter.
Non-Operating
Income and Expenses
We recorded interest income on our invested cash of
$0.6 million, $2.1 million $3.6 million in 2009,
2008 and 2007, respectively. Interest income decreased in 2009
because of lower yields on invested cash and cash equivalents.
Interest expense was $23.2 million, $30.1 million and
$27.1 million in 2009, 2008 and 2007, respectively, in
connection with our convertible notes and credit facility. The
expense was primarily associated with the principal amount of
the outstanding 2010 Notes, the 2012 Notes, the 2008 Notes and
interest and fees related to our $300.0 million senior
secured credit facility. Interest expense included in these
amounts from the non-cash amortization of imputed interest as a
result of the adoption of FSP APB
14-1 was
$10.4 million, $12.5 million and $13.4 million,
respectively.
The interest expense related to cash interest in connection with
the Notes decreased in 2009 due to the reduced principal amount
of our 2010 Notes during the year, from $165.0 million at
December 31, 2008, to $77.9 million at
December 31, 2009. Non-cash amortization of imputed
interest related to the adoption of FSP APB
14-1
decreased for the same reason. Interest expense to be paid on
our credit facility decreased primarily as a result of lower
interest rates in existence in 2009 relative to 2008 as well as
to a decrease in the balance on the facility, from
$260.0 million at December 31, 2008 to
$160.0 million at December 31, 2009.
38
The increase in interest expense in 2008 resulted from a full
year of interest expense and related amortization of imputed
interest associated with the $330.0 million of the 2010 and
2012 Notes that we issued in June 2007 and increased borrowings
under our credit facility. These were offset by a decrease in
interest expense and related amortization of imputed interest
associated with the $120.0 million of the 2008 Notes that
matured or were converted in March 2008. In 2008, we made
borrowings of $260.0 million under our credit facility
primarily to pay down the $120.0 million of the 2008 Notes that
matured or were converted in March and April 2008, to finance
acquisitions and for general corporate purposes.
Our reported interest expense for the years ended
December 31, 2009, 2008 and 2007 included
$1.8 million, $2.4 million and $1.8 million,
respectively, of non-cash amortization of debt issuance costs.
In 2009 net other expense was $2.1 million, consisting
primarily of foreign exchange losses of $3.4 million,
partially offset by net gains on the repurchase of our 2010
Notes of $0.5 million, and other items of
$0.8 million. In 2008 net other expense was
$0.9 million, consisting primarily of foreign exchange
losses of $0.3 million, realized losses on asset disposals
of $0.5 million and other items of $0.1 million.
Income
Taxes
Our effective income tax rate was 30.3%, (49.6)% and 44.9% of
income before income taxes in 2009, 2008 and 2007, respectively.
See Note 11, Income Taxes, in our consolidated
financial statements for a reconciliation of the United States
Federal statutory rate to our effective tax rate. In 2008, we
recorded a tax benefit of $10.0 million associated with the
restructuring of our German operations. The decrease in 2008 was
also attributable to the additional deferral of income earned in
low tax jurisdictions. Without these tax benefits, our effective
income tax rates for 2008 would have been similar to 2009. The
2007 effective income tax rate includes a $4.6 million
charge for the write-off of in-process research and development
related to acquisitions, which are non-deductible for tax
purposes.
Our effective tax rate could vary from year to year depending
on, among other factors, the geographic and business mix of
taxable earnings and losses. We consider these factors and
others, including our history of generating taxable earnings, in
assessing our ability to realize deferred tax assets. We expect
our effective income tax rate for 2010 to be between 31% and 32%.
The net increase in our tax asset valuation allowance was
$0.1 million in 2009. Our tax asset valuation allowance
decreased by $5.0 million in 2008 and increased by
$39.4 million in 2007.
A valuation allowance of $36.1 million is recorded against
the remaining $114.0 million of net deferred tax assets
recorded at December 31, 2009. This valuation allowance
relates to deferred tax assets for certain expenses which will
be deductible for tax purposes in very limited circumstances and
for which we believe it is unlikely that we will recognize the
associated tax benefit. We do not anticipate additional income
tax benefits through future reductions in the valuation
allowance. However, if we determine that we would be able to
realize more or less than the recorded amount of net deferred
tax assets, we will record an adjustment to the deferred tax
asset valuation allowance in the period such a determination is
made.
At December 31, 2009 we had net operating loss
carryforwards of $13.4 million for federal income tax
purposes, $136.6 million for foreign income tax purposes
and $58.9 million for state income tax purposes to offset
future taxable income. The federal net operating loss
carryforwards expire through 2027, $41.6 million of the
foreign net operating loss carryforwards expire through 2018
with the remaining $95.0 million having an indefinite carry
forward period. The state net operating loss carry forwards
expire through 2029.
At December 31, 2009, certain of our subsidiaries had
unused net operating loss carryforwards and tax credit
carryforwards arising from periods prior to our ownership which
expire through 2027. The Internal Revenue Code limits the timing
and manner in which we may use any acquired net operating losses
or tax credits.
We do not provide income taxes on undistributed earnings of
non-U.S. subsidiaries
because such earnings are expected to be permanently reinvested.
Undistributed earnings of foreign subsidiaries totaled
$101.4 million, $72.7 million and $40.1 million
at December 31, 2009, 2008 and 2007, respectively.
39
INTERNATIONAL
REVENUES AND OPERATIONS
Revenues by major geographic area are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Europe
|
|
Asia Pacific
|
|
Other Foreign
|
|
Consolidated
|
|
|
(In thousands)
|
|
2009
|
|
$
|
519,203
|
|
|
$
|
93,414
|
|
|
$
|
32,788
|
|
|
$
|
37,082
|
|
|
$
|
682,487
|
|
2008
|
|
|
494,459
|
|
|
|
98,848
|
|
|
|
28,509
|
|
|
|
32,788
|
|
|
|
654,604
|
|
2007
|
|
|
417,035
|
|
|
|
85,764
|
|
|
|
21,399
|
|
|
|
26,261
|
|
|
|
550,459
|
|
In 2009, revenues from customers outside the United States
totaled $163.3 million or 24% of consolidated revenues, of
which approximately 57% were sales to European customers.
Revenues from customers outside the United States included
$124.8 million of revenues generated in foreign currencies.
In 2008, revenues from customers outside the United States
totaled $160.1 million or 24% of consolidated revenues, of
which approximately 62% were sales to European customers.
Revenues from customers outside the United States included
$116.7 million of revenues generated in foreign currencies.
In 2007, revenues from customers outside the United States
totaled $133.4 million or 24% of consolidated revenues, of
which approximately 64% were sales to European customers.
Revenues from customers outside the United States included
$94.5 million of revenues generated in foreign currencies.
With our global reach, we generate revenues and incur operating
expenses in multiple foreign currencies, including euros,
British pounds, Swiss francs, Canadian dollars, Japanese yen and
Australian dollars. Accordingly, we will experience currency
exchange risk with respect to those foreign currency denominated
revenues and operating expenses.
We will continue to assess the potential effects that changes in
foreign currency exchange rates could have on our business.
However, either a strengthening or a weakening of the dollar
against individual foreign currencies could reduce future gross
margins and operating margins. If we believe this potential
impact presents a significant risk to our business, we may enter
into derivative financial instruments to mitigate this risk.
Additionally, we generate significant revenues outside the
United States, a portion of which are
U.S. dollar-denominated transactions conducted with
customers who 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 may have an impact on the demand for our products in
foreign countries.
Local economic conditions, regulatory or political
considerations, the effectiveness of our sales representatives
and distributors, local competition and changes in local medical
practice all could combine to affect our sales into markets
outside the United States.
Relationships with customers and effective terms of sale
frequently vary by country, often with longer-term receivables
than are typical in the United States.
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
71.9
|
|
|
$
|
183.5
|
|
Borrowings under senior credit facility
|
|
|
(160.0
|
)
|
|
|
(260.0
|
)
|
Convertible securities
|
|
|
(225.5
|
)
|
|
|
(299.5
|
)
|
|
|
|
|
|
|
|
|
|
Net cash
|
|
$
|
(313.6
|
)
|
|
$
|
(376.0
|
)
|
|
|
|
|
|
|
|
|
|
We believe that our liquidity remains strong. The increase in
our net cash position at December 31, 2009 primarily
results from our total debt repayments of approximately
$187.0 million, cash flows from operations of
$143.2 million, less $27.6 million of capital
expenditures and intangible asset purchases, and a
$52.0 million payment in connection with the Integra Spine
acquisition. We believe that our existing cash, future cash
expected to
40
be generated from operations, and our remaining
$140.0 million of borrowing capacity under our senior
secured revolving credit facility, if needed, will satisfy our
foreseeable working capital, debt repayment, capital expenditure
requirements and potential earn-out payments for at least the
next twelve months.
Our
non-U.S. subsidiaries
hold cash and cash equivalents that are available for use by all
of our operations around the world. However, if these funds were
repatriated to the United States or used for United States
operations, the amounts could be subject to United States tax
for the incremental amount in excess of the foreign tax paid.
Such earnings are permanently reinvested in our foreign
operations.
Cash
Flows
We generated positive operating cash flows of
$143.2 million, $72.6 million and $47.0 million
in 2009, 2008 and 2007, respectively. Operating cash flows
increased in 2009 primarily from improvements in working
capital. Operating cash flows increased in 2008 primarily from
higher net income, as adjusted for the $25.2 million
in-process research and development charge from the Integra
Spine acquisition, for which the related cash paid is reported
as an investing activity, and the $18.0 million non-cash,
stock-based compensation charge recorded in connection with the
renewal of our chief executive officers employment
agreement. Operating cash flows in 2007 were lower primarily as
a result of higher cash payments for income taxes in 2007
following the utilization of substantially all of our net
operating loss carryforwards in 2006 and higher levels of
working capital in 2007, particularly from substantial
investments in inventory.
In 2009, changes in working capital items increased operating
cash flows by $30.5 million, whereas in 2008 and 2007,
changes in working capital items reduced operating cash flows by
$26.4 million and $22.5 million, respectively. In
2009, the reduction in the balance of refundable income taxes
provided $11.3 million, improvements in our accounts
receivable provided $9.8 million, and reductions in
inventory provided another $9.4 million of operating cash
flows. In 2008, net income included non-cash charges of
$25.2 million and $32.6 million relating to in-process
research and development and stock-based compensation,
respectively. Additionally, the reduction of inventory provided
$10.8 million of operating cash flows while the payment of
income taxes used $41.2 million and the reduction of other
operating liabilities, including those acquired through
acquisitions, used $17.3 million. In 2007, we invested
significantly in inventory because of the commencement of our
manufacturing plant in Ireland and to support greater extremity
reconstruction and surgical instrument sales.
In 2010, we anticipate our principle uses of cash to include
$77.9 million for settlement of our 2010 Notes,
approximately $40.0 million on capital expenditures, and up
to $73.7 million in potential earnout payments. Our planned
capital spending is expected to increase primarily due to
expansion of collagen manufacturing capacity, upgrades to our
enterprise resource planning system, and additions to our
instrument kits used in sales of orthopedic products.
Our principal uses of funds for the year ended December 31,
2009 were approximately $52.0 million in earnout payments
in connection with the Integra Spine acquisition,
$78.0 million in repurchases of the liability component of
our 2010 Notes, $100.0 million in repayments on our
revolving credit facility, and $27.6 million in capital
expenditures and intangible asset purchases. In addition to the
$143.2 million in operating cash flows we generated in
2009, we received $6.6 million from the issuance of common
stock through the exercise of stock options during the year.
Our principal uses of funds for the year ended December 31,
2008 were $119.6 million in repurchases of our 2008 Notes,
$86.9 million for acquisition consideration, and
$13.4 million in capital expenditures. In addition to the
$72.6 million in operating cash flows we generated in 2008,
we borrowed $260.0 million under our revolving credit
facility, and we received $11.5 million from the issuance
of common stock through the exercise of stock options during the
period. We used the borrowings under our revolving credit
facility to repay the 2008 Notes, to finance acquisitions and
for general corporate purposes.
Our principal uses of funds for the year ended December 31,
2007 were $100.0 million in net repayments on our revolving
credit facility, $100.8 million for acquisition
consideration, $106.5 million paid for the purchase of
2.2 million shares for our common stock, and
$22.6 million in capital expenditures. In addition to the
$47.0 million in operating cash flows that we generated in
2007, we received $295.1 million in net cash proceeds from
the
41
issuance of senior convertible notes, which is net of the
purchase of call options and sale of warrants, and
$18.8 million from the issuance of common stock through the
exercise of stock options during the period.
Working
Capital
At December 31, 2009 and 2008, working capital was $208.6
and $322.6 million, respectively. While we do have
reductions in accounts receivable and inventory, most of the
$114.0 million decrease is the reclassification of the 2010
Notes as current.
Convertible
Debt and Related Hedging Activities
We pay interest each June 1 and December 1 on our 2010 Notes at
an annual rate of 2.75% and on our 2012 Notes at an annual rate
of 2.375%. At December 31, 2009, there was
$77.9 million and $165.0 million outstanding on the
2010 Notes and the 2012 Notes, respectively.
The Notes are senior, unsecured obligations of Integra, and are
convertible into cash and, if applicable, shares of our common
stock based on an initial conversion rate, subject to
adjustment, of 15.0917 shares per $1,000 principal amount
of notes for the 2010 Notes and 15.3935 shares per $1,000
principal amount of notes for the 2012 Notes (which represents
an initial conversion price of approximately $66.26 per share
and approximately $64.96 per share for the 2010 Notes and the
2012 Notes, respectively.) We expect to satisfy any conversion
of the Notes with cash up to the principal amount of the
applicable series of Notes pursuant to the net share settlement
mechanism set forth in the applicable indenture and, with
respect to any excess conversion value, with shares of our
common stock. The Notes are convertible only in the following
circumstances: (1) if the closing sale price of our common
stock exceeds 130% of the conversion price during a period as
defined in the indenture; (2) if the average trading price
per $1,000 principal amount of the Notes is less than or equal
to 97% of the average conversion value of the Notes during a
period as defined in the indenture; (3) at any time on or
after December 15, 2009 (in connection with the 2010 Notes)
or anytime after December 15, 2011 (in connection with the
2012 Notes); or (4) if specified corporate transactions
occur. The issue price of the Notes was equal to their face
amount, which is also the amount holders are entitled to receive
at maturity if the Notes are not converted. As of
December 31, 2009, none of these conditions existed with
respect to the 2012 Notes, but the 2010 Notes were freely
convertible. As a result, $76.8 million of the 2010 Notes
mature within a year and are therefore classified as short-term
liabilities, and $148.7 million of the 2012 Notes is
classified as long-term. Neither the 2010 Notes nor the 2012
Notes are rated by any credit rating agency.
Under the terms of the private placement agreement, Integra
LifeSciences Corporation, a subsidiary of Integra, fully
guarantees the Notes. The 2010 Notes rank equal in right of
payment to the 2012 Notes. The Notes are Integras direct
senior unsecured obligations and rank equal in right of payment
to all of our existing and future unsecured and unsubordinated
indebtedness.
In connection with the issuance of the Notes, we entered into
call transactions and warrant transactions, primarily with
affiliates of the initial purchasers of the Notes (the
hedge participants), in connection with each series
of Notes. The cost of the call transactions to us was
approximately $46.8 million. We received approximately
$21.7 million of proceeds from the warrant transactions.
The call transactions involved our purchasing call options from
the hedge participants, and the warrant transactions involved us
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 is
(1) for the 2010 Notes, approximately $66.26 per share of
Common Stock, and (2) for the 2012 Notes, approximately
$64.96, in each case subject to anti-dilution adjustments
substantially similar to those in the Notes. The initial strike
price of the warrant transactions is (i) for the 2010
Notes, approximately $77.96 per share of Common Stock and
(ii) for the 2012 Notes, approximately $90.95, in each case
subject to customary anti-dilution adjustments.
In 2009, we repurchased the principal amount of
$32.1 million, $18.7 million, $17.7 million and
$18.6 million in March, June, September and December,
respectively, of the 2010 Notes. The total cash paid for the
Notes was $83.3 million, of which $78.0 million
related to the repayment of the liability component. We
recognized a gain of $0.5 million on these repurchases. For
all of these transactions, we terminated the bond hedge
contracts on a pro-
42
rata basis and the number of options was adjusted to reflect the
number of convertible securities outstanding that together have
a total principal amount of $77.9 million. Also, in
connection with the above repurchases, in separate transactions,
we have amended the warrant transactions to reduce the number of
warrants outstanding to reflect such number of convertible
securities outstanding.
We may from time to time seek to retire or purchase our
outstanding Notes through cash purchases
and/or
exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases
or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions
and other factors. Under certain circumstances, the call options
associated with any repurchased Notes may terminate early, but
only with respect to the number of Notes that cease to be
outstanding. The amounts involved may be material.
We paid interest on our 2008 Notes at an annual rate of 2.5%.
Upon maturity of the 2008 Notes, we also paid $1.8 million
of contingent interest because our common stock price was
greater than $37.56 at thirty days prior to their maturity.
Because the market price of our common stock was greater than
$37.56 per share, holders of the 2008 Notes were able to convert
the notes prior to maturity. In March and April 2008, we repaid
the 2008 Notes upon conversion or maturity by issuing
approximately 768,000 shares of our common stock and paying
$119.6 million in cash. There were no financial covenants
associated with the 2008 Notes.
In conjunction with the 2008 Notes, we had previously recognized
a deferred tax liability related to the conversion feature of
the debt. Due to the repayment of the 2008 Notes, we reversed
the remaining balance of the deferred tax liability which
resulted in the recognition of a $2.4 million valuation
allowance on a deferred tax asset, a $4.8 million increase
to current income taxes payable and $11.5 million of
additional paid-in capital.
See Note 5, Debt, of our consolidated financial
statements for additional information.
Senior
Secured Revolving Credit Facility
In December 2005, we established a $200.0 million,
five-year, senior secured revolving credit facility, which runs
through December 2011. We amended the credit facility in
February 2007 to increase the size of the credit facility to
$300.0 million, which can be increased to
$400.0 million should additional financing be required in
the future. We plan to utilize the credit facility for working
capital, capital expenditures, share repurchases, acquisitions,
debt repayments and other general corporate purposes. In 2008,
we borrowed an aggregate of $260.0 million against this
facility, including $120.0 million borrowed in March 2008
to finance the pay down of our 2008 Notes upon their conversion
or maturity, $80.0 million borrowed in July 2008 to fund
the acquisition of Integra Spine and for other general corporate
purposes, and $60.0 million borrowed in October 2008 for
general corporate purposes. In June and August 2009, we repaid
$60.0 million and $40.0 million, respectively, of our
outstanding borrowings. As a result, we have $160.0 million
of outstanding borrowings under our credit facility as of
December 31, 2009.
We borrowed $98.5 million in 2006 for acquisition-related
purposes and paid down the entire outstanding balance in June
2007 with a portion of the proceeds from the issuance of our
$330.0 million of senior convertible notes.
The indebtedness under the credit facility is guaranteed by all
but one of our domestic subsidiaries. Our obligations under the
credit facility and the guarantees of the guarantors are secured
by a first-priority security interest in all present and future
capital stock of (or other ownership or profit interest in) each
guarantor and substantially all of ours and the guarantors
other assets, other than real estate, intellectual property and
capital stock of foreign subsidiaries.
Borrowings under the credit facility bear interest, at our
option, at a rate equal to (i) the Eurodollar Rate in
effect from time to time plus an applicable rate (ranging from
0.375% to 1.25%) or (ii) the higher of (x) the
weighted average overnight Federal funds rate, as published by
the Federal Reserve Bank of New York, plus 0.5%, and
(y) the prime commercial lending rate of Bank of America,
N.A. plus an applicable rate (ranging from 0% to 0.25%). The
applicable rates are based on a financial ratio at the time of
the applicable borrowing.
We will also pay an annual commitment fee (ranging from 0.10% to
0.20%) on the daily amount by which the commitments under the
credit facility exceed the outstanding loans and letters of
credit under the credit facility.
43
The credit facility requires us to maintain various financial
covenants, including leverage ratios, a minimum fixed charge
coverage ratio and a minimum liquidity ratio. The credit
facility also contains customary affirmative and negative
covenants, including those that limit our and our
subsidiaries ability to incur additional debt, incur
liens, make investments, enter into mergers and acquisitions,
liquidate or dissolve, sell or dispose of assets, repurchase
stock and pay dividends, engage in transactions with affiliates,
engage in certain lines of business and enter into sale and
leaseback transactions. We amended the credit facility in
September 2007 to accommodate the acquisition of IsoTis as well
as other acquisitions. The amendment modified certain financial
and negative covenants which include the addition of up to
$14.7 million of cost savings to the calculation of our
Consolidated EBITDA as well as an increase in the Total Leverage
ratio from 4.0 to 4.5 to 1 through June 30, 2008 only. We
were in compliance with all covenants at each balance sheet date
and expect to continue to meet the requirements of all financial
covenants.
Share
Repurchase Plans
In October 2007, our Board of Directors adopted a program that
authorized us to repurchase shares of our common stock for an
aggregate purchase price not to exceed $75.0 million
through December 31, 2008. On October 30, 2008, our
Board of Directors terminated the repurchase authorization it
adopted in October 2007 and authorized us to repurchase shares
of our common stock for an aggregate purchase price not to
exceed $75.0 million through December 31, 2010. Shares
may be purchased either in the open market or in privately
negotiated transactions. We did not repurchase any shares of our
common stock in 2009 or 2008 under either of these programs.
During 2007, we repurchased 2.2 million shares of our
common stock under authorized share repurchase programs. We hold
repurchased shares as treasury shares and may use them for
general corporate purposes, including acquisitions and for
issuance upon exercise of outstanding stock options and stock
awards.
Dividend
Policy
We have not paid any cash dividends on our common stock since
our formation. Our revolving credit facility limits the amount
of dividends that we may pay. Any future determinations to pay
cash dividends on our common stock will be at the discretion of
our Board of Directors and will depend upon our financial
condition, results of operations, cash flows and other factors
that the Board of Directors deems relevant.
Contractual
Obligations and Commitments
As of December 31, 2009, we were obligated to pay the
following amounts under various agreements:
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Less than
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1-3
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3-5
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More than
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Total
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1 year
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Years
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Years
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5 years
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(In millions)
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Convertible Securities(1)
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$
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243.0
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$
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78.0
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$
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165.0
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$
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$
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Revolving Credit Facility(2)
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160.0
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160.0
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Interest on Convertible Securities
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10.9
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5.0
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5.9
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Employment Agreements(3)
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5.5
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3.1
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2.4
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Operating Leases
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34.6
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7.8
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11.2
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7.6
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8.0
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Purchase Obligations
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13.0
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7.7
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5.3
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Other
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2.0
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1.6
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0.2
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0.2
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Total
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$
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469.0
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$
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103.2
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$
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350.0
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$
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7.8
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$
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8.0
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(1) |
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The estimated debt service obligation of the senior convertible
securities includes interest expense representing the
amortization of the discount on the liability component of the
senior convertible notes in accordance with the authoritative
guidance. See Note 5, Debt, of our consolidated
financial statements for additional information. |
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(2) |
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The Company borrows and makes payments against the credit
facility and considers all of the outstanding amounts to be
long-term in nature based on its current intent and ability. |
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(3) |
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Amounts shown under Employment Agreements do not include
executive or other compensation resulting from a change in
control. |
44
In addition, the terms of the purchase agreements executed in
connection with certain acquisitions we closed in the last
several years require us to make payments to the sellers of
those businesses based on the performance of such businesses
after the acquisition. The purchase agreements could require
payments up to a total of approximately $74.0 million in
2010, the actual amounts to depend primarily on the revenues
attributable to the Integra Spine acquisition. We paid
$54.0 million of revenue performance obligations during
2009, of which $52.0 million was related to Integra Spine.
Excluded from the contractual obligations table is the liability
for unrecognized tax benefits totaling $13.9 million. This
liability for unrecognized tax benefits has been excluded
because we cannot make a reliable estimate of the period in
which the unrecognized tax benefits may be realized.
CRITICAL
ACCOUNTING POLICIES AND THE USE OF ESTIMATES
Our discussion and analysis of financial condition and results
of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts 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, estimates of projected cash
flows and discount rates used to value intangible assets and
in-process research and development charges and test goodwill
and intangible assets for impairment, computation of valuation
allowances recorded against deferred tax assets 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.
We believe the following accounting policies, which form the
basis for developing these estimates, are those that are most
critical to the presentation of our financial statements and
require the most difficult, subjective and complex judgments:
Allowances
For Doubtful Accounts Receivable and Sales Returns and
Allowances
We evaluate the collectability of accounts receivable based on a
combination of factors. In circumstances where a specific
customer is unable to meet its financial obligations to us, we
record an allowance against amounts due to reduce the net
recognized receivable to the amount that we reasonably expect to
collect. For all other customers, we record allowances for
doubtful accounts based on the length of time the receivables
are past due, the current business environment and our
historical experience. If the financial condition of customers
or the length of time that receivables are past due were to
change, we may change the recorded amount of allowances for
doubtful accounts in the future through charges or reductions to
selling, general and administrative expense.
We record a provision for estimated sales returns and allowances
on revenues in the same period as the related revenues are
recorded. We base these estimates on historical sales returns
and allowances and other known factors. If actual returns or
allowances are different from our estimates and the related
provisions for sales returns and allowances, we may change the
sales returns and allowances provision in the future through an
increase or decrease in revenues.
Inventories
Inventories, consisting of purchased materials, direct labor and
manufacturing overhead, are stated at the lower of cost
(determined by the
first-in,
first-out method) or market. At each balance sheet date, we
evaluate ending inventories for excess quantities, obsolescence
or shelf-life expiration. Our evaluation includes an analysis of
historical sales levels by product, projections of future demand
by product, the risk of technological or competitive
obsolescence for our products, general market conditions, a
review of the shelf-life expiration dates for our products, and
the feasibility of reworking or using excess or obsolete
products or components in the production or assembly of other
products that are not obsolete or for which we do not have
excess quantities in inventory. To the extent that we determine
there are excess or obsolete quantities or quantities with a
shelf life that is too near its expiration for us to reasonably
expect that we can sell those products prior to their
expiration, we record valuation
45
reserves against all or a portion of the value of the related
products to adjust their carrying value to estimated net
realizable value. If future demand or market conditions are
lower than our projections, or if we are unable to rework excess
or obsolete quantities into other products, we may change the
recorded amount of inventory valuation reserves through a charge
in cost of product revenues in the period the revision is made.
Valuation
of Identifiable Intangible Assets, In-Process Research and
Development Charges, and Goodwill
We allocate the purchase price of acquired businesses and
product lines between tangible and intangible assets (including
in-process research and development) and goodwill, as
applicable. In-process research and development is defined as
the value assigned to those acquired technologies or projects
for which the related products have not received regulatory
approval and have no alternative future use. Determining the
portion of the purchase price allocated to in-process research
and development and other intangible assets requires us to make
significant estimates. We allocate the purchase price to
in-process research and development and other identifiable
intangible assets by estimating the future cash flows of each
project, technology, customer relationship, trade name, or other
applicable asset and discounting those net cash flows back to
their present values. The discount rate used is determined at
the time of acquisition in accordance with accepted valuation
methods. For in-process research and development, these
methodologies include consideration of the risk of the project
not achieving commercial feasibility.
We review goodwill and identifiable intangible assets with
indefinite lives and, beginning on January 1, 2009 and for
acquisitions after such date, in-process research and
development, for impairment annually and whenever events or
changes indicate that the carrying value of an asset may not be
recoverable. These events or circumstances could include a
significant change in the business climate, legal factors,
operating performance indicators, competition, or sale or
disposition of significant assets or products. Application of
these impairment tests requires significant judgments, including
estimation of future cash flows, which is dependent on internal
forecasts, estimation of the long-term rate of growth for our
business, the useful life over which cash flows will occur and
determination of our weighted-average cost of capital.
Changes in the projected cash flows and discount rate estimates
and assumptions underlying the valuation of identifiable
intangible assets, in-process research and development, and
goodwill could materially affect the determination of fair value
at acquisition or during subsequent periods when tested for
impairment.
Our definite lived assets are reviewed for impairment whenever
events or changes indicate that the carrying value of the assets
may not be recoverable.
Income
Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their basis for
income tax purposes and the tax effects of capital loss, net
operating loss and tax credit carryforwards. We record valuation
allowances to reduce deferred tax assets to the amounts that are
more likely than not to be realized. We could recognize no
benefit from our deferred tax assets or we could recognize some
or all of the future benefit depending on the amount and timing
of taxable income we generate in the future.
Loss
Contingencies
We are subject to claims and lawsuits in the ordinary course of
our business, including claims by employees or former employees,
with respect to our products and involving commercial disputes.
We accrue 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, if applicable, and do not
include an estimate for legal fees expected to be incurred in
connection with the loss contingency. We consistently accrue
legal fees expected to be incurred in connection with loss
contingencies as those fees are incurred by outside counsel as a
period cost. Our financial statements do not reflect any
material amounts related to possible unfavorable outcomes of
claims and lawsuits to which we are currently a party because we
currently believe that such claims and lawsuits are not
expected, individually or in the aggregate, to result in a
material adverse effect on our financial condition. However, it
is possible that these contingencies could materially affect our
results of operations, financial position and cash flows in a
particular period if we change our assessment of the likely
outcome of these matters.
46
OTHER
MATTERS
Recently
Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS 168, The FASB Accounting
Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting Principles,
which is effective for interim and annual periods ending after
September 15, 2009. This pronouncement made the FASB
Accounting Standards Codification the single official
source of authoritative, nongovernmental U.S. generally
accepted accounting principles and supersedes all existing
non-SEC standards. The references to accounting literature
included in the discussion herein have been updated to remove
all references to superseded literature.
Effective January 1, 2009, we adopted the authoritative
guidance for accounting for convertible debt instruments that
may be settled in cash upon conversion (including partial cash
settlement). The guidance requires that the liability and equity
components of convertible debt instruments that may be settled
in cash upon conversion (including partial cash settlement) be
separately accounted for in a manner that reflects an
issuers nonconvertible debt borrowing rate. The guidance
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The guidance is effective for our
$330.0 million (of which $243.0 million remains
outstanding) aggregate principal amount of our Notes, and the
$119.5 million exchanged portion of our 2008 Notes and
requires retrospective application for all periods presented.
Accordingly, the financial statements included herein have been
previously restated to reflect retroactive adoption.
Effective January 1, 2009, we adopted the authoritative
guidance for determining whether instruments granted in
share-based payment transactions are participating securities.
In the guidance, unvested share-based payment awards that
contain rights to receive nonforfeitable dividends or dividend
equivalents (whether paid or unpaid) are participating
securities, and thus, should be included in the two-class method
of computing earnings per share (EPS) and the
guidance requires retrospective application for all periods
presented. Accordingly, the financial statements included herein
have been previously restated to reflect retroactive adoption.
The adoption of this guidance did not have a material impact on
our disclosure of EPS. See Note 12, Net Income Per
Share.
Effective January 1, 2009, we adopted the revised
authoritative guidance for business combinations. This guidance
changes the practice for accounting for business combinations,
such as requiring that we (1) expense transaction costs as
incurred, rather than capitalizing them as part of the purchase
price; (2) record contingent consideration arrangements and
pre-acquisition contingencies, such as legal issues, at fair
value at the acquisition date, with subsequent changes in fair
value recorded in the income statement; (3) capitalize the
fair value of acquired research and development assets, whereas
we previously determined the acquisition-date fair value and
then immediately charged the value to expense; and
(4) limit the conditions under which restructuring expenses
can be accrued in the opening balance sheet of a target.
Additionally, this guidance provides that, upon initially
obtaining control, an acquirer shall recognize 100 percent
of the fair values of acquired assets, including goodwill, and
assumed liabilities, with only limited exceptions, even if the
acquirer has not acquired 100 percent of its target. The
implementation of this guidance could result in an increase or
decrease in future selling, general and administrative and other
operating expenses, depending upon the extent of our acquisition
related activities going forward. The adoption of this guidance
did not have a material impact on our financial condition and
results of operations.
Effective January 1, 2009, we adopted the authoritative
guidance for determination of the useful life of intangible
assets. This guidance amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset.
The intent of this guidance is to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset under the new business combination rule and other
generally accepted accounting principles. The adoption of this
guidance did not have a material impact on our financial
condition and results of operations.
Effective January 1, 2009, we adopted the authoritative
guidance for the effective date of fair value measurements for
all non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value on a
recurring basis (at least annually). The adoption of this
guidance did not have a material impact on our financial
condition and results of operations.
47
Effective January 1, 2009, we adopted the authoritative
guidance for disclosures about derivative instruments and
hedging activities. This guidance requires enhanced disclosures
about derivative instruments and hedging activities to allow for
a better understanding of their effects on an entitys
financial position, financial performance, and cash flows. Among
other things, this guidance requires disclosure of the fair
values of derivative instruments and associated gains and losses
in a tabular format. The adoption of this guidance did not have
a material impact on our financial condition and results of
operations.
Effective January 1, 2009, we adopted the authoritative
guidance for determining whether an instrument (or embedded
feature) is indexed to an entitys own stock. This guidance
mandates a two-step process for evaluating whether an
equity-linked financial instrument or embedded feature is
indexed to the entitys own stock. Equity instruments that
a company issues that contain a strike price adjustment feature,
upon the adoption of this guidance, may no longer being
considered indexed to the companys own stock. Accordingly,
adoption of this guidance may change the current classification
(from equity to liability) and the related accounting for such
equity instruments outstanding at that date. The adoption of
this guidance did not have a material impact on our financial
condition and results of operations.
In May 2009 (and as amended in February 2010), the FASB issued
and we adopted the authoritative guidance for subsequent events.
This guidance establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date
but before the financial statements are issued.
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ITEM 7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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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
With our global reach, we generate revenues and incur operating
expenses in multiple foreign currencies, including euros,
British pounds, Swiss francs, Canadian dollars, Japanese yen,
and Australian dollars. Accordingly, we will experience currency
exchange risk with respect to those foreign currency denominated
revenues and operating expenses. The results of operations for
the periods discussed herein have not been materially affected
by inflation.
We currently use a short-term forward exchange contract to hedge
our risk related to the foreign currency fluctuations of an
intercompany loan denominated in foreign currency. The forward
exchange contract has a notional amount of 8.2 million
euros ($11.7 million at December 31, 2009). We
consider the credit risk related to the foreign exchange
contract to be low because the instrument was entered into with
a financial institution with a high credit rating. We will
continue to assess the potential effects that changes in foreign
currency exchange rates could have on our business. If we
believe this potential impact presents a significant risk to our
business, we may enter into additional derivative financial
instruments to mitigate this risk.
Interest
Rate Risk
Cash and Cash Equivalents. We are exposed to
the risk of interest rate fluctuations on the fair value and
interest income earned on our cash and cash equivalents. A
hypothetical 100 basis point movement in interest rates
applicable to our cash and cash equivalents outstanding at
December 31, 2009 would increase interest income by
approximately $0.7 million on an annual basis. No
significant decrease in interest income would be expected as our
cash balances are earning interest at rates close to zero. We
are subject to foreign currency exchange risk with respect to
cash balances maintained in foreign currencies.
Senior Secured Credit Facility. We are exposed
to the risk of interest rate fluctuations on the interest paid
under the terms of our senior secured credit facility. Based on
our outstanding borrowings as of December 31, 2009, a
hypothetical 100 basis point movement in interest rates
applicable to this credit facility would increase interest
expense by approximately $1.6 million or decrease interest
expense by approximately $1.0 million from current levels.
The primary reference rate under this credit facility is the
London Interbank Offered Rate (LIBOR) for the
applicable duration.
48
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ITEM 8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Financial statements and the financial statement schedules
specified by this Item, together with the report thereon of
PricewaterhouseCoopers LLP, are presented following Item 15
of this report.
Information on quarterly results of operations is set forth in
our financial statements under Note 16, Selected
Quarterly Information Unaudited, to the
Consolidated Financial Statements.
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ITEM 9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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Not applicable.
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ITEM 9A.
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CONTROLS
AND PROCEDURES
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Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions 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 for 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),
we have 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 December 31, 2009. Based upon
this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures were effective as of December 31, 2009 to
provide such reasonable assurance.
Managements
Report on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
under the Securities Exchange Act of 1934, as amended. Internal
control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America
(GAAP). We recognize that because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies
and procedures may deteriorate.
To evaluate the effectiveness of our internal control over
financial reporting, management used the criteria described in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based upon this evaluation, management
concluded that our internal control over financial reporting was
effective as of December 31, 2009.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
herein.
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ITEM 9B.
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OTHER
INFORMATION
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Not applicable.
49
PART III
INCORPORATION
BY REFERENCE
The information called for by Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities relating to equity
compensation plans, Item 10. Directors, Executive Officers
and Corporate Governance, Item 11. Executive Compensation,
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters, Item 13.
Certain Relationships and Related Transactions, and Director
Independence and Item 14. Principal Accountant Fees and
Services is incorporated herein by reference to the
Companys definitive proxy statement for its Annual Meeting
of Stockholders scheduled to be held on May 19, 2010, which
definitive proxy statement is expected to be filed with the
Commission not later than 120 days after the end of the
fiscal year to which this report relates.
50
PART IV
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ITEM 15.
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EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Documents filed as a part of this report.
1. Financial Statements.
The following financial statements and financial statement
schedules are filed as a part of this report:
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F-1
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F-2
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F-3
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F-4
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F-5
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F-6
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2. Financial Statement Schedules.
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Schedule II Valuation and Qualifying Accounts
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F-41
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All other schedules not listed above have been omitted, because
they are not applicable or are not required, or because the
required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits required to be filed by Item 601 of
Regulation S-K.
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3.1(a)
|
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Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1(a) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2005)
|
3.1(b)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation dated May 22, 1998 (Incorporated by reference to
Exhibit 3.1(b) to the Companys Annual Report on Form 10-K
for the year ended December 31, 1998)
|
3.1(c)
|
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Certificate of Amendment to Amended and Restated Certificate of
Incorporation dated May 17, 1999 (Incorporated by reference to
Exhibit 3.1(c) to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004)
|
3.2(a)
|
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Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3.1 to the Companys Current Report on
Form 8-K filed on November 3, 2006)
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3.2(b)
|
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Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3.2 to the Companys Current Report on
Form 8-K filed on November 3, 2009)
|
4.1
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Indenture, dated as of March 31, 2003, between the Company and
Wells Fargo Bank Minnesota, National Association (Incorporated
by reference to Exhibit 4.1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003)
|
4.2
|
|
Registration Rights Agreement, dated as of March 31, 2003,
between the Company and Credit Suisse First Boston, LLC, Banc of
America Securities LLC and U.S. Bancorp Piper Jaffray Inc.
(Incorporated by reference to Exhibit 4.3 to the Companys
Registration Statement on Form S-3 filed on June 30, 2003 (File
No. 333-106625))
|
4.3(a)
|
|
Credit Agreement, dated as of December 22, 2005, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on December 29, 2005)
|
4.3(b)
|
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First Amendment, dated as of February 15, 2006, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 4.3(b) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2005)
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51
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4.3(c)
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|
Second Amendment, dated as of February 23, 2007, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K filed on February 27, 2007)
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4.3(d)
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Third Amendment, dated as of June 4, 2007, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank, N.A., successor by merger to
Citibank, FSB, as Syndication Agent and JPMorgan Chase Bank,
N.A., Deutsche Bank Trust Company Americas and Royal Bank of
Canada, as Co-Documentation Agents (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on June 6, 2007)
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4.3(e)
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Fourth Amendment, dated as of September 5, 2007, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank, N.A., successor by merger to
Citibank FSB, as Syndication Agent and JPMorgan Chase Bank,
N.A., Deutsche Bank Trust Company Americas and Royal Bank of
Canada, as Co-Documentation Agents (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on September 6, 2007)
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4.4
|
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Security Agreement, dated as of December 22, 2005, among Integra
LifeSciences Holdings Corporation and the additional grantors
party thereto in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.4 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2005)
|
4.5
|
|
Pledge Agreement, dated as of December 22, 2005, among Integra
LifeSciences Holdings Corporation and the additional grantors
party thereto in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.5 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2005)
|
4.6
|
|
Subsidiary Guaranty Agreement, dated as of December 22, 2005,
among the guarantors party thereto and individually as a
Guarantor), in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.6 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2005)
|
4.7
|
|
Indenture, dated as of September 29, 2006, between the Company
and Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit
4.1 to the Companys Current Report on Form 8-K filed on
October 5, 2006)
|
4.8
|
|
Indenture, dated June 11, 2007, among Integra LifeSciences
Holdings Corporation, Integra LifeSciences Corporation and Wells
Fargo Bank, N.A., as trustee (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on June 12, 2007)
|
4.9
|
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Form of 2.75% Senior Convertible Note due 2010 (included in
Exhibit 4.8) (Incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed on June 12, 2007)
|
4.10
|
|
Indenture, dated June 11, 2007, among Integra LifeSciences
Holdings Corporation, Integra LifeSciences Corporation and Wells
Fargo Bank, N.A., as trustee (Incorporated by reference to
Exhibit 4.3 to the Companys Current Report on Form 8-K
filed on June 12, 2007)
|
4.11
|
|
Form of 2.375% Senior Convertible Note due 2012 (included
in Exhibit 4.10) (Incorporated by reference to Exhibit 4.4 to
the Companys Current Report on Form 8-K filed on June 12,
2007)
|
4.12
|
|
Registration Rights Agreement, dated June 11, 2007, among
Integra LifeSciences Holdings Corporation, Banc of America
Securities LLC, J.P. Morgan Securities Inc. and Morgan
Stanley & Co., Incorporated, as representatives of the
several initial purchasers (Incorporated by reference to Exhibit
4.5 to the Companys Current Report on Form 8-K filed on
June 12, 2007)
|
4.13
|
|
Registration Rights Agreement, dated June 11, 2007, among
Integra LifeSciences Holdings Corporation, Banc of America
Securities LLC, J.P. Morgan Securities Inc. and Morgan
Stanley & Co., Incorporated, as representatives of the
several initial purchasers (Incorporated by reference to Exhibit
4.6 to the Companys Current Report on Form 8-K filed on
June 12, 2007)
|
10.1(a)
|
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Lease between Plainsboro Associates and American Biomaterials
Corporation dated as of April 16, 1985, as assigned to
Colla-Tec, Inc. on October 24, 1989 and as amended through
November 1, 1992 (Incorporated by reference to Exhibit 10.30 to
the Companys Registration Statement on Form 10/A (File No.
0-26224) which became effective on August 8, 1995)
|
52
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10.1(b)
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Lease Modification #2 entered into as of the 28th day of
October, 2005, by and between Plainsboro Associates and Integra
LifeSciences Corporation (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
November 2, 2005)
|
10.2
|
|
Equipment Lease Agreement between Medicus Corporation and the
Company, dated as of June 1, 2000 (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000)
|
10.3
|
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Form of Indemnification Agreement between the Company and
[ ]
dated August 16, 1995, including a schedule identifying the
individuals that are a party to such Indemnification Agreements
(Incorporated by reference to Exhibit 10.37 to the
Companys Registration Statement on Form S-1 (File No.
33-98698) which became effective on January 24, 1996)*
|
10.4
|
|
1993 Incentive Stock Option and Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10.32 to the
Companys Registration Statement on Form 10/A (File No.
0-26224) which became effective on August 8, 1995)*
|
10.5
|
|
1996 Incentive Stock Option and Non-Qualified Stock Option Plan
(as amended through December 27, 1997) (Incorporated by
reference to Exhibit 10.4 to the Companys Current Report
on Form 8-K filed on February 3, 1998)*
|
10.6
|
|
1998 Stock Option Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005)*
|
10.7
|
|
1999 Stock Option Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005)*
|
10.8(a)
|
|
Employee Stock Purchase Plan (as amended on May 17, 2004)
(Incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-8 (Registration No. 333-127488)
filed on August 12, 2005)*
|
10.8(b)
|
|
First Amendment to the Companys Employee Stock Purchase
Plan, dated October 26, 2005 (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on November 1, 2005)*
|
10.9
|
|
2000 Equity Incentive Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005)*
|
10.10
|
|
2001 Equity Incentive Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005)*
|
10.11(a)
|
|
2003 Equity Incentive Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.7 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005)*
|
10.11(b)
|
|
Integra LifeSciences Holdings Corporation Amended and Restated
2003 Equity Incentive Plan effective July 9, 2008 (Incorporated
by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on July 11, 2008)*
|
10.11(c)
|
|
Amendment to the Integra LifeSciences Holdings Corporation 2003
Equity Incentive Plan dated July 9, 2008 (Incorporated by
reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K filed on July 11, 2008)*
|
10.12(a)
|
|
Second Amended and Restated Employment Agreement dated July 27,
2004 between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004)*
|
10.12(b)
|
|
Amendment 2006-1, dated as of December 19, 2006, to the Second
Amended and Restated Employment Agreement, between the Company
and Stuart M. Essig (Incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed on
December 22, 2006)*
|
10.12(c)
|
|
Amendment 2008-1, dated as of March 6, 2008, to the Second
Amended and Restated Employment Agreement, between the Company
and Stuart M. Essig (Incorporated by reference to Exhibit
10.12(c) to the Companys Annual Report on Form 10-K for
the year ended December 31, 2007)*
|
10.12(d)
|
|
Amendment 2008-2, dated as of August 6, 2008, to the Second
Amended and Restated Employment Agreement between Stuart M.
Essig and the Company (Incorporated by reference to Exhibit 10.7
to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008)*
|
53
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10.12(e)
|
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Amendment 2009-1, dated as of April 13, 2009, to the Second
Amended and Restated Employment Agreement between Stuart M.
Essig and the Company (Incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K filed on April
13, 2009)*
|
10.13
|
|
Indemnity letter agreement dated December 27, 1997 from the
Company to Stuart M. Essig (Incorporated by reference to Exhibit
10.5 to the Companys Current Report on Form 8-K filed on
February 3, 1998)*
|
10.14(a)
|
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Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on February 3, 1998)*
|
10.14(b)
|
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Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on January 8, 2001)*
|
10.14(c)
|
|
Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2004)*
|
10.15(a)
|
|
Amended and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company dated December 19, 2005
(Incorporated by reference to Exhibit 10.16 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2005)*
|
10.15(b)
|
|
Amendment 2008-1, dated as of January 2, 2008, to the Amended
and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company (Incorporated by reference to
Exhibit 10.15(b) to the Companys Annual Report on Form
10-K for the year ended December 31, 2007)*
|
10.15(c)
|
|
Amendment 2008-2, dated as of December 18, 2008, to the Amended
and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K
filed on December 24, 2008)*
|
10.15(d)
|
|
Amendment 2009-1, dated as of April 13, 2009, to the Amended and
Restated 2005 Employment Agreement between John B.
Henneman, III and the Company (Incorporated by reference to
Exhibit 10.5 to the Companys Current Report on Form 8-K
filed on April 13, 2009)*
|
10.16(a)
|
|
Amended and Restated 2005 Employment Agreement between Gerard S.
Carlozzi and the Company dated December 19, 2005 (Incorporated
by reference to Exhibit 10.17 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2005)*
|
10.16(b)
|
|
Amendment 2008-1, dated as of January 2, 2008, to the Amended
and Restated 2005 Employment Agreement between Gerard S.
Carlozzi and the Company (Incorporated by reference to Exhibit
10.16(b) to the Companys Annual Report on Form 10-K for
the year ended December 31, 2007)*
|
10.16(c)
|
|
Amendment 2008-2, dated as of December 18, 2008, to the Amended
and Restated 2005 Employment Agreement between Gerard S.
Carlozzi and the Company (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
December 24, 2008)*
|
10.16(d)
|
|
Amendment 2009-1, dated as of April 13, 2009, to the Amended and
Restated 2005 Employment Agreement between Gerard S. Carlozzi
and the Company (Incorporated by reference to Exhibit 10.4 to
the Companys Current Report on Form 8-K filed on April 13,
2009)*
|
10.17
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 4, 2010*+
|
10.18
|
|
Lease Contract, dated April 1, 2005, between the Puerto Rico
Industrial Development Company and Integra CI, Inc. (executed on
September 15, 2006) (Incorporated by reference to Exhibit 10.3
to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006)
|
10.19(a)
|
|
Industrial Real Estate Triple Net Sublease dated July 1, 2001
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(a) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004)
|
10.19(b)
|
|
First Amendment to Sublease dated as of July 1, 2003 by and
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(b) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004)
|
10.19(c)
|
|
Second Amendment to Sublease dated as of June 1, 2004 by and
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(c) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004)
|
10.19(d)
|
|
Third Amendment to Sublease dated as of June 15, 2004 by and
between Sorrento Montana, L.P. and Integra LifeSciences
Corporation (Incorporated by reference to Exhibit 10.24(d) to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2004)
|
54
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10.19(e)
|
|
Fourth Amendment to Sublease, dated as of August 15, 2006, by
and between Sorrento Montana, L.P. and Integra LifeSciences
Corporation (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on August 17,
2006)
|
10.20
|
|
Restricted Units Agreement dated December 27, 1997 between the
Company and Stuart M. Essig (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K
filed on February 3, 1998)*
|
10.21
|
|
Stock Option Grant and Agreement dated December 22, 2000 between
the Company and Stuart M. Essig (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on January 8, 2001)*
|
10.22
|
|
Stock Option Grant and Agreement dated December 22, 2000 between
the Company and Stuart M. Essig (Incorporated by reference to
Exhibit 4.2 to the Companys Current Report on Form 8-K
filed on January 8, 2001)*
|
10.23(a)
|
|
Restricted Units Agreement dated December 22, 2000 Between the
Company and Stuart M. Essig (Incorporated by reference to
Exhibit 4.3 to the Companys Current Report on Form 8-K
filed on January 8, 2001)*
|
10.23(b)
|
|
Amendment 2006-1, dated as of October 30, 2006, to the Stuart M.
Essig Restricted Units Agreement dated as of December 22, 2000
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on November 3, 2006)*
|
10.24
|
|
Stock Option Grant and Agreement dated July 27, 2004 between the
Company and Stuart M. Essig (Incorporated by reference to
Exhibit 10.30 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004)*
|
10.25(a)
|
|
Contract Stock/Restricted Units Agreement dated July 27, 2004
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 10.31 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2004)*
|
10.25(b)
|
|
Amendment 2006-1, dated as of October 30, 2006, to the Stuart M.
Essig Contract Stock/Restricted Units Agreement dated as of July
27, 2004 (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on November 3,
2006)*
|
10.25(c)
|
|
Amendment 2008-1, dated as of March 6, 2008, to the Stuart M.
Essig Contract Stock/Restricted Units Agreement dated as of July
27, 2004 (Incorporated by reference to Exhibit 10.25(c) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2007)*
|
10.26
|
|
Form of Stock Option Grant and Agreement between the Company and
Stuart M. Essig (Incorporated by reference to Exhibit 10.32 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2004)*
|
10.27
|
|
Form of Contract Stock/Restricted Units Agreement for Stuart M.
Essig (Incorporated by reference to Exhibit 10.8 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008)*
|
10.28
|
|
Form of Performance Stock Agreement for Stuart M. Essig
(Incorporated by reference to Exhibit 10.9 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2008)*
|
10.29
|
|
Form of Restricted Stock Agreement for Stuart M. Essig for 2009
(Incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed April 13, 2009)*
|
10.30
|
|
Form of Notice of Grant of Stock Option and Stock Option
Agreement (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on July 29,
2005)*
|
10.31
|
|
Form of Non-Qualified Stock Option Agreement (Non-Directors)
(Incorporated by reference to Exhibit 10.35 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004)*
|
10.32
|
|
Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 10.36 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2004)*
|
10.33
|
|
Form of Non-Qualified Stock Option Agreement (Directors)
(Incorporated by reference to Exhibit 10.37 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004)*
|
10.34
|
|
Compensation of Directors of the Company effective July 9, 2008
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on July 11, 2008)*
|
10.35(a)
|
|
Form of Restricted Stock Agreement for Non-Employee Directors
under the Integra LifeSciences Holdings Corporation 2003 Equity
Incentive Plan (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on May 17,
2005)*
|
55
|
|
|
10.35(b)
|
|
Form of Restricted Stock Agreement for Non-Employee Directors
under the Integra LifeSciences Holdings Corporation 2003 Equity
Incentive Plan (Incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008*
|
10.35(c)
|
|
New Form of Restricted Stock Agreement for Non-Employee
Directors under the Integra LifeSciences Holdings Corporation
2003 Equity Incentive Plan (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
April 13, 2009)*
|
10.36(a)
|
|
Form of Restricted Stock Agreement for Executive Officers --
Cliff Vesting (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on January 9,
2006)*
|
10.36(b)
|
|
New Form of Restricted Stock Agreement for Executive Officers --
Annual Vesting (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on February 25,
2009)*
|
10.36(c)
|
|
New Form of Restricted Stock Agreement with Cliff Vesting for
Executive Officers (Incorporated by reference to Exhibit 10.8 to
the Companys Quarter Report on Form 10-Q for the quarter
ended March 31, 2009)*
|
10.36(d)
|
|
Form of Restricted Stock Agreement for Messrs. Carlozzi and
Henneman for 2008 and 2009 (Incorporated by reference to Exhibit
10.6 to the Companys Current Report on Form 8-K filed on
April 13, 2009)*
|
10.37
|
|
Asset Purchase Agreement, dated as of September 7, 2005, by and
between Tyco Healthcare Group LP and Sherwood Services, AG and
Integra LifeSciences Corporation and Integra LifeSciences
(Ireland) Limited (Incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on September
13, 2005)
|
10.38
|
|
Performance Stock Agreement by and between John B.
Henneman, III and the Company dated January 3, 2006
(Incorporated by reference to Exhibit 10.42 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2005)*
|
10.39
|
|
Performance Stock Agreement by and between Gerard S. Carlozzi
and the Company dated January 3, 2006 (Incorporated by reference
to Exhibit 10.43 to the Companys Annual Report on Form
10-K for the year ended December 31, 2005)*
|
10.40(a)
|
|
Form of Performance Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
March 21, 2007)*
|
10.40(b)
|
|
Form of Performance Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to Exhibit
10.37(b) to the Companys Annual Report on Form 10-K for
the year ended December 31, 2007)*
|
10.41
|
|
Stock Purchase Agreement, dated as of April 19, 2006, by and
between ASP/Miltex LLC and Integra LifeSciences Corporation
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on April 25, 2006)
|
10.42
|
|
Stock Agreement and Plan of Merger, dated as of June 30, 2006,
by and between Integra LifeSciences Corporation, Integra
California, Inc., Kinetikos Medical, Inc., Telegraph Hill
Partners Management LLC, as Shareholders Representative, and the
Shareholders party thereto (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
July 7, 2006)
|
10.43(a)
|
|
Integra LifeSciences Holdings Corporation Management Incentive
Compensation Plan (Incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006)*
|
10.43(b)
|
|
First Amendment to Integra LifeSciences Holdings Corporation
Management Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly Report
on Form 10-Q for the quarter ended March 31, 2007)*
|
10.43(c)
|
|
Integra LifeSciences Holdings Corporation Management Incentive
Compensation Plan, as amended and restated as of January 1, 2008
(Incorporated by reference to Exhibit 10.43(c) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2007)*
|
10.44
|
|
Form of Restricted Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
February 27, 2007)*
|
10.45
|
|
Form of 2010 Convertible Bond Hedge Transaction Confirmation,
dated June 6, 2007, between Integra LifeSciences Holdings
Corporation and dealer (Incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
June 12, 2007)
|
56
|
|
|
10.46
|
|
Form of 2012 Convertible Bond Hedge Transaction Confirmation,
dated June 6, 2007, between Integra LifeSciences Holdings
Corporation and dealer (Incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed on
June 12, 2007)
|
10.47
|
|
Form of 2010 Amended and Restated Issuer Warrant Transaction
Confirmation, dated June 6, 2007, between Integra LifeSciences
Holdings Corporation and dealer (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K
filed on June 12, 2007)
|
10.48
|
|
Form of 2012 Amended and Restated Issuer Warrant Transaction
Confirmation, dated June 6, 2007, between Integra LifeSciences
Holdings Corporation and dealer (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on Form 8-K
filed on June 12, 2007)
|
10.49
|
|
Agreement and Plan of Merger among Integra LifeSciences Holdings
Corporation, ICE Mergercorp, Inc. and IsoTis, Inc., dated as of
August 6, 2007 (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on August 7,
2007)
|
10.50
|
|
Form of Option Agreement among Integra LifeSciences Holdings
Corporation and John B. Henneman, III (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on June 6, 2008)*
|
10.51
|
|
Unit Purchase Agreement, dated as of July 23, 2008, by and among
Integra LifeSciences Holdings Corporation, Theken Spine LLC,
Randall R. Theken and the other members of Theken Spine, LLC
party thereto (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on July 24, 2008)
|
10.52
|
|
Form of Indemnification Agreement for Non-Employee Directors and
Officers (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on December 24,
2008)*
|
10.53
|
|
Form of Contract Stock/Restricted Units Agreement for Mr.
Carlozzi and Mr. Henneman (Incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on
December 24, 2008)*
|
10.54
|
|
Piggyback Registration Rights Agreement dated December 22, 2008
between Integra LifeSciences Holdings Corporation and George
Heenan, Thomas Gilliam and Michael Evers, as trustees of The
Bruce A. LeVahn 2008 Trust and Steven M. LeVahn (Incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on December 29, 2008)
|
10.55(a)
|
|
Lease Agreement between 109 Morgan Lane, LLC and Integra
LifeSciences Corporation, dated May 15, 2008 (Incorporated by
reference to Exhibit 10.10 to the Companys Quarterly
Report on Form 10-Q for the quarter ended June 30, 2008)
|
10.55(b)
|
|
First Amendment to Lease Agreement between 109 Morgan Lane, LLC
and Integra LifeSciences Corporation, dated March 9, 2009
(Incorporated by reference to Exhibit 10.9 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31,
2009)
|
21
|
|
Subsidiaries of the Company+
|
23
|
|
Consent of Pricewaterhouse Coopers LLP+
|
31.1
|
|
Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002+
|
31.2
|
|
Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002+
|
32.1
|
|
Certification of Principal Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002+
|
32.2
|
|
Certification of Principal Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002+
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
+ |
|
Indicates this document is filed as an exhibit herewith. |
The Companys Commission File Number for Reports on
Form 10-K,
Form 10-Q
and
Form 8-K
is 0-26224.
57
SIGNATURES
Pursuant to the requirements of Section 13 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
Stuart M. Essig
President and Chief Executive Officer
Date: February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons, on behalf of the registrant in the capacities indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Stuart
M. Essig
Stuart
M. Essig
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ John
B. Henneman, III
John
B. Henneman, III
|
|
Executive Vice President, Finance and Administration, and Chief
Financial Officer (Principal Financial Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Jerry
E. Corbin
Jerry
E. Corbin
|
|
Vice President and Corporate Controller (Principal Accounting
Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Richard
E. Caruso, Ph.D.
Richard
E. Caruso, Ph.D.
|
|
Chairman of the Board
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Thomas
J. Baltimore, Jr.
Thomas
J. Baltimore, Jr.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Keith
Bradley, Ph.D.
Keith
Bradley, Ph.D.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Neal
Moszkowski
Neal
Moszkowski
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Raymond
G. Murphy
Raymond
G. Murphy
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Christian
Schade
Christian
Schade
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ James
M. Sullivan
James
M. Sullivan
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Anne
M. VanLent
Anne
M. VanLent
|
|
Director
|
|
February 26, 2010
|
58
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Integra LifeSciences Holdings Corporation:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Integra
LifeSciences Holdings Corporation and its subsidiaries at
December 31, 2009 and December 31, 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed under Item 15(a)(2)
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for convertible debt instruments that may be settled in cash
upon conversion and the calculation of earnings per share for
share based payment transactions that are participating
securities in 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Florham Park, New Jersey
February 26, 2010
F-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenue, net
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
$
|
550,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues
|
|
|
244,918
|
|
|
|
252,826
|
|
|
|
214,674
|
|
Research and development
|
|
|
44,280
|
|
|
|
60,495
|
|
|
|
30,658
|
|
Selling, general and administrative
|
|
|
281,102
|
|
|
|
280,997
|
|
|
|
225,187
|
|
Intangible asset amortization
|
|
|
14,363
|
|
|
|
12,875
|
|
|
|
12,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
584,663
|
|
|
|
607,193
|
|
|
|
483,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
97,824
|
|
|
|
47,411
|
|
|
|
67,288
|
|
Interest income
|
|
|
631
|
|
|
|
2,114
|
|
|
|
3,552
|
|
Interest expense
|
|
|
(23,227
|
)
|
|
|
(30,085
|
)
|
|
|
(27,113
|
)
|
Other income (expense), net
|
|
|
(2,076
|
)
|
|
|
(905
|
)
|
|
|
2,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
73,152
|
|
|
|
18,535
|
|
|
|
46,698
|
|
Provision for (benefit from) income taxes
|
|
|
22,197
|
|
|
|
(9,192
|
)
|
|
|
20,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
$
|
25,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
1.75
|
|
|
$
|
0.98
|
|
|
$
|
0.91
|
|
Diluted net income per common share
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
|
$
|
0.86
|
|
Weighted average common shares outstanding (See Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,038
|
|
|
|
27,781
|
|
|
|
27,712
|
|
Diluted
|
|
|
29,292
|
|
|
|
28,378
|
|
|
|
29,373
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
71,891
|
|
|
$
|
183,546
|
|
Trade accounts receivable, net of allowances of $11,216 and
$10,052
|
|
|
103,228
|
|
|
|
112,417
|
|
Inventories, net
|
|
|
140,240
|
|
|
|
146,103
|
|
Deferred tax assets
|
|
|
29,972
|
|
|
|
24,135
|
|
Prepaid expenses and other current assets
|
|
|
20,032
|
|
|
|
31,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
365,363
|
|
|
|
497,392
|
|
Property, plant, and equipment, net
|
|
|
83,526
|
|
|
|
76,003
|
|
Intangible assets, net
|
|
|
211,117
|
|
|
|
225,998
|
|
Goodwill
|
|
|
261,941
|
|
|
|
212,094
|
|
Deferred tax assets
|
|
|
15,841
|
|
|
|
10,004
|
|
Other assets
|
|
|
2,314
|
|
|
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
940,102
|
|
|
$
|
1,026,014
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
$
|
|
|
|
$
|
100,000
|
|
Convertible securities
|
|
|
76,760
|
|
|
|
|
|
Accounts payable, trade
|
|
|
24,598
|
|
|
|
22,964
|
|
Deferred revenue
|
|
|
4,077
|
|
|
|
3,053
|
|
Accrued compensation
|
|
|
23,227
|
|
|
|
16,030
|
|
Accrued expenses and other current liabilities
|
|
|
28,068
|
|
|
|
32,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
156,730
|
|
|
|
174,751
|
|
Long-term borrowings under senior credit facility
|
|
|
160,000
|
|
|
|
160,000
|
|
Long-term convertible securities
|
|
|
148,754
|
|
|
|
299,480
|
|
Deferred tax liabilities
|
|
|
9,319
|
|
|
|
|
|
Other liabilities
|
|
|
20,414
|
|
|
|
19,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
495,217
|
|
|
|
653,705
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred Stock; no par value; 15,000 authorized shares; none
outstanding
|
|
|
|
|
|
|
|
|
Common stock; $.01 par value; 60,000 authorized shares;
34,958 and 34,352 issued
|
|
|
350
|
|
|
|
344
|
|
Additional paid-in capital
|
|
|
520,849
|
|
|
|
502,784
|
|
Treasury stock, at cost; 6,354 shares
|
|
|
(252,380
|
)
|
|
|
(252,380
|
)
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
9,746
|
|
|
|
6,314
|
|
Pension liability adjustment, net of tax
|
|
|
(860
|
)
|
|
|
(959
|
)
|
Unrealized gain on derivatives, net of tax
|
|
|
19
|
|
|
|
|
|
Retained earnings
|
|
|
167,161
|
|
|
|
116,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
444,885
|
|
|
|
372,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
940,102
|
|
|
$
|
1,026,014
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
$
|
25,749
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
39,688
|
|
|
|
30,717
|
|
|
|
25,627
|
|
In-process research and development
|
|
|
277
|
|
|
|
25,240
|
|
|
|
4,600
|
|
Deferred income tax provision (benefit)
|
|
|
548
|
|
|
|
(33,542
|
)
|
|
|
(18,362
|
)
|
Share-based compensation
|
|
|
15,580
|
|
|
|
32,635
|
|
|
|
15,394
|
|
Gain on sale of assets/investments
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
Amortization of bond issuance costs
|
|
|
2,400
|
|
|
|
2,431
|
|
|
|
1,412
|
|
Non-cash interest expense
|
|
|
9,899
|
|
|
|
12,471
|
|
|
|
13,364
|
|
Payment of accreted interest
|
|
|
(5,391
|
)
|
|
|
|
|
|
|
|
|
Gain on convertible note repurchases
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefits from stock-based compensation arrangements
|
|
|
(20
|
)
|
|
|
(1,590
|
)
|
|
|
(1,224
|
)
|
Other, net
|
|
|
|
|
|
|
18
|
|
|
|
791
|
|
Changes in assets and liabilities, net of business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,808
|
|
|
|
(4,710
|
)
|
|
|
(2,841
|
)
|
Inventories
|
|
|
9,405
|
|
|
|
10,823
|
|
|
|
(18,591
|
)
|
Prepaid expenses and other current assets
|
|
|
(4,314
|
)
|
|
|
3,974
|
|
|
|
616
|
|
Refundable income taxes
|
|
|
11,343
|
|
|
|
(18,821
|
)
|
|
|
|
|
Other non-current assets
|
|
|
411
|
|
|
|
(102
|
)
|
|
|
364
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
4,550
|
|
|
|
(17,258
|
)
|
|
|
118
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
1,235
|
|
Deferred revenue
|
|
|
(289
|
)
|
|
|
(372
|
)
|
|
|
(3,071
|
)
|
Other liabilities
|
|
|
(1,135
|
)
|
|
|
2,949
|
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
143,235
|
|
|
|
72,590
|
|
|
|
47,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in business acquisitions, net of cash acquired
|
|
|
(60,783
|
)
|
|
|
(86,874
|
)
|
|
|
(100,810
|
)
|
Purchases of property and equipment
|
|
|
(25,238
|
)
|
|
|
(13,401
|
)
|
|
|
(22,572
|
)
|
Proceeds from sales of property and equipment
|
|
|
|
|
|
|
|
|
|
|
411
|
|
Purchases of intangible assets
|
|
|
(2,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(88,352
|
)
|
|
|
(100,275
|
)
|
|
|
(122,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
|
|
|
|
|
260,000
|
|
|
|
75,000
|
|
Repayments under senior credit facility
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(175,045
|
)
|
Repurchase of liability component of convertible notes
|
|
|
(78,005
|
)
|
|
|
(119,558
|
)
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Proceeds from sale of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
21,662
|
|
Purchase option hedge on convertible notes
|
|
|
|
|
|
|
|
|
|
|
(46,771
|
)
|
Convertible note issuance and other financing costs
|
|
|
|
|
|
|
|
|
|
|
(9,832
|
)
|
Proceeds from exercised stock options and warrants
|
|
|
6,643
|
|
|
|
11,504
|
|
|
|
18,781
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(106,534
|
)
|
Excess tax benefits from stock-based compensation arrangements
|
|
|
20
|
|
|
|
1,590
|
|
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(171,342
|
)
|
|
|
153,536
|
|
|
|
108,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
4,804
|
|
|
|
356
|
|
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(111,655
|
)
|
|
|
126,207
|
|
|
|
34,642
|
|
Cash and cash equivalents at beginning of period
|
|
|
183,546
|
|
|
|
57,339
|
|
|
|
22,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
71,891
|
|
|
$
|
183,546
|
|
|
$
|
57,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
11,336
|
|
|
$
|
17,259
|
|
|
$
|
10,870
|
|
Cash paid during the year for income taxes
|
|
$
|
20,529
|
|
|
$
|
41,246
|
|
|
$
|
38,664
|
|
Supplemental non-cash disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition fees included in liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,478
|
|
Property and equipment purchases included in liabilities
|
|
$
|
997
|
|
|
$
|
571
|
|
|
$
|
294
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Income
|
|
|
Retained
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2006
|
|
|
31,464
|
|
|
$
|
315
|
|
|
|
(4,147
|
)
|
|
$
|
(145,846
|
)
|
|
$
|
373,984
|
|
|
$
|
8,080
|
|
|
$
|
65,251
|
|
|
$
|
301,784
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,749
|
|
|
|
25,749
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,723
|
|
|
|
|
|
|
|
9,723
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,242
|
|
|
|
|
|
|
|
1,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of equity component of convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,554
|
|
|
|
|
|
|
|
|
|
|
|
26,554
|
|
Release of valuation allowance on deferred tax asset related to
convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,711
|
|
|
|
|
|
|
|
|
|
|
|
2,711
|
|
Issuance of common stock through employee benefit plans
|
|
|
788
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
18,528
|
|
|
|
|
|
|
|
|
|
|
|
18,536
|
|
Tax benefit related to call options on convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,542
|
|
|
|
|
|
|
|
|
|
|
|
17,542
|
|
Tax benefit related to stock option exercises and issuance of
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,087
|
|
|
|
|
|
|
|
|
|
|
|
3,087
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,478
|
|
|
|
|
|
|
|
|
|
|
|
15,478
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(2,207
|
)
|
|
|
(106,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,534
|
)
|
Purchase option hedge on convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,771
|
)
|
Sale of stock purchase warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,662
|
|
|
|
|
|
|
|
|
|
|
|
21,662
|
|
Equity portion of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,573
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,573
|
)
|
Cumulative effect of the adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,632
|
)
|
|
|
(1,632
|
)
|
Convertible note share conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
32,252
|
|
|
$
|
323
|
|
|
|
(6,354
|
)
|
|
$
|
(252,380
|
)
|
|
$
|
431,238
|
|
|
$
|
19,045
|
|
|
$
|
89,368
|
|
|
$
|
287,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095
|
|
|
|
|
|
|
|
(889
|
)
|
|
|
206
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,727
|
|
|
|
27,727
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,454
|
)
|
|
|
|
|
|
|
(13,454
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(236
|
)
|
|
|
|
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of valuation allowance on deferred tax asset related to
convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,144
|
|
|
|
|
|
|
|
|
|
|
|
2,144
|
|
Issuance of common stock through employee benefit plans
|
|
|
1,022
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11,442
|
|
|
|
|
|
|
|
|
|
|
|
11,453
|
|
Issuance of common stock for convertible note settlement
|
|
|
768
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
404
|
|
Recapture of deferred tax for convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,453
|
|
|
|
|
|
|
|
|
|
|
|
11,453
|
|
Tax benefit related to stock option exercises and issuance of
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,496
|
|
|
|
|
|
|
|
|
|
|
|
32,496
|
|
Issuance and commitment of common stock for acquisition
|
|
|
310
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
10,707
|
|
|
|
|
|
|
|
|
|
|
|
10,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
34,352
|
|
|
$
|
344
|
|
|
|
(6,354
|
)
|
|
$
|
(252,380
|
)
|
|
$
|
502,784
|
|
|
$
|
5,355
|
|
|
$
|
116,206
|
|
|
$
|
372,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,955
|
|
|
|
50,955
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,432
|
|
|
|
|
|
|
|
3,432
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
99
|
|
Unrealized gain on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock through employee benefit plans
|
|
|
606
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
3,145
|
|
|
|
|
|
|
|
|
|
|
|
3,151
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,938
|
|
|
|
|
|
|
|
|
|
|
|
14,938
|
|
Repurchase of equity component of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
34,958
|
|
|
$
|
350
|
|
|
|
(6,354
|
)
|
|
$
|
(252,380
|
)
|
|
$
|
520,849
|
|
|
$
|
8,905
|
|
|
$
|
167,161
|
|
|
$
|
444,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-5
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
Integra LifeSciences Holdings Corporation (the
Company) incorporated in Delaware in 1989. The
Company, a world leader in regenerative medicine, is dedicated
to improving the quality of life for patients through the
development, manufacturing, and marketing of cost-effective
surgical implants and medical instruments. Its products are used
primarily in neurosurgery, extremity reconstruction, orthopedics
and general surgery.
The Company sells its products directly through various sales
forces and through a variety of other distribution channels.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS
OF PRESENTATION
These financial statements and the accompanying notes are
prepared in accordance with accounting principles generally
accepted in the United States of America and conform to
Regulation S-X
under the Securities Exchange Act of 1934, as amended.
PRINCIPLES
OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions are
eliminated in consolidation. See Note 3,
Acquisitions, for details of new subsidiaries
included in the consolidation.
USE OF
ESTIMATES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
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, amortization periods for acquired intangible assets
and goodwill, discount rates and estimated projected cash flows
used to value and test impairments of long-lived assets and
goodwill, computation of taxes, valuation allowances recorded
against deferred tax assets, the valuation of stock-based
compensation, estimates of projected cash flows and depreciation
and amortization periods for long-lived assets, valuation of
intangible assets and in-process research and development, 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.
RECLASSIFICATIONS
Certain amounts from the prior years financial statements
have been reclassified in order to conform to the current
years presentation.
CASH
AND CASH EQUIVALENTS
The Company considers all short term, highly liquid investments
purchased with original maturities of three months or less to be
cash equivalents.
TRADE
ACCOUNTS RECEIVABLE AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
RECEIVABLE
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The Company grants credit to customers
in the normal course of business, but generally does not require
collateral or any other security to support its receivables.
F-6
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company evaluates the collectibility of accounts receivable
based on a combination of factors. In circumstances where a
specific customer is unable to meet its financial obligations to
the Company, a provision to the allowances for doubtful accounts
is recorded against amounts due to reduce the net recognized
receivable to the amount that is reasonably expected to be
collected. For all other customers, a provision to the
allowances for doubtful accounts is recorded based on factors
including the length of time the receivables are past due, the
current business environment and the Companys historical
experience. Provisions to the allowances for doubtful accounts
are recorded to selling, general and administrative expenses.
Account balances are charged off against the allowance when the
Company feels it is probable that the receivable will not be
recovered.
INVENTORIES
Inventories, consisting of purchased materials, direct labor and
manufacturing overhead, are stated at the lower of cost, the
value determined by the
first-in,
first-out method, or market. Inventories consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Finished goods
|
|
$
|
109,077
|
|
|
$
|
109,033
|
|
Work in process
|
|
|
28,757
|
|
|
|
21,883
|
|
Raw materials
|
|
|
30,131
|
|
|
|
38,688
|
|
Less: reserves
|
|
|
(27,725
|
)
|
|
|
(23,501
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
140,240
|
|
|
$
|
146,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At each balance sheet date, the Company evaluates inventories
for excess quantities, obsolescence or shelf-life expiration.
This evaluation includes analyses of historical sales levels by
product, projections of future demand, the risk of technological
or competitive obsolescence for products, general market
conditions, a review of the shelf life expiration dates for
products, as well as the feasibility of reworking or using
excess or obsolete products or components in the production or
assembly of other products that are not obsolete or for which
there are not excess quantities in inventory. To the extent that
management determines there are excess or obsolete inventory or
quantities with a shelf life that is too near its expiration for
the Company to reasonably expect that it can sell those products
prior to their expiration, valuation reserves are recorded
against all or a portion of the value of the related products to
adjust their carrying value to estimated net realizable value.
The Company capitalizes inventory costs associated with certain
products prior to regulatory approval, based on
managements judgment of probable future commercialization.
The Company could be required to expense previously capitalized
costs related to pre-approval inventory upon a change in such
judgment, due to, among other potential factors, a denial or
delay of approval by necessary regulatory bodies or a decision
by management to discontinue the related development program. No
such amounts were capitalized at December 31, 2009 or 2008.
PROPERTY,
PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company
provides for depreciation using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements
are amortized over the lesser of the lease term or the useful
life. The cost of major additions and improvements is
capitalized, while maintenance and repair costs that do not
improve or extend the lives of the respective assets are charged
to operations as incurred.
F-7
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property, plant and equipment balances and corresponding lives
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Lives
|
|
|
|
(In thousands)
|
|
|
|
|
|
Land
|
|
$
|
2,803
|
|
|
$
|
1,832
|
|
|
|
|
|
Buildings and building improvements
|
|
|
6,709
|
|
|
|
6,163
|
|
|
|
5-40 years
|
|
Leasehold improvements
|
|
|
35,335
|
|
|
|
31,968
|
|
|
|
1-20 years
|
|
Machinery and equipment
|
|
|
81,572
|
|
|
|
62,920
|
|
|
|
2-15 years
|
|
Furniture, fixtures and information systems
|
|
|
42,526
|
|
|
|
38,095
|
|
|
|
1-15 years
|
|
Construction in progress
|
|
|
5,039
|
|
|
|
7,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
173,984
|
|
|
|
148,284
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(90,458
|
)
|
|
|
(72,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,526
|
|
|
$
|
76,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense associated with property, plant and
equipment was $18.8 million, $12.8 million and
$8.8 million in 2009, 2008 and 2007, respectively.
GOODWILL
AND OTHER INTANGIBLE ASSETS
The excess of the cost over the fair value of net assets of
acquired businesses is recorded as goodwill. Goodwill is not
subject to amortization, but is reviewed for impairment at the
reporting unit level annually, or more frequently if impairment
indicators arise. The Companys assessment of the
recoverability of goodwill is based upon a comparison of the
carrying value of goodwill with its estimated fair value,
determined using a discounted cash flow methodology. No
impairment of goodwill has been identified during any of the
periods presented.
Changes in the carrying amount of goodwill in 2009 and 2008 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
212,094
|
|
|
$
|
207,438
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, beginning of year
|
|
|
212,094
|
|
|
|
207,438
|
|
Integra Spine acquisition, earnout payment and working capital
adjustment
|
|
|
49,796
|
|
|
|
6,395
|
|
Minnesota Scientific acquisition and working capital adjustment
|
|
|
101
|
|
|
|
2,997
|
|
Canada Microsurgical earnout payment adjustments
|
|
|
645
|
|
|
|
113
|
|
IsoTis working capital and tax adjustments
|
|
|
|
|
|
|
(2,148
|
)
|
Integra Neurosciences Pty Ltd. earnout payment and working
capital adjustments
|
|
|
130
|
|
|
|
|
|
Luxtec/LXU working capital and tax adjustments
|
|
|
|
|
|
|
(476
|
)
|
Precision Dental working capital and tax adjustments
|
|
|
|
|
|
|
320
|
|
Foreign currency translation and other
|
|
|
(825
|
)
|
|
|
(2,545
|
)
|
|
|
|
|
|
|
|
|
|
Goodwill, end of year
|
|
$
|
261,941
|
|
|
$
|
212,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company capitalizes costs incurred to renew or extend the
term of recognized intangible assets and amortizes those costs
over their expected useful lives.
F-8
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the third quarter of 2009, the Company recorded a
$0.9 million impairment charge related to a
technology-based intangible asset as a component of its cost of
product revenues. The impairment charge relates to decisions
made by management to discontinue development of the related
technology. The Company also recorded a $0.6 million
impairment charge related to a trade name in connection with the
revised expected benefit from the related trade name.
The components of the Companys identifiable intangible
assets were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Average
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
|
12 years
|
|
|
$
|
69,632
|
|
|
$
|
(22,526
|
)
|
|
$
|
47,106
|
|
|
$
|
67,154
|
|
|
$
|
(15,658
|
)
|
|
$
|
51,496
|
|
Customer relationships
|
|
|
12 years
|
|
|
|
97,922
|
|
|
|
(36,724
|
)
|
|
|
61,198
|
|
|
|
94,487
|
|
|
|
(26,104
|
)
|
|
|
68,383
|
|
Trademarks/brand names
|
|
|
35 years
|
|
|
|
35,091
|
|
|
|
(8,692
|
)
|
|
|
26,399
|
|
|
|
34,582
|
|
|
|
(6,547
|
)
|
|
|
28,035
|
|
Trademarks/brand names
|
|
|
Indefinite
|
|
|
|
50,034
|
|
|
|
|
|
|
|
50,034
|
|
|
|
50,034
|
|
|
|
|
|
|
|
50,034
|
|
Noncompetition agreement
|
|
|
5 years
|
|
|
|
6,666
|
|
|
|
(6,532
|
)
|
|
|
134
|
|
|
|
6,449
|
|
|
|
(5,724
|
)
|
|
|
725
|
|
Supplier relationships
|
|
|
30 years
|
|
|
|
29,300
|
|
|
|
(3,647
|
)
|
|
|
25,653
|
|
|
|
29,300
|
|
|
|
(2,670
|
)
|
|
|
26,630
|
|
All other
|
|
|
15 years
|
|
|
|
1,531
|
|
|
|
(938
|
)
|
|
|
593
|
|
|
|
1,531
|
|
|
|
(836
|
)
|
|
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
290,176
|
|
|
$
|
(79,059
|
)
|
|
$
|
211,117
|
|
|
$
|
283,537
|
|
|
$
|
(57,539
|
)
|
|
$
|
225,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2009,
2008 and 2007 was $21.0 million, $17.6 million and
$16.8 million, respectively. Annual amortization expense is
expected to approximate $17.0 million in 2010,
$16.7 million in 2011, $16.4 million in 2012,
$13.8 million in 2013, $12.8 million in 2014 and
$84.5 million thereafter. Identifiable intangible assets
are initially recorded at fair market value at the time of
acquisition generally using an income or cost approach.
Amortization of product technology-based intangible assets,
which totaled $6.6 million, $4.8 million and
$4.2 million in 2009, 2008 and 2007, respectively, is
presented by the Company within cost of product revenues.
LONG-LIVED
ASSETS
Long-lived assets held and used by the Company, including
property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. For purposes of evaluating the
recoverability of long-lived assets to be held and used, a
recoverability test is performed using projected undiscounted
net cash flows applicable to the long-lived assets. If an
impairment exists, the amount of such impairment is calculated
based on the estimated fair value of the asset. Impairments to
long-lived assets to be disposed of are recorded based upon the
difference between the carrying value and the fair value of the
applicable assets.
INTEGRA
FOUNDATION
The Company may periodically make contributions to the Integra
Foundation, Inc. The Integra Foundation was incorporated in 2002
exclusively for charitable, educational, and scientific purposes
and qualifies under IRC 501(c)(3) as an exempt private
foundation. Under its charter, the Integra Foundation engages in
activities that promote health, the diagnosis and treatment of
disease, and the development of medical science through grants,
contributions and other appropriate means. The Integra
Foundation is a separate legal entity and is not a subsidiary of
the Company. Therefore, its results are not included in these
consolidated financial statements. The Company contributed
$0.6 million, $1.1 million and $1.1 million to
the Integra Foundation in 2009, 2008 and 2007, respectively.
These contributions were recorded in selling, general, and
administrative expense.
F-9
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
DERIVATIVES
The Company reports all derivatives at their estimated fair
value and records changes in fair value in current earnings or
defers these changes until a related hedged item is recognized
in earnings, depending on the nature and effectiveness of the
hedging relationship. The designation of a derivative as a hedge
is made on the date the derivative contract is executed. On an
ongoing basis, the Company assesses whether each derivative
continues to be highly effective in offsetting changes in the
fair value or cash flows of hedged items. If and when a
derivative is no longer expected to be highly effective, the
Company discontinues hedge accounting. Any hedge ineffectiveness
is included in current period earnings in other income
(expense), net.
The Company documents all relationships between hedged items and
derivatives. The Companys overall risk management strategy
describes the circumstances under which it may undertake hedge
transactions and enter into derivatives. The objective of the
Companys current risk management strategy is to hedge the
risk of changes in foreign currency exchange rates related to
intercompany debt.
The determination of fair value of derivatives is based on
valuation models that use observable market quotes or projected
cash flows and the Companys view of the creditworthiness
of the derivative counterparty.
FOREIGN
CURRENCY
All assets and liabilities of foreign subsidiaries which have a
functional currency other than the U.S. dollar are
translated at the rate of exchange at year-end, while elements
of the income statement are translated at the average exchange
rates in effect during the year. The net effect of these
translation adjustments is shown as a component of accumulated
other comprehensive income (loss). These currency translation
adjustments are not currently adjusted for income taxes as they
relate to permanent investments in
non-U.S. subsidiaries.
Foreign currency transaction gains and losses are reported in
Other income (expense), net.
INCOME
TAXES
Income taxes are accounted by using the asset and liability
method in accounting for income taxes. Deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. A valuation allowance is
provided when it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period when the change is enacted.
REVENUE
RECOGNITION
Total revenues, net, include product sales, product royalties
and other revenues, such as fees received under research,
licensing, and distribution arrangements, research grants, and
technology-related royalties.
Revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred and title and risk of loss have
passed to the customer, there is a fixed or determinable sales
price, and collectibility of that sales price is reasonably
assured. For product sales, the Companys stated terms are
primarily FOB shipping point and with most customers, title and
risk of loss pass to the customer at that time. With certain
United States customers, the Company retains risk of loss until
the customers receive the product, and in those situations, the
Company recognizes revenue upon receipt by the customer.
Each revenue transaction is evidenced by either a contract with
the customer or a valid purchase order and an invoice which
includes all relevant terms of sale. There are generally no
significant customer acceptance or other conditions that prevent
the Company from recognizing revenue in accordance with its
delivery terms. In certain cases, where the Company has
performance obligations that are significant to the
functionality of the product, the Company recognizes revenue
upon fulfillment of its obligation.
F-10
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales invoices issued to customers contain the Companys
price for each product or service. The Company performs a review
of each specific customers credit worthiness and ability
to pay prior to accepting them as a customer. Further, the
Company performs periodic reviews of its customers status
prospectively.
The Company records a provision for estimated returns and
allowances on revenues in the same period as the related
revenues are recorded. These estimates are based on historical
sales returns and discounts and other known factors. The
provisions are recorded as a reduction to revenues.
The Companys return policy, as set forth in its product
catalogs and sales invoices, requires the Company to review and
authorize the return of product in advance. Upon authorization,
a credit will be issued for goods returned within a set amount
of days from shipment, which is generally ninety days.
Product royalties are estimated and recognized in the same
period that the royalty products are sold by our customers. The
Company estimates and recognizes royalty revenue based upon
communication with licensees, historical information and
expected sales trends. Differences between actual revenues and
estimated royalty revenues are adjusted in the period in which
they become known, which is typically the following quarter.
Historically, such adjustments have not been significant.
Other operating revenues include fees received under research,
licensing, and distribution arrangements, technology-related
royalties and research grants. Non-refundable fees received
under research, licensing and distribution arrangements or for
the licensing of technology are recognized as revenue when
received if the Company has no continuing obligations to the
other party. For those arrangements where the Company has
continuing performance obligations, revenue is recognized using
the lesser of the amount of non-refundable cash received or the
result achieved using the proportional performance method of
accounting based upon the estimated cost to complete these
obligations. Research grant revenue is recognized when the
related expenses are incurred.
SHIPPING
AND HANDLING FEES AND COSTS
Amounts billed to customers for shipping and handling are
included in revenues. The related shipping and freight charges
incurred by the Company are included in cost of product
revenues. Distribution and handling costs of $8.3 million,
$7.7 million and $8.5 million were recorded in
selling, general and administrative expense during 2009, 2008
and 2007, respectively.
PRODUCT
WARRANTIES
Certain of the Companys medical devices, including
monitoring systems and neurosurgical systems, are reusable and
are designed to operate over long periods of time. These
products are sold with warranties generally extending for up to
two years from date of purchase. The Company accrues estimated
product warranty costs at the time of sale based on historical
experience. Any additional amounts are recorded when such costs
are probable and can be reasonably estimated.
Accrued warranty expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
701
|
|
|
$
|
770
|
|
Net change
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
632
|
|
|
$
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
RESEARCH
AND DEVELOPMENT
Research and development costs, including salaries,
depreciation, consultant and other external fees, and facility
costs directly attributable to research and development
activities, are expensed in the period in which they are
incurred.
In-process research and development charges recorded in
connection with acquisitions represent the value assigned to
acquired assets to be used in research and development
activities and for which there is no alternative use. Value is
generally assigned to these assets based on the net present
value of the projected cash flows expected to be generated by
those assets.
The Company recorded in-process research and development charges
of $0.3 million related to certain assets acquired from
Innovative Spinal Technologies, Inc. in 2009, $25.2 million
related to the Integra Spine acquisition in 2008, and
$4.6 million related to the IsoTis acquisition in 2007. All
of these charges were related to technology that had not yet
reached feasibility and had no alternative future use.
EMPLOYEE
TERMINATION BENEFITS AND OTHER EXIT-RELATED COSTS
The Company does not have a written severance plan, and it does
not offer similar termination benefits to affected employees in
all restructuring initiatives. Accordingly, in situations where
minimum statutory termination benefits must be paid to the
affected employees, the Company records employee severance costs
associated with these restructuring activities in accordance
with the authoritative guidance for non-retirement
post-employment benefits. Charges associated with these
activities are recorded when the payment of benefits is probable
and can be reasonably estimated. In all other situations where
the Company pays out termination benefits, including
supplemental benefits paid in excess of statutory minimum
amounts and benefits offered to affected employees based on
managements discretion, the Company records these
termination costs in accordance with the authoritative guidance
for exit or disposal costs.
The timing of the recognition of charges for employee severance
costs depends on whether the affected employees are required to
render service beyond their legal notification period in order
to receive the benefits. If affected employees are required to
render service beyond their legal notification period, charges
are recognized ratably over the future service period.
Otherwise, charges are recognized when management has approved a
specific plan and employee communication requirements have been
met.
For leased facilities and equipment that have been abandoned,
the Company records estimated lease losses based on the fair
value of the lease liability, as measured by the present value
of future lease payments subsequent to abandonment, less the
present value of any estimated sublease income. For owned
facilities and equipment that will be disposed of, the Company
records impairment losses based on fair value less costs to
sell. The Company also reviews the remaining useful life of
long-lived assets following a decision to exit a facility and
may accelerate depreciation or amortization of these assets, as
appropriate.
STOCK-BASED
COMPENSATION
The Company applies the authoritative guidance for stock based
compensation. This guidance requires companies to recognize the
expense related to the fair value of their stock-based
compensation awards. Since the adoption of the guidance, there
have been no changes to the Companys stock compensation
plans or modifications to outstanding stock-based awards which
would change the value of any awards outstanding. Stock-based
compensation expense for stock-based compensation awards granted
after January 1, 2006 was based on the fair value on the
grant date using the binomial distribution model. The Company
recognized compensation expense for stock option awards on a
ratable basis over the requisite service period of the award.
The long form method was used in the determination of the
windfall tax benefit in accordance with the guidance.
F-12
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
PENSION
BENEFITS
Defined benefit pension plans cover certain employees in the
U.K. and former employees in Germany. Various factors are
considered in determining the pension liability, including the
number of employees expected to be paid their salary levels and
years of service, the expected return on plan assets, the
discount rate used to determine the benefit obligations, the
timing of benefit payments and other actuarial assumptions. If
the actual results and events for the pension plans differ from
current assumptions, the benefit obligation may be over or under
valued.
Retirement benefit plan assumptions are reassessed on an annual
basis or more frequently if changes in circumstances indicate a
re-evaluation of assumptions are required. The key benefit plan
assumptions are the discount rate and expected rate of return on
plan assets. The discount rate is based on average rates on
bonds that matched the expected cash outflows of the benefit
plans. The expected rate of return is based on historical and
expected returns on the various categories of plan assets.
Pension contributions are expected to be consistent over the
next few years since the Miltex plan was dissolved in 2008, the
Germany plan is frozen and the U.K. plan is closed to new
participants. Contributions to the plans for 2009, 2008 and 2007
were $0.4 million, $0.5 million and $0.5 million,
respectively.
CONCENTRATION
OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and
cash equivalents, which are held at major financial
institutions, investment-grade marketable debt securities and
trade receivables. The Companys products are sold on an
uncollateralized basis and on credit terms based upon a credit
risk assessment of each customer.
RECENTLY
ADOPTED ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board
(FASB) issued SFAS 168, The FASB Accounting
Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles, which is effective for interim and annual
periods ending after September 15, 2009. This pronouncement
made the FASB Accounting Standards Codification the
single official source of authoritative, nongovernmental
U.S. generally accepted accounting principles and
supersedes all existing non-SEC standards. The references to
accounting literature included in the footnotes herein have been
updated to remove all references to superseded literature.
Effective January 1, 2009, the Company adopted the
authoritative guidance for accounting for convertible debt
instruments that may be settled in cash upon conversion
(including partial cash settlement). The guidance requires that
the liability and equity components of convertible debt
instruments that may be settled in cash upon conversion
(including partial cash settlement) be separately accounted for
in a manner that reflects an issuers nonconvertible debt
borrowing rate. The guidance is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years. The guidance is effective for the $330.0 million (of
which $243.0 million remains outstanding) aggregate
principal amount of the senior convertible notes due June 2010
and June 2012 with an annual rate of 2.75% and 2.375%,
respectively, (the 2010 Notes and the 2012
Notes, respectively, and collectively the
Notes), and the $119.5 million exchanged
portion of our contingent convertible subordinated notes that
were due March 2008 with an annual rate of 2.5% (the 2008
Notes) and requires retrospective application for all
periods presented. Accordingly, the financial statements
included herein have been previously restated to reflect
retroactive adoption.
Effective January 1, 2009, the Company adopted the
authoritative guidance for determining whether instruments
granted in share-based payment transactions are participating
securities. The guidance states that unvested share-based
payment awards that contain rights to receive nonforfeitable
dividends or dividend equivalents (whether paid or unpaid) are
participating securities, and thus, should be included in the
two-class method of computing earnings per share
(EPS) and requires retrospective application for all
periods presented. Accordingly, the financial statements
included herein have been previously restated to reflect
retroactive adoption. The adoption
F-13
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of this standard did not have a material impact on the
Companys disclosure of EPS. See Note 12, Net
Income Per Share for a further discussion.
Effective January 1, 2009, the Company adopted the revised
authoritative guidance for business combinations. The new
guidance changes the practice for accounting for business
combinations, such as requiring that the Company
(1) expense transaction costs as incurred, rather than
capitalizing them as part of the purchase price; (2) record
contingent consideration arrangements and pre-acquisition
contingencies, such as legal issues, at fair value at the
acquisition date, with subsequent changes in fair value recorded
in the income statement; (3) capitalize the fair value of
acquired research and development assets, whereas the Company
previously determined the acquisition-date fair value and then
immediately charged the value to expense; and (4) limit the
conditions under which restructuring expenses can be accrued in
the opening balance sheet of a target to only those where the
requirements would have been met at the acquisition date.
Additionally, the new guidance provides that, upon initially
obtaining control, an acquirer shall recognize 100 percent
of the fair values of acquired assets, including goodwill, and
assumed liabilities, with only limited exceptions, even if the
acquirer has not acquired 100 percent of its target. The
implementation of the new guidance could result in an increase
or decrease in future selling, general and administrative and
other operating expenses, depending upon the extent of the
Companys acquisition related activities going forward. No
business combination transactions occurred since the Company
adopted the new guidance. The adoption of this guidance did not
have a material impact on the Companys financial condition
or results of operations.
Effective January 1, 2009, the Company adopted the
authoritative guidance for determination of the useful life of
intangible assets. The new guidance amends the factors that
should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset. The intent of the new guidance is to improve
the consistency between the useful life of a recognized
intangible asset under the new business combination rules and
the period of expected cash flows used to measure the fair value
of the asset, and other generally accepted accounting
principles. The adoption of this guidance did not have a
material impact on the Companys financial condition or
results of operations.
Effective January 1, 2009, the Company adopted the
authoritative guidance for the effective date of fair value
measurements for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed
at fair value on a recurring basis (at least annually). The
adoption of this guidance did not have a material impact on the
Companys financial condition or results of operations.
Effective January 1, 2009, the Company adopted the new
authoritative guidance for disclosures about derivative
instruments and hedging activities. The new guidance requires
enhanced disclosures about derivative instruments and hedging
activities to allow for a better understanding of their effects
on an entitys financial position, financial performance,
and cash flows. Among other things, the new guidance requires
disclosure of the fair values of derivative instruments and
associated gains and losses in a tabular format. Since the new
guidance requires only additional disclosures about our
derivatives and hedging activities, the adoption of the new
guidance does not affect our financial position or results of
operations.
Effective January 1, 2009, the Company adopted the
authoritative guidance for determining whether an instrument (or
embedded feature) is indexed to an entitys own stock. The
new guidance mandates a two-step process for evaluating whether
an equity-linked financial instrument or embedded feature is
indexed to the entitys own stock. Upon the adoption of the
new guidance, equity instruments that a company issues that
contain a strike price adjustment feature may no longer be
considered indexed to the companys own stock. Accordingly,
adoption of the new guidance may change the current
classification (from equity to liability) and the related
accounting for such equity instruments outstanding at that date.
The adoption of this guidance did not change the classification
of the Companys warrants issued in connection with the
convertible debt.
In May 2009 (and as amended in February 2010), the FASB issued
and the Company adopted the new authoritative guidance for
subsequent events. The new guidance establishes general
standards of accounting for and
F-14
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
disclosure of events that occur after the balance sheet date but
before the financial statements are issued. The new guidance is
effective in the first interim period ending after June 15,
2009. The adoption of this guidance did not have a material
impact on the Companys financial condition or results of
operations.
The Company has cash and cash equivalents consisting of short
term, highly liquid investments, purchased with original
maturities of three months or less. As quoted prices in active
markets for identical assets exist, these assets are considered
Level 1 investments for fair value measurement.
BUSINESS
COMBINATIONS
Athrodax
Healthcare International Ltd.
In December 2009, the Company acquired certain assets as well as
the distribution rights for its
Newdeal®
product lines in the United Kingdom from Athrodax Healthcare
International Ltd. (Athrodax), for approximately
$3.3 million (2.0 million British Pounds) in cash,
subject to certain adjustments for working capital items. For
the last 10 years Athrodax had been the Companys
distributor of extremity reconstruction products in the United
Kingdom. The acquisition provides the Company with the
opportunity to distribute orthopedic products directly to its
United Kingdom customers, and included an experienced sales team
in the foot and ankle surgery market which had successfully
developed its brand in the United Kingdom.
The following summarizes the final allocation of the purchase
price based on fair values of the assets and liabilities
acquired (in thousands):
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
1,949
|
|
|
|
|
|
Property, plant and equipment
|
|
|
319
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
Wtd. Avg. Life 10 years
|
|
Customer relationships
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
3,597
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minnesota
Scientific, Inc.
In December 2008, the Company acquired Minnesota Scientific,
Inc., doing business as Omni-Tract Surgical
(Omni-Tract), for $6.4 million in cash paid at
closing, 310,000 unregistered shares of the Companys
common stock valued at $10.7 million (of which
135,000 shares were issued at closing, with the remainder
issued in January 2009), and $0.3 million in transaction
related costs, subject to certain adjustments. At the time of
acquisition, Omni-Tract was a global leader in the development
and manufacture of table mounted retractors and is based in St.
Paul, Minnesota. Omni-Tract markets and sells these retractor
systems for use in vascular, bariatric, general, urologic,
orthopedic, spine, pediatric, and laparoscopic surgery. The
Company has integrated Omni-Tracts product lines into its
combined offering of
Jarit®,
Padgett®,
R&B
Redmondtm,
and
Luxtec®
lines of surgical instruments and illumination systems sold by
the Integra Medical Instruments sales organization.
Management determined the preliminary fair value of assets
acquired during the fourth quarter of 2008 and the purchase
price allocation was finalized during the second quarter of 2009
with only minor adjustments to goodwill. The goodwill recorded
in connection with this acquisition is based on the benefits the
Company expects to generate from Omni-Tracts future cash
flows and is not deductible for tax purposes.
F-15
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Integra
Neurosciences Pty Ltd.
In October 2008, the Company acquired Integra Neurosciences Pty
Ltd. in Australia and Integra Neurosciences Pty Ltd. in New
Zealand for $4.0 million (6.0 million Australian
dollars) in cash at closing, $0.3 million in acquisition
expenses and working capital adjustments, and up to
$2.1 million (3.1 million Australian dollars) in
future payments based on the performance of business in the
three years after closing. Approximately $0.9 million
(1.0 million Australian dollars) of this potential revenue
performance obligation was paid in November 2009. With this
acquisition of the Companys long-standing distributor, the
Company has a direct selling presence in Australia and New
Zealand.
Management determined the preliminary fair value of assets
acquired during the fourth quarter of 2008 and the purchase
price allocation was finalized during the fourth quarter of 2009
with only minor adjustments to goodwill which is not deductible
for tax purposes.
Theken
In August 2008 the Company acquired Theken Spine, LLC, Theken
Disc, LLC and Therics, LLC (collectively, Integra
Spine) for $75.0 million in cash, subject to certain
adjustments, acquisition expenses of $2.4 million, working
capital adjustments of $3.9 million, and up to
$125.0 million in future payments based on the revenue
performance of the business in the two years after closing.
Approximately $52.0 million of this potential revenue
performance obligation was paid in November 2009. Integra Spine,
based in Akron, Ohio, designs, develops and manufactures spinal
fixation products, synthetic bone substitute products and spinal
arthroplasty products.
Management determined the preliminary fair value of assets
acquired during the third quarter of 2008 and the purchase price
allocation was finalized during the third quarter of 2009 with
only minor adjustments to goodwill. The in-process research and
development had not yet reached technological feasibility and
had no alternative future use at the date of acquisition. The
Company recorded an in-process research and development charge
of $25.2 million in the third quarter of 2008 in connection
with this acquisition, which was included in research and
development expense. The goodwill recorded in connection with
this acquisition was based on the benefits the Company expects
to generate from Thekens future cash flows and is
deductible for tax purposes.
The fair value of the in-process research and development was
determined by estimating the costs to develop the acquired
technology into commercially viable products and estimating the
net present value of the resulting net cash flows from these
projects. These cash flows were based on our best estimates of
revenue, cost of sales, research and development costs, selling,
general and administrative costs and income taxes from the
development projects. A summary of the estimates used to
calculate the net cash flows for the projects is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Net
|
|
Discount Rate
|
|
|
|
|
Cash In-
|
|
Including Factor
|
|
Acquired in-
|
|
|
Flows
|
|
to Account for
|
|
Process
|
|
|
Expected to
|
|
Uncertainty of
|
|
Research and
|
Project
|
|
Begin
|
|
Success
|
|
Development
|
|
eDisc artificial lumbar disc
|
|
|
2013
|
|
|
|
23
|
%
|
|
$
|
13.0 million
|
|
eDisc artificial cervical disc
|
|
|
2016
|
|
|
|
23
|
%
|
|
|
7.2 million
|
|
Spinal fixation implants
|
|
|
2009
|
|
|
|
15
|
%
|
|
|
4.7 million
|
|
All other
|
|
|
2009
|
|
|
|
15
|
%
|
|
|
0.3 million
|
|
Currently, the Company is reassessing its original plans with
respect to the development of the eDisc products. Of the 13
implant systems in development at the time of acquisition, 11
were successfully launched and two are still in development.
F-16
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the fair value of the assets
acquired and liabilities assumed as a result of the 2008
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integra
|
|
|
|
|
|
|
Minnesota
|
|
|
Neurosciences Pty
|
|
|
Integra
|
|
|
|
Scientific, Inc.
|
|
|
Ltd.
|
|
|
Spine
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
1,501
|
|
|
$
|
630
|
|
|
$
|
167
|
|
Accounts receivable
|
|
|
1,324
|
|
|
|
|
|
|
|
5,969
|
|
Inventory
|
|
|
544
|
|
|
|
1,198
|
|
|
|
15,130
|
|
Other current assets
|
|
|
110
|
|
|
|
|
|
|
|
699
|
|
Property, plant and equipment
|
|
|
377
|
|
|
|
66
|
|
|
|
8,244
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
3,816
|
|
|
|
|
|
|
|
13,470
|
|
Tradename
|
|
|
13,084
|
|
|
|
90
|
|
|
|
|
|
Customer relationships
|
|
|
|
|
|
|
4,367
|
|
|
|
15,630
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
25,240
|
|
Goodwill
|
|
|
2,997
|
|
|
|
97
|
|
|
|
56,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
23,753
|
|
|
|
6,448
|
|
|
|
140,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
335
|
|
|
|
70
|
|
|
|
9,716
|
|
Deferred tax liabilities non-current
|
|
|
6,030
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
6,365
|
|
|
|
1,458
|
|
|
|
9,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
17,388
|
|
|
$
|
4,990
|
|
|
$
|
131,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precise
Dental
On December 1, 2007 the Company acquired all of the
outstanding stock of the Precise Dental family of companies
(Precise) for $10.5 million in cash, and
$0.6 million in acquisition expenses and working capital
adjustments. The Precise Dental family of companies was
comprised of Precise Dental Products, Ltd., Precision Dental
International, Inc., Precise Dental Holding Corp. and Precise
Dental Internacional, S.A. de C.V., a Mexican corporation. At
the time of acquisition, the companies developed, manufactured,
procured, marketed and sold endodontic materials and dental
accessories, including the manufacture of absorbable paper
points, gutta percha and dental mirrors. Together these
companies have procurement and distribution operations in Canoga
Park, California and manufacturing operations at multiple
locations in Mexico. The Company has integrated the acquired
Canoga Park procurement and distribution functions into its
York, Pennsylvania dental operations and manages the
manufacturing operations in Mexico.
Management determined the preliminary fair value of assets
acquired during the fourth quarter of 2007 and the purchase
price allocation was finalized during the fourth quarter of 2008
with only minor changes recorded to goodwill. The goodwill
recorded in connection with this acquisition is based on the
benefits the Company expects to generate from Precises
future cash flows and is not deductible for tax purposes.
F-17
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
IsoTis
On October 29, 2007, the Company acquired all of the
outstanding stock of IsoTis, Inc. and subsidiaries
(IsoTis) for $64.0 million in cash, subject to
certain adjustments and acquisition expenses of
$4.7 million. At the time of acquisition, IsoTis was
comprised of IsoTis, Inc., IsoTis OrthoBiologics, Inc., IsoTis
NV and IsoTis International SA. IsoTis, based in Irvine,
California, was an orthobiologics company that developed,
manufactured and marketed proprietary products for the treatment
of musculoskeletal diseases and disorders. IsoTis
orthobiologics products are bone graft substitutes that promote
the regeneration of bone and are used to repair natural,
trauma-related and surgically-created defects common in
orthopedic procedures, including spinal fusions. IsoTis
commercial business is highlighted by its
Accell®
line of products, which it believes represents the next
generation in bone graft substitutes.
Management determined the preliminary fair value of assets
acquired during the fourth quarter of 2007 and the purchase
price allocation was finalized during the fourth quarter of 2008
with changes recorded to goodwill and to deferred taxes for the
release of a valuation allowance. The Company recorded an
in-process research and development charge of $4.6 million
in the fourth quarter of 2007 in connection with this
acquisition, which was included in Research and development
expense. The in-process research and development has not yet
reached technological feasibility and has no alternative future
use at the date of acquisition. The goodwill recorded in
connection with this acquisition is based on the benefits the
Company expects to generate from IsoTis future cash flows
and is not deductible for tax purposes.
Physician
Industries
On May 11, 2007, the Company acquired certain assets of the
pain management business of Physician Industries, Inc.
(Physician Industries) for approximately
$4.0 million in cash, subject to certain adjustments and
acquisition expenses of $0.1 million. In addition, the
Company may pay additional amounts over the next four years
depending on the performance of the business. At the time of
acquisition, Physician Industries, located in Salt Lake City,
Utah, assembled, marketed, and sold a comprehensive line of pain
management products for acute and chronic pain, including
customized trays for spinal, epidural, nerve block, and biopsy
procedures. The Physician Industries business has been combined
with the Companys similar Spinal Specialties products line
and the products are sold under the name Integra Pain Management.
Management determined the preliminary fair value of assets
acquired during the second quarter of 2007 and the purchase
price allocation was finalized during the fourth quarter of 2007
with only minor changes recorded to goodwill. The goodwill
recorded in connection with this acquisition is based on the
benefits the Company expects to generate from Physician
Industries future cash flows and is deductible for tax
purposes.
LXU
Healthcare, Inc.
On May 8, 2007, the Company acquired the shares of LXU
Healthcare, Inc. (LXU) for $30.0 million in
cash paid at closing subject to certain adjustments and
$0.5 million of acquisition-related expenses. LXU is
operated as part of the Companys surgical instruments
business. We received proceeds of $0.4 million from escrow
accounts in the third quarter of 2007 relating to adjustments
for working capital and benefit plans, which was accounted for
as a reduction in the total purchase price. At the time of
acquisition, LXU, was based in West Boylston, Massachusetts and
was comprised of three distinct businesses: the market-leading
manufacturer of fiber optic headlight systems for the medical
industry; a leading specialty surgical products distributor
which had a sales force calling on surgeons and key clinical
decision makers; and a critical care products distributor which
had direct sales coverage in the southeastern United States.
As was the intention at the time of the acquisition, the Company
wound down LXUs Bimeco business, which was not aligned
with the Companys strategy. The Company integrated the LXU
Medical sales force and distributor network with the Integra
Medical Instruments sales and distribution organization.
F-18
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management determined the preliminary fair value of assets
acquired during the second quarter of 2007 and the purchase
price allocation was finalized during the fourth quarter of 2007
with only minor changes recorded to goodwill. The goodwill
recorded in connection with this acquisition is based on the
benefits the Company expects to generate from LXUs future
cash flows and is not deductible for tax purposes.
DenLite
On January 3, 2007, the Companys subsidiary Miltex,
Inc. acquired the
DenLite®
product line from Welch Allyn in an asset purchase for
$2.2 million in cash paid at closing and approximately
$35,000 of acquisition-related expenses.
DenLite®
is a lighted mouth mirror used in dental procedures.
Management determined the preliminary fair value of assets
acquired during the first quarter of 2007 and the purchase price
allocation was finalized in the second quarter of 2007 with no
changes being recorded. The goodwill recorded is deductible for
tax purposes.
The following table summarizes the fair value of the assets
acquired and liabilities assumed as a result of the 2007
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precision
|
|
|
|
|
|
Physician
|
|
|
LXU
|
|
|
|
|
|
|
Dental
|
|
|
IsoTis
|
|
|
Industries
|
|
|
Healthcare
|
|
|
DenLite
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
4,207
|
|
|
$
|
38,964
|
|
|
$
|
1,989
|
|
|
$
|
14,013
|
|
|
$
|
454
|
|
Property, plant and equipment
|
|
|
603
|
|
|
|
3,841
|
|
|
|
81
|
|
|
|
1,600
|
|
|
|
339
|
|
Intangible assets
|
|
|
3,777
|
|
|
|
19,000
|
|
|
|
1,348
|
|
|
|
9,500
|
|
|
|
1,235
|
|
Goodwill
|
|
|
4,735
|
|
|
|
25,399
|
|
|
|
1,218
|
|
|
|
8,191
|
|
|
|
207
|
|
Other assets
|
|
|
63
|
|
|
|
2,949
|
|
|
|
|
|
|
|
1,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
13,385
|
|
|
|
90,153
|
|
|
|
4,636
|
|
|
|
35,227
|
|
|
|
2,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
681
|
|
|
|
16,232
|
|
|
|
538
|
|
|
|
4,938
|
|
|
|
|
|
Deferred revenue and other liabilities
|
|
|
1,594
|
|
|
|
5,256
|
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,275
|
|
|
|
21,488
|
|
|
|
538
|
|
|
|
5,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
11,110
|
|
|
$
|
68,665
|
|
|
$
|
4,098
|
|
|
$
|
30,065
|
|
|
$
|
2,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro
Forma Results
The following unaudited pro forma financial information
summarizes the results of operations for the years ended
December 31, 2008 and 2007 as if the acquisitions
consummated in 2008 and 2007 had been completed as of the
beginning of 2007. The effect of the 2009 acquisition was not
material and is not included below. The pro forma results are
based upon certain assumptions and estimates and they give
effect to actual operating results prior to the acquisitions and
adjustments to reflect increased depreciation expense, increased
intangible asset amortization, and increased income taxes at a
rate consistent with Integras marginal rate in each year.
No effect has been given to cost reductions or operating
synergies. As a result, these pro forma results do not
necessarily represent results that would have occurred if the
acquisition had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
(In thousands, except per share amounts)
|
|
Total revenue, net
|
|
$
|
677,697
|
|
|
$
|
641,015
|
|
Net income/(loss)(1)
|
|
|
21,793
|
|
|
|
(9,309
|
)
|
Basic net income per share
|
|
$
|
0.77
|
|
|
$
|
(0.33
|
)
|
Diluted net income per share
|
|
$
|
0.75
|
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount for 2007 includes the one-time charge of
$25.2 million for in-process research and development costs
related to the 2008 Integra Spine acquisition. |
Due to immateriality and lack of readily available audited
financial information, the above table excludes the results of
the Athrodax, Minnesota Scientific, Inc. and Integra
Neurosciences Pty Ltd. operations.
Other
In August 2009, the Company acquired certain assets and
liabilities of Innovative Spinal Technologies, Inc.
(IST) for approximately $9.3 million in cash
and $0.2 million in acquisition expenses. IST had filed for
Chapter 7 bankruptcy protection in May 2009 and the
acquisition resulted from an auction process conducted by the
bankruptcy trustee and approved by the U.S. Bankruptcy
Judge for the District of Massachusetts. ISTs focus was on
spinal implant products related to minimally invasive surgery
and motion preservation techniques. The Company acquired three
product lines, various product development assets for posterior
dynamic stabilization, various patents and trademarks,
inventory, and assumed certain of ISTs patent license
agreements and related obligations.
The assets and liabilities acquired did not meet the definition
of a business under the authoritative guidance for business
combinations. Accordingly, the assets and liabilities have been
recognized at allocated cost with no related goodwill.
The following summarizes the allocation of the purchase price
based on the allocated cost of the assets acquired and
liabilities assumed (in thousands):
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
4,238
|
|
|
|
|
|
Property, plant and equipment
|
|
|
2,974
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
Wtd. Avg. Life 10 years
|
|
Technology
|
|
|
2,055
|
|
|
|
|
|
In-process research and development
|
|
|
277
|
|
|
|
Expensed immediately
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
9,544
|
|
|
|
|
|
Accrued expenses
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
9,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
RESTRUCTURING
ACTIVITIES
|
In connection with the 2007 acquisition of IsoTis, the Company
announced plans to restructure the Companys European
operations. The restructuring plan included closing the
facilities in Lausanne, Switzerland and Bilthoven, Netherlands,
eliminating various positions in Europe and reducing various
duplicative positions in Irvine, California. These activities
were completed in 2008 and all payments have been made.
In connection with the 2007 acquisition of Precise, the Company
announced plans to restructure the Companys procurement
and distribution operations by closing its facility in Canoga
Park, California. The Company has integrated those functions
into its York, Pennsylvania dental operations.
In connection with these restructuring activities, the Company
has recorded immaterial charges during 2009, 2008 and 2007.
Below is a reconciliation of the restructuring accrual activity
recorded during 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Facility Exit
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2007
|
|
$
|
615
|
|
|
$
|
625
|
|
|
$
|
1,240
|
|
Additions
|
|
|
225
|
|
|
|
235
|
|
|
|
460
|
|
Changes in estimates
|
|
|
(153
|
)
|
|
|
144
|
|
|
|
(9
|
)
|
Payments
|
|
|
(249
|
)
|
|
|
(770
|
)
|
|
|
(1,019
|
)
|
Effects of foreign exchange
|
|
|
4
|
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
442
|
|
|
|
235
|
|
|
|
677
|
|
Additions
|
|
|
|
|
|
|
416
|
|
|
|
416
|
|
Payments
|
|
|
(442
|
)
|
|
|
(651
|
)
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Contingent Convertible Subordinated Notes
The Company was required to make interest payments on its 2008
Notes at an annual rate of 2.5% each September 15 and
March 15. The Company paid contingent interest on the 2008
Notes approximating $1.8 million during the quarter ended
March 31, 2008. The contingent interest paid was for each
of the last three years the 2008 Notes remained outstanding in
an amount equal to the greater of (1) 0.50% of the face
amount of the 2008 Notes and (2) the amount of regular cash
dividends paid during each such year on the number of shares of
common stock into which each 2008 Note was convertible. Holders
of the 2008 Notes could convert the 2008 Notes under certain
circumstances, including when the market price of its common
stock on the previous trading day was more than $37.56 per
share, based on an initial conversion price of $34.15 per share.
As of December 31, 2008, all of the 2008 Notes had been
converted to common stock or cash.
The 2008 Notes were general, unsecured obligations of the
Company and were subordinate to any senior indebtedness. The
Company could not redeem the 2008 Notes prior to their maturity,
and the 2008 Notes holders could have compelled the
Company to repurchase the 2008 Notes upon a change of control.
On March 5, 2008 the Company borrowed $120.0 million
under its senior secured revolving credit facility. The Company
used these funds to repay the 2008 Notes upon conversion or
maturity. As a result of the conversions, the Company issued
768,221 shares of the Companys common stock. There
were no financial covenants associated with the convertible 2008
Notes.
F-21
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In conjunction with the 2008 Notes, the Company had previously
recognized a deferred tax liability related to the conversion
feature of the debt. As a result of the repayment of the 2008
Notes, the Company reversed the remaining balance of the
deferred tax liability which resulted in the recognition of a
$2.4 million valuation allowance on a deferred tax asset, a
$4.8 million increase to current income taxes payable and
$11.5 million of additional paid-in capital for the year
ended December 31, 2008.
On September 27, 2006, the Company exchanged
$115.2 million (out of a total of a $120.0 million) of
its 2.5% Contingent Convertible Subordinated Notes due 2008 (the
old notes) for the equivalent amount of 2.5%
Contingent Convertible Subordinated Notes due 2008 (the
new notes). The terms of the new notes were
substantially similar to those of the old notes, except that the
new notes had a net share settlement feature and included
takeover protection, whereby the Company would pay a
premium to holders who convert their notes upon the occurrence
of designated events, including a change in control. The net
share settlement feature required that, upon conversion of the
new notes, the Company pay holders in cash for up to the
principal amount of the converted new notes with any amounts in
excess of this cash amount settled, at the election of the
Company, in cash or shares of its common stock. Holders who
exchanged their old notes in the exchange offer received an
exchange fee of $2.50 per $1,000 principal amount of their old
notes. We paid approximately $288,000 of exchange fees to
tendering holders of the existing notes plus expenses totaling
approximately $332,000 in connection with the offer. The Company
recorded a $1.2 million write-off of the unamortized debt
issuance costs and $0.3 million of fees associated with the
exchange of the old notes.
On October 20, 2006 an additional $4.3 million of old
notes were tendered, bringing the total amount of exchanges to
$119.5 million, or 99.6% of the original
$120.0 million principal amount. The Company paid
approximately $11,000 of exchange fees to tendering holders of
these notes in connection with this exchange.
Holders were able to convert their notes at an initial
conversion price of $34.15 per share, upon the occurrence of
certain conditions, including when the market price of
Integras common stock on the previous trading day was more
than 110% of the conversion price. The notes are general,
unsecured obligations of the Company and were subordinate to any
future senior indebtedness of the Company. The Company was not
able to redeem the notes prior to their maturity. Holders of the
notes were able to require the Company to repurchase the notes
upon a change in control.
In August 2003, the Company entered into an interest rate swap
agreement with a $50.0 million notional amount to hedge the
risk of changes in fair value attributable to interest rate risk
with respect to a portion of our fixed-rate convertible notes.
The Company received a 2.5% fixed rate from the counterparty,
payable on a semi-annual basis, and paid to the counterparty a
floating rate based on
3-month
LIBOR minus 35 basis points, payable on a quarterly basis.
The interest rate swap agreement was scheduled to terminate in
March 2008, subject to early termination upon the occurrence of
certain events, including redemption or conversion of the
convertible notes. On September 27, 2006, the Company
terminated this interest rate swap agreement in connection with
the exchange of the convertible notes. The interest rate swap
agreement qualified as a fair value hedge. The net amount to be
paid or received under the interest rate swap agreement was
recorded as a component of interest expense.
The fair value of the contingent interest obligation, which was
the same under the old and new notes, had been marked to its
fair value at each balance sheet date, with changes in the fair
value recorded to interest expense. At December 31, 2007,
the estimated fair value of the contingent interest obligation
was $1.8 million. In 2007, the Company recorded
$0.7 million of interest expense associated with changes in
the estimated fair value of the contingent interest obligation.
2010
and 2012 Senior Convertible Notes
On June 11, 2007, the Company issued $165.0 million
aggregate principal amount under its 2010 Notes and
$165.0 million aggregate principal amount under its 2012
Notes. The 2010 Notes and the 2012 Notes bear interest at a rate
of 2.75% per annum and 2.375% per annum, respectively, in each
case payable semi-annually in arrears on
F-22
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 1 and June 1 of each year. The fair value of the 2010
Notes and the 2012 Notes at December 31, 2009 was
approximately $77.8 million and $158.7 million,
respectively. The Notes are senior, unsecured obligations of the
Company, and are convertible into cash and, if applicable,
shares of its common stock based on an initial conversion rate,
subject to adjustment, of 15.0917 shares per $1,000
principal amount of notes for the 2010 Notes and
15.3935 shares per $1,000 principal amount of notes for the
2012 Notes (which represents an initial conversion price of
approximately $66.26 per share and approximately $64.96 per
share for the 2010 Notes and the 2012 Notes, respectively.) The
Company will satisfy any conversion of the Notes with cash up to
the principal amount of the applicable series of Notes pursuant
to the net share settlement mechanism set forth in the
applicable indenture and, with respect to any excess conversion
value, with shares of the Companys common stock. The Notes
are convertible only in the following circumstances: (1) if
the closing sale price of the Companys common stock
exceeds 130% of the conversion price during a period as defined
in the indenture; (2) if the average trading price per
$1,000 principal amount of the Notes is less than or equal to
97% of the average conversion value of the Notes during a period
as defined in the indenture; (3) at any time on or after
December 15, 2009 (in connection with the 2010 Notes) or
anytime after December 15, 2011 (in connection with the
2012 Notes); or (4) if specified corporate transactions
occur. The issue price of the Notes was equal to their face
amount, which is also the amount holders are entitled to receive
at maturity if the Notes are not converted. As of
December 31, 2009, none of these conditions existed with
respect to the 2012 Notes, but the 2010 Notes were freely
convertible. As a result, $76.8 million of the 2010 Notes
mature within a year and are therefore classified as short-term
liabilities, and $148.7 million of the 2012 Notes is
classified as long-term.
Holders of the Notes, who convert their notes in connection with
a qualifying fundamental change, as defined in the related
indenture, may be entitled to a make-whole premium in the form
of an increase in the conversion rate. Additionally, following
the occurrence of a fundamental change, holders may require that
the Company repurchase some or all of the Notes for cash at a
repurchase price equal to 100% of the principal amount of the
notes being repurchased, plus accrued and unpaid interest, if
any.
The Notes, under the terms of the private placement agreement,
are guaranteed fully by Integra LifeSciences Corporation, a
subsidiary of the Company. The 2010 Notes will rank equal in
right of payment to the 2012 Notes. The Notes will be the
Companys direct senior unsecured obligations and will rank
equal in right of payment to all of the Companys existing
and future unsecured and unsubordinated indebtedness.
In connection with the issuance of the Notes, the Company
entered into call transactions and warrant transactions,
primarily with affiliates of the initial purchasers of the Notes
(the hedge participants), in connection with each
series of Notes. The cost of the call transactions to the
Company was approximately $46.8 million. The Company
received approximately $21.7 million of proceeds from the
warrant transactions. The call transactions involve the
Companys purchasing call options from the hedge
participants, and the warrant transactions involve the
Companys 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 is
(1) for the 2010 Notes, approximately $66.26 per share of
Common Stock, and (2) for the 2012 Notes, approximately
$64.96, in each case subject to anti-dilution adjustments
substantially similar to those in the Notes. The initial strike
price of the warrant transactions is (x) for the 2010
Notes, approximately $77.96 per share of Common Stock and
(y) for the 2012 Notes, approximately $90.95, in each case
subject to customary anti-dilution adjustments.
In 2009, the Company repurchased the principal amount of
$32.1 million, $18.7 million, $17.7 million, and
$18.6 million in March, June, September and December,
respectively, of the 2010 Notes. The total cash paid for the
Notes was $83.3 million, of which $78.0 million
related to the repurchase of the liability component. The
Company recognized a gain of $0.5 million on these
repurchases.
For all of these transactions the bond hedge contracts were
terminated on a pro-rata basis and the number of options was
adjusted to reflect the number of convertible securities
outstanding that together have a total principal amount of
$77.9 million. Also, in connection with the above
repurchases, in separate transactions, the Company has
F-23
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amended the warrant transactions to reduce the number of
warrants outstanding to reflect such number of convertible
securities outstanding.
Senior
Secured Revolving Credit Facility
In December 2005, the Company established a $200.0 million,
five-year, senior secured revolving credit facility. In 2005,
the Company paid approximately $1.1 million of fees in
connection with establishing the credit facility. The Company
capitalized these fees and is amortizing them to interest
expense over the five-year term of the credit facility. The
credit facility requires the Company to maintain various
financial covenants, including leverage ratios, a minimum fixed
charge coverage ratio, and a minimum liquidity ratio. The credit
facility also contains customary affirmative and negative
covenants, including those that limit the Companys and its
subsidiaries ability to incur additional debt, incur
liens, make investments, enter into mergers and acquisitions,
liquidate or dissolve, sell or dispose of assets, repurchase
stock and pay dividends, engage in transactions with affiliates,
engage in certain lines of business and enter into sale and
leaseback transactions. The Company pays an annual commitment
fee (ranging from 0.10% to 0.20%) on the daily amount by which
the commitments under the credit facility exceed the outstanding
loans and letters of credit under the credit facility.
During 2007, the terms were amended to increase the amount and
extend the maturity of the credit facility. We amended the
credit facility in September 2007 to accommodate the acquisition
of IsoTis as well as other acquisitions. The amendment modified
certain financial and negative covenants which include the
addition of up to $14.7 million of cost savings to the
calculation of our Consolidated EBITDA as well as an increase in
the Total Leverage ratio from 4.0 to 4.5 to 1 through
June 30, 2008 only. We were in compliance with all
covenants at each balance sheet date. At December 31, 2009,
the Company has a $300.0 million, senior secured revolving
credit facility, which it utilizes for working capital, capital
expenditures, share repurchases, acquisitions, debt repayments
and other general corporate purposes.
On March 5, 2008, July 28, 2008 and on
October 30, 2008, the Company borrowed $120.0 million,
$80.0 million and $60.0 million, respectively, under
its credit facility and as of December 31, 2008 had
$260.0 million of outstanding borrowings under this credit
facility. The outstanding borrowings have one-month interest
periods. The Company used the proceeds from the March 2008
borrowing along with existing funds to repay all of the
remaining 2008 Notes totaling approximately $119.4 million
in the second quarter of 2008. The Company used the remainder of
the funds to repay approximately $3.3 million of related
accrued and contingent interest during the month of March 2008.
On July 28, 2008 and October 30, 2008, the Company
borrowed $80.0 million and $60.0 million,
respectively, to fund the acquisition of Theken and for other
general corporate purposes. During June 2009 and August 2009,
the Company repaid $60.0 million and $40.0 million,
respectively, of its outstanding borrowings. As a result, we
have $160.0 million of outstanding borrowings under our
credit facility at December 31, 2009. The Company regularly
borrows under the credit facility and makes payments each month
with respect thereto and considers all of the outstanding
amounts to be long-term in nature based on its current intent
and ability. If additional borrowings are made in connection
with, for instance, future acquisitions, such activities could
impact the timing of when the Company intends to repay amounts
under this credit facility, which runs through December 2011.
The fair value of the $160.0 million outstanding borrowings
on this facility at December 31, 2009 was approximately
$151.9 million. The interest rate of the outstanding
borrowings was approximately 0.98% at December 31, 2009 and
2.87% at December 31, 2008.
|
|
6.
|
DERIVATIVE
INSTRUMENTS
|
The Company utilizes a foreign currency forward exchange
contract to hedge an anticipated intercompany transaction in
euros and designates this derivative instrument as a cash flow
hedge. Our forward exchange contract has a notional amount of
8.2 million euros ($11.7 million at December 31,
2009), and is short term in nature with a term of less than
twelve months. This forward exchange contract matches the
currency, timing and notional amount of underlying forecasted
transactions. Therefore, no ineffectiveness resulted or was
recorded through the
F-24
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated statement of operations. As of December 31,
2009, this forward exchange contract has an aggregate
U.S. dollar equivalent fair value amounting to net losses
of $0.4 million included in other current liabilities. The
net gains or losses from this cash flow hedge reported in
accumulated other comprehensive income is reclassified to
earnings and recorded in other income in our consolidated
statement of operations as the foreign currency rates fluctuate.
At December 31, 2009, the amount of net unrealized gains in
other comprehensive income which will be recognized as an
increase to other income in 2010 was not significant. The
Company considers the credit risk related to the forward to be
low because the instrument was entered into with a financial
institution with a high credit rating.
In October 2006, the Companys Board of Directors
authorized the Company to repurchase shares of its common stock
for an aggregate purchase price not to exceed $75.0 million
through December 31, 2007 and terminated its prior
repurchase program. On May 17, 2007, the Companys
Board of Directors terminated the repurchase authorization it
adopted in October 2006 and authorized the Company to repurchase
shares of its common stock for an aggregate purchase price not
to exceed $75.0 million through December 31, 2007. On
October 30, 2007, the Companys Board of Directors
terminated the repurchase authorization it adopted on
May 17, 2007 and authorized the Company to repurchase
shares of its common stock for an aggregate purchase price not
to exceed $75.0 million through December 31, 2008.
Shares may be purchased either in the open market or in
privately negotiated transactions. The Company repurchased
2.2 million shares of its common stock in 2007 for
$106.5 million. The Company did not purchase any shares of
its common stock under this repurchase program during the year
ended December 31, 2008.
On October 30, 2008, the Companys Board of Directors
terminated the repurchase authorization it adopted in October
2007 and authorized the Company to repurchase shares of its
common stock for an aggregate purchase price not to exceed
$75.0 million through December 31, 2010. Shares may be
purchased either in the open market or in privately negotiated
transactions. The Company did not purchase any shares of its
common stock under the October 2008 repurchase programs during
the year ended December 31, 2009. As of December 31,
2009, there remained $75.0 million available for share
repurchases under this authorization.
|
|
8.
|
STOCK
PURCHASE AND AWARD PLANS
|
Employee stock-based compensation expense recognized under the
authoritative guidance was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Research and development expense
|
|
$
|
492
|
|
|
$
|
674
|
|
|
$
|
732
|
|
Selling, general and administrative
|
|
|
14,958
|
|
|
|
31,704
|
|
|
|
14,341
|
|
Amortization of amounts previously capitalized to inventory
|
|
|
130
|
|
|
|
257
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense
|
|
|
15,580
|
|
|
|
32,635
|
|
|
|
15,394
|
|
Total tax benefit related to employee stock-based compensation
expense
|
|
|
6,253
|
|
|
|
13,053
|
|
|
|
5,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income
|
|
$
|
9,327
|
|
|
$
|
19,582
|
|
|
$
|
10,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, $22 thousand and $51
thousand, respectively, of stock-based compensation costs remain
capitalized in inventory based on the underlying employees
receiving the awards.
F-25
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has never paid cash dividends and does not currently
intend to pay cash dividends, and thus has assumed a 0% dividend
yield. Expected volatilities are based on historical volatility
of the Companys stock price with forward-looking
assumptions. The expected life of stock options is estimated
based on historical data on exercise of stock options,
post-vesting forfeitures and other factors to estimate the
expected term of the stock options granted. The risk-free
interest rates are derived from the U.S. Treasury yield
curve in effect on the date of grant for instruments with a
remaining term similar to the expected life of the options. In
addition, the Company applies an expected forfeiture rate when
amortizing stock-based compensation expenses. The estimate of
the forfeiture rates is based primarily upon historical
experience of employee turnover. As individual grant awards
become fully vested, stock-based compensation expense is
adjusted to recognize actual forfeitures. The following
weighted-average assumptions were used in the calculation of
fair value:
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
29%
|
|
29%
|
|
32%
|
Risk free interest rate
|
|
2.0%
|
|
2.11% to 4.01%
|
|
3.19% to 5.20%
|
Expected life of option from grant date
|
|
8 years
|
|
6.8 years
|
|
6.6 years
|
The effect of the change in estimate has been accounted for on a
prospective basis. The Company values stock option grants using
the binomial distribution model. Management believes that the
binomial distribution model is preferable to the Black-Scholes
model because the binomial distribution model is a more flexible
model that considers the impact of non-transferability, vesting
and forfeiture provisions in the valuation of employee stock
options.
EMPLOYEE
STOCK PURCHASE PLAN
The purpose of the Employee Stock Purchase Plan (the
ESPP) is to provide eligible employees of the
Company with the opportunity to acquire shares of common stock
at periodic intervals by means of accumulated payroll
deductions. Under the ESPP, a total of 1.5 million shares
of common stock are reserved for issuance. These shares will be
made available either from the Companys authorized but
unissued shares of common stock or from shares of common stock
reacquired by the Company as treasury shares. At
December 31, 2009, 1.1 million shares remain available
for purchase under the ESPP. During the years ended
December 31, 2009, 2008 and 2007, the Company issued 7,263,
11,873 and 7,860 shares under the ESPP for
$0.3 million, $0.4 million and $0.3 million,
respectively.
The ESPP was amended in 2005 to reduce the discount available to
participants to five percent and to fix the price against which
such discount would be applied. Accordingly, the ESPP is a
non-compensatory plan.
EQUITY
AWARD PLANS
As of December 31, 2009, the Company had stock options,
restricted stock awards, and contract stock outstanding under
seven plans, the 1993 Incentive Stock Option and Non-Qualified
Stock Option Plan (the 1993 Plan), the 1996
Incentive Stock Option and Non-Qualified Stock Option Plan (the
1996 Plan), the 1998 Stock Option Plan (the
1998 Plan), the 1999 Stock Option Plan (the
1999 Plan), the 2000 Equity Incentive Plan (the
2000 Plan), the 2001 Equity Incentive Plan (the
2001 Plan), and the 2003 Equity Incentive Plan (the
2003 Plan, and collectively, the Plans).
No new awards may be granted under the 1993 Plan, the 1996 Plan,
the 1998 Plan or the 1999 Plan.
In July 2008, the stockholders of the Company approved an
amendment to the 2003 Plan to increase by 750,000 the number of
shares of common stock that may be issued under the 2003 Plan.
The Company has reserved 750,000 shares of common stock for
issuance under both the 1993 Plan and 1996 Plan,
1,000,000 shares under the 1998 Plan, 2,000,000 shares
under each of the 1999 Plan, the 2000 Plan and the 2001 Plan,
and 4,750,000 shares under the 2003 Plan. The 1993 Plan,
1996 Plan, 1998 Plan, and the 1999 Plan permit the Company to
grant both incentive and non-qualified stock options to
designated directors, officers, employees and associates of the
F-26
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company. The 2000 Plan, 2001 Plan, and 2003 Plan permit the
Company to grant incentive and non-qualified stock options,
stock appreciation rights, restricted stock, contract stock,
performance stock, or dividend equivalent rights to designated
directors, officers, employees and associates of the Company.
Stock options issued under the Plans become exercisable over
specified periods, generally within four years from the date of
grant for officers, employees and consultants, and generally
expire six years from the grant date. The transfer and
non-forfeiture provisions of restricted stock issued under the
Plans lapse over specified periods, generally at three years
after the date of grant.
Stock
Options
The following table summarizes the Companys stock option
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
Stock Options
|
|
Shares
|
|
|
Price
|
|
|
Term In Years
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2006
|
|
|
3,438
|
|
|
$
|
29.41
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
231
|
|
|
|
41.56
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(682
|
)
|
|
|
27.08
|
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(63
|
)
|
|
|
34.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,924
|
|
|
|
30.82
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
222
|
|
|
|
47.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(464
|
)
|
|
|
24.33
|
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(34
|
)
|
|
|
35.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
2,648
|
|
|
|
33.32
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
63
|
|
|
|
24.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(236
|
)
|
|
|
28.38
|
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(67
|
)
|
|
|
30.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,408
|
|
|
$
|
33.65
|
|
|
|
3.18
|
|
|
$
|
12,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2009
|
|
|
2,408
|
|
|
$
|
33.65
|
|
|
|
3.18
|
|
|
$
|
12,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
2,116
|
|
|
$
|
32.55
|
|
|
|
3.62
|
|
|
$
|
12,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised for the years ended
December 31, 2009, 2008 and 2007 was $1.0 million,
$9.2 million and $12.9 million, respectively. The
weighted average grant date fair value of options granted during
the year 2009, 2008 and 2007, was $8.12, $18.08 and $16.91,
respectively. Cash received from option exercises was
$6.6 million, $11.5 million and $18.8 million,
for fiscal 2009, 2008 and 2007, respectively.
As of December 31, 2009, there was approximately
$4.6 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
1.8 years.
F-27
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Awards
of Restricted Stock, Performance Stock and Contract
Stock
The following table summarizes the Companys awards of
restricted stock, performance stock and contract stock (shares
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Stock
|
|
|
|
|
|
|
and Contract
|
|
|
|
Restricted Stock Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
Value per
|
|
|
|
|
|
Value per
|
|
|
|
Shares
|
|
|
Share
|
|
|
Shares
|
|
|
Share
|
|
|
Unvested, December 31, 2006
|
|
|
185
|
|
|
$
|
38.08
|
|
|
|
218
|
|
|
$
|
35.41
|
|
Granted
|
|
|
153
|
|
|
|
46.42
|
|
|
|
15
|
|
|
|
45.81
|
|
Cancellations
|
|
|
(40
|
)
|
|
|
41.19
|
|
|
|
(10
|
)
|
|
|
35.82
|
|
Released
|
|
|
(14
|
)
|
|
|
40.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2007
|
|
|
284
|
|
|
|
42.29
|
|
|
|
223
|
|
|
|
36.10
|
|
Granted
|
|
|
82
|
|
|
|
44.18
|
|
|
|
292
|
|
|
|
36.17
|
|
Cancellations
|
|
|
(29
|
)
|
|
|
41.78
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(13
|
)
|
|
|
40.15
|
|
|
|
(200
|
)
|
|
|
35.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2008
|
|
|
324
|
|
|
|
42.92
|
|
|
|
315
|
|
|
|
36.52
|
|
Granted
|
|
|
320
|
|
|
|
25.24
|
|
|
|
112
|
|
|
|
34.25
|
|
Cancellations
|
|
|
(17
|
)
|
|
|
41.42
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(145
|
)
|
|
|
38.39
|
|
|
|
(11
|
)
|
|
|
31.39
|
|
Vested but not released
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
35.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2009
|
|
|
482
|
|
|
$
|
32.29
|
|
|
|
294
|
|
|
$
|
36.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $10.5 million, $25.5 million
and $6.9 million in expense related to awards granted in
2009, 2008 and 2007, respectively. The total fair market value
of shares vested in 2009, 2008 and 2007 was $4.7 million,
$25.5 million and $0.6 million, respectively.
Performance stock awards have performance features associated
with them. Performance stock, restricted stock and contract
stock awards generally have requisite service periods of three
years. The fair value of these awards is being expensed on a
straight-line basis over the vesting period. As of
December 31, 2009, there was approximately
$17.1 million of total unrecognized compensation costs
related to unvested awards. These costs are expected to be
recognized over a weighted-average period of approximately
2.1 years.
In July 2004, the Company and the Companys President and
Chief Executive Officer (the Executive) renewed the
Executives employment agreement with the Company through
December 31, 2009. In connection with the renewal of the
agreement, the Executive received a grant of fair market value
options to acquire up to 250,000 shares of Integra common
stock and an award of fully vested contract stock/restricted
stock units (Restricted Units) providing for the
payment of 750,000 shares of Integra common stock which
shall generally be delivered to the Executive following his
termination of employment or retirement but not before
December 31, 2009, or later under certain circumstances, or
earlier if he is terminated without cause, if he leaves his
position for good reason or upon a change of control or certain
tax related events. The options and Restricted Units award were
granted under the 2003 Plan. The Executive has demand
registration rights under the Restricted Units issued.
In August 2008, the Company and the Executive renewed the
Executives employment agreement with the Company through
December 31, 2011. In connection with the renewal of the
agreement, the Executive received a grant of fair market value
options to acquire up to 125,000 shares of Integra common
stock and a fully vested Restricted Units award providing for
the payment of 375,000 shares of Integra common stock which
shall be
F-28
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
delivered to the Executive within the 30 day period
immediately following the six month anniversary of his
separation from service from the Company. The options and
Restricted Units award were granted under the 2003 Plan. As the
Restricted Units vested on the grant date, a charge of
approximately $18.0 million was recognized upon issuance,
which was included in selling, general and administrative
expenses.
In December 2000, the Company issued 1,250,000 Restricted Units
under the 2000 Plan as a fully vested equity based bonus to the
Executive in connection with the extension of his employment
agreement. Each Restricted Unit represents the right to receive
one share of the Companys common stock. The Executive has
demand registration rights under the Restricted Units issued. In
January 2006, the Company issued 750,000 shares of the
Companys common stock to the Executive pursuant to the
obligations with respect to 750,000 of these Restricted Units.
In March 2008, the Company issued 500,000 shares of the
Companys common stock to the Executive pursuant to the
obligations with respect to 500,000 of these Restricted Units.
No other share-based awards are outstanding under any of the
Plans. At December 31, 2009, there were 640,546 shares
available for grant under the Plans.
|
|
9.
|
RETIREMENT
BENEFIT PLANS
|
The Company recognizes the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in
its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur
through comprehensive income. The Company currently recognizes
the unfunded liability for each of its plans. Therefore, the
implementation of this statement had no effect on the financial
statements upon its adoption.
DEFINED
BENEFIT PLANS
The Company maintains defined benefit pension plans that cover
employees in its manufacturing plants located in Andover, United
Kingdom (the UK Plan) and Tuttlingen, Germany (the
Germany Plan). The plan covering employees in the
manufacturing plant located in York, Pennsylvania (the
Miltex Plan) was frozen and all future benefits were
curtailed prior to the acquisition of Miltex by the Company.
During 2008, the Miltex Plan was terminated with all
distributions made to participants. The Company recognized
approximately $0.4 million in additional costs to fund
these distributions. Accordingly, the Miltex Plan had no assets
or liabilities remaining at December 31, 2009 and 2008. The
Company closed the Tuttlingen, Germany plant in December 2005.
However, the Germany Plan was not terminated and the Company
remains obligated for the accrued pension benefits related to
this plan. The plans cover certain current and former employees.
The plans are no longer open to new participants. The Company
uses a December 31 measurement date for all of its pension plans.
Net periodic benefit costs for these defined benefit pension
plans included the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
141
|
|
|
$
|
|
|
|
$
|
160
|
|
Interest cost
|
|
|
|
|
|
|
605
|
|
|
|
14
|
|
|
|
718
|
|
|
|
24
|
|
|
|
715
|
|
Expected return on plan assets
|
|
|
|
|
|
|
(413
|
)
|
|
|
|
|
|
|
(493
|
)
|
|
|
(30
|
)
|
|
|
(600
|
)
|
Recognized net actuarial loss
|
|
|
|
|
|
|
307
|
|
|
|
|
|
|
|
553
|
|
|
|
23
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
|
|
|
$
|
620
|
|
|
$
|
14
|
|
|
$
|
919
|
|
|
$
|
17
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following weighted average assumptions were used to develop
net periodic pension benefit cost and the actuarial present
value of projected pension benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
U.S.
|
|
Non U.S.
|
|
U.S.
|
|
Non U.S.
|
|
U.S.
|
|
Non U.S.
|
|
|
Plan
|
|
Plans
|
|
Plan
|
|
Plans
|
|
Plan
|
|
Plans
|
|
|
(In thousands)
|
|
Discount rate
|
|
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
6.6
|
%
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
Expected return on plan assets
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
5.2
|
%
|
|
|
7.0
|
%
|
|
|
5.7
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
3.1
|
%
|
|
|
3.0
|
%
|
|
|
3.5
|
%
|
The expected return on plan assets represents the average rate
of return expected to be earned on plan assets over the period
the benefits included in the benefit obligation are to be paid.
In developing the expected rate of return, the Company considers
long-term compound annualized returns of historical market data
as well as actual returns on the plan assets and applies
adjustments that reflect more recent capital market experience.
Using this reference information, the long-term return
expectations for each asset category are developed according to
the allocation among those investment categories. In 2009 and
2007, the discount rate was prescribed as the current yield on
corporate bonds with an average rating of AA of equivalent
currency and term to the liabilities. In 2008, the discount rate
was prescribed as the current yield on corporate bonds with an
average rating of AAA of equivalent currency and term to the
liabilities.
The following sets forth the change in projected benefit
obligations and the change in plan assets for the years ended
December 31, 2009 and 2008 and a reconciliation of the
funded status at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
|
|
|
$
|
9,616
|
|
|
$
|
461
|
|
|
$
|
13,265
|
|
Service cost
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
141
|
|
Interest cost
|
|
|
|
|
|
|
605
|
|
|
|
14
|
|
|
|
718
|
|
Participant contributions
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
26
|
|
Benefits paid
|
|
|
|
|
|
|
(481
|
)
|
|
|
(530
|
)
|
|
|
(387
|
)
|
Actuarial loss (gain)
|
|
|
|
|
|
|
712
|
|
|
|
55
|
|
|
|
(586
|
)
|
Effect of foreign currency exchange rates
|
|
|
|
|
|
|
955
|
|
|
|
|
|
|
|
(3,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
|
|
|
$
|
11,550
|
|
|
$
|
|
|
|
$
|
9,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
|
$
|
|
|
|
$
|
7,433
|
|
|
$
|
523
|
|
|
$
|
11,225
|
|
Actual return on plan assets
|
|
|
|
|
|
|
1,129
|
|
|
|
(106
|
)
|
|
|
(868
|
)
|
Employer contributions
|
|
|
|
|
|
|
409
|
|
|
|
113
|
|
|
|
400
|
|
Participant contributions
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Benefits paid
|
|
|
|
|
|
|
(454
|
)
|
|
|
(530
|
)
|
|
|
(387
|
)
|
Effect of foreign currency exchange rates
|
|
|
|
|
|
|
763
|
|
|
|
|
|
|
|
(2,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of year
|
|
$
|
|
|
|
$
|
9,302
|
|
|
$
|
|
|
|
$
|
7,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
Plan
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
RECONCILIATION OF FUNDED STATUS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status, projected benefit obligation in excess of plan
assets
|
|
$
|
|
|
|
$
|
(2,248
|
)
|
|
$
|
|
|
|
$
|
(2,183
|
)
|
Unrecognized net actuarial loss
|
|
|
|
|
|
|
1,190
|
|
|
|
|
|
|
|
1,372
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
(1,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized
|
|
$
|
|
|
|
$
|
(2,248
|
)
|
|
$
|
|
|
|
$
|
(2,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrued benefit liability recorded at December 31, 2009
and 2008 is included in other liabilities, and the current
portion is included in accrued expenses.
The combined accumulated benefit obligation for the defined
benefit plans was $11.5 million and $9.6 million as of
December 31, 2009 and 2008, respectively. The accumulated
benefit obligation for each plan exceeded that plans
assets for all periods presented.
The investment strategy for the Companys 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
appropriate risk tolerances. The U.K. Plan invests in pooled
funds which provide a diversification that supports the overall
investment objectives. Neither the Miltex nor Germany Plans had
any assets at December 31, 2009 or December 31, 2008.
Based on the assets which comprise each of the funds, the
weighted-average allocation of plan assets by asset category is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
|
Plan
|
|
Plans
|
|
Plan
|
|
Plans
|
|
Equity securities
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
|
|
14
|
%
|
Corporate bonds
|
|
|
|
|
|
|
34
|
%
|
|
|
|
|
|
|
33
|
%
|
Government bonds
|
|
|
|
|
|
|
47
|
%
|
|
|
|
|
|
|
50
|
%
|
Cash
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of the Companys pension plan assets at
December 31, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009:
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Manager/Fund
|
|
Asset Category
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Bank account
|
|
Cash
|
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
Baillie Gifford-Managed Pension Fund(a)
|
|
Equity securities
|
|
|
1,681
|
|
|
|
|
|
|
|
1,681
|
|
|
|
|
|
|
|
Overseas government bonds
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
203
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
Cash
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
Baillie Gifford-Investment Grade Long Bond Fund(b)
|
|
Corporate bonds
|
|
|
3,159
|
|
|
|
|
|
|
|
3,159
|
|
|
|
|
|
Legal & General-Over 15 Year Index Linked
Gilts Index(c)
|
|
Index-linked
government bonds
|
|
|
4,157
|
|
|
|
|
|
|
|
4,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
9,302
|
|
|
$
|
98
|
|
|
$
|
9,204
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This category represents a pooled fund consisting of holdings in
a range of UK and overseas equities and bonds, and cash. |
|
(b) |
|
This category represents a diversified portfolio of investment
grade fixed interest securities. |
|
(c) |
|
This category represents a fund consisting of index-linked gilts
and is designed to follow a benchmark index. |
The Level 2 investments are single priced. The fund prices
are calculated by the trustee by taking the closing market price
of each underlying investment using a variety of independent
pricing sources (i.e., quoted market prices, IBOXX, FTSE,
Bloomberg, etc.). The prices also include income receivable and
expenses payable, where applicable.
The Company anticipates contributing approximately
$0.4 million to its defined benefit plans in 2010. The
Company expects to pay the following estimated future benefit
payments in the years indicated (in thousands):
|
|
|
|
|
2010
|
|
$
|
410
|
|
2011
|
|
|
448
|
|
2012
|
|
|
493
|
|
2013
|
|
|
532
|
|
2014
|
|
|
560
|
|
2015-2018
|
|
|
3,299
|
|
Included in Accumulated Other Comprehensive Income is
$0.6 million of unrecognized net actuarial loss, a portion
of which is expected to be recognized as a component of net
periodic benefit cost in 2010.
DEFINED
CONTRIBUTION PLANS
The Company also has various defined contribution savings plans
that cover substantially all employees in the United States, the
United Kingdom and Puerto Rico. The Company matches a certain
percentage of each employees contributions as per the
provisions of the plans. Total contributions by the Company to
the plans were $1.7 million, $1.4 million and
$1.1 million in 2009, 2008 and 2007, respectively.
F-32
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2008, Integra LifeSciences Corporation entered into a
Lease Agreement with 109 Morgan Lane, LLC (the Morgan Lane
Lease) for the expansion of the Companys
headquarters in Plainsboro, New Jersey. The Morgan Lane Lease
was signed simultaneously with Morgan Lane, LLCs purchase
of the building, land and premises from Provestco, Inc. The
Company initially leased approximately 26,750 square feet
located at 109 Morgan Lane, Plainsboro, New Jersey (the
Initial Space) for general office, lab and warehouse
purposes. The Company leased an additional approximately
31,261 square feet in the building beginning on
April 1, 2009 (the Remaining Space). In January
2009, the Company entered into the First Amendment to the Lease
Agreement dated as of January 1, 2009 with Morgan Lane, LLC
to change the base rent terms and extend the term of the Morgan
Lane Lease through March 31, 2019. The rent for the Initial
Space ranges from approximately $240,000 per year in the
beginning stages of the term to approximately $270,000 per year
during approximately the last ten years. The rent for the
Remaining Space, subject to certain conditions, which were met,
is approximately $316,000 per year, subject to adjustments.
Additional rent is also required for, among other things,
operating expenses and taxes. The Company has a five-year
renewal option to extend the term to March 31, 2024.
The Company leases administrative, manufacturing, research and
distribution facilities and various manufacturing, office and
transportation equipment through operating lease agreements.
In November 1992, a corporation whose shareholders are trusts,
whose beneficiaries include family members of the Companys
Chairman, acquired from independent third parties a 50% interest
in the general partnership from which the Company leases its
manufacturing facility in Plainsboro, New Jersey. In October
2005, the Company entered into a lease modification agreement
relating to this facility. The lease modification agreement
provides for extension of the term of the lease from
October 31, 2012 for an additional five-year period through
October 31, 2017 at an annual rate of approximately
$272,000 per year. The lease modification agreement also
provides a ten-year option for the Company to extend the lease
from November 1, 2017 through October 31, 2027 at an
annual rate of approximately $296,000 per year.
In June 2000, the Company signed a ten-year agreement to lease
certain production equipment from a corporation whose sole
stockholder is a general partnership, for which the
Companys Chairman is a partner and the President. Under
the terms of the lease agreement, the Company paid $90,000 to
the related party lessor in each of 2009, 2008, and 2007.
Future minimum lease payments under operating leases at
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
Third
|
|
|
|
|
|
|
Parties
|
|
|
Parties
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
927
|
|
|
$
|
6,895
|
|
|
$
|
7,822
|
|
2011
|
|
|
902
|
|
|
|
5,679
|
|
|
|
6,581
|
|
2012
|
|
|
943
|
|
|
|
3,736
|
|
|
|
4,679
|
|
2013
|
|
|
858
|
|
|
|
3,430
|
|
|
|
4,288
|
|
2014
|
|
|
858
|
|
|
|
2,465
|
|
|
|
3,323
|
|
Thereafter
|
|
|
2,954
|
|
|
|
5,002
|
|
|
|
7,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,442
|
|
|
$
|
27,207
|
|
|
$
|
34,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense in 2009, 2008 and 2007 and was
$8.1 million, $5.9 million and $5.0 million,
respectively, and included $0.9 million, $0.5 million
and $0.5 million in related party expense, respectively.
F-33
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
United States operations
|
|
$
|
42,113
|
|
|
$
|
(1,016
|
)
|
|
$
|
23,234
|
|
Foreign operations
|
|
|
31,039
|
|
|
|
19,551
|
|
|
|
23,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,152
|
|
|
$
|
18,535
|
|
|
$
|
46,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. Federal statutory rate to the
Companys effective tax rate for the years ended
December 31, 2009, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
|
2.6
|
%
|
|
|
3.2
|
%
|
|
|
(0.7
|
)%
|
Foreign operations
|
|
|
(9.9
|
)%
|
|
|
(19.3
|
)%
|
|
|
(5.4
|
)%
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
3.4
|
%
|
Incentive stock option expense
|
|
|
(0.2
|
)%
|
|
|
0.7
|
%
|
|
|
1.1
|
%
|
Change in valuation allowances
|
|
|
4.4
|
%
|
|
|
(4.8
|
)%
|
|
|
4.8
|
%
|
German tax restructuring
|
|
|
|
|
|
|
(53.5
|
)%
|
|
|
|
|
Other
|
|
|
(1.6
|
)%
|
|
|
(10.9
|
)%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
30.3
|
%
|
|
|
(49.6
|
)%
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2008, the Company reported a
$10.0 million deferred income tax benefit related to the
restructuring of a German subsidiary.
At December 31, 2009, the Company had net operating loss
carryforwards of $13.4 million for federal income tax
purposes, $136.6 million for foreign income tax purposes
and $58.9 million for state income tax purposes to offset
future taxable income. The federal net operating loss
carryforwards expire through 2027, $41.6 million of the
foreign net operating loss carryforwards expire through 2018
with the remaining $95.0 million having an indefinite carry
forward period. The state net operating loss carryforwards
expire through 2029.
At December 31, 2009 and 2008, several of the
Companys subsidiaries had unused net operating loss
carryforwards and tax credit carryforwards arising from periods
prior to the Companys ownership which expire through 2027.
The Internal Revenue Code limits the timing and manner in which
the Company may use any acquired net operating losses or tax
credits.
Income taxes are not provided on undistributed earnings of
non-U.S. subsidiaries
because such earnings are expected to be permanently reinvested.
Undistributed earnings of foreign subsidiaries totaled
$101.4 million, $72.7 million and $40.1 million
at December 31, 2009, 2008 and 2007, respectively.
F-34
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for (benefit from) income taxes consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,106
|
|
|
$
|
13,793
|
|
|
$
|
24,635
|
|
State
|
|
|
4,021
|
|
|
|
4,808
|
|
|
|
5,138
|
|
Foreign
|
|
|
8,522
|
|
|
|
5,749
|
|
|
|
9,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
21,649
|
|
|
|
24,350
|
|
|
|
39,311
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,281
|
|
|
|
(19,253
|
)
|
|
|
(10,047
|
)
|
State
|
|
|
(672
|
)
|
|
|
(2,790
|
)
|
|
|
(3,077
|
)
|
Foreign
|
|
|
(61
|
)
|
|
|
(11,499
|
)
|
|
|
(5,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
548
|
|
|
|
(33,542
|
)
|
|
|
(18,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
22,197
|
|
|
$
|
(9,192
|
)
|
|
$
|
20,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The temporary differences that give rise to deferred tax assets
and liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Doubtful accounts
|
|
$
|
3,404
|
|
|
$
|
2,665
|
|
Inventories
|
|
|
18,542
|
|
|
|
17,329
|
|
Tax credits
|
|
|
1,731
|
|
|
|
948
|
|
Accrued vacation
|
|
|
1,762
|
|
|
|
1,620
|
|
Other
|
|
|
4,453
|
|
|
|
3,725
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,892
|
|
|
|
26,287
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other
|
|
|
(492
|
)
|
|
|
(487
|
)
|
Inventory
step-up
|
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(492
|
)
|
|
|
(799
|
)
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(503
|
)
|
|
|
(1,353
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
28,897
|
|
|
$
|
24,135
|
|
|
|
|
|
|
|
|
|
|
F-35
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Non current assets:
|
|
|
|
|
|
|
|
|
Benefits and compensation
|
|
$
|
9,790
|
|
|
$
|
9,303
|
|
Stock compensation
|
|
|
19,650
|
|
|
|
17,966
|
|
Deferred revenue
|
|
|
805
|
|
|
|
1,304
|
|
Net operating loss carryforwards
|
|
|
38,056
|
|
|
|
42,399
|
|
Financing costs
|
|
|
8,517
|
|
|
|
13,882
|
|
Federal & state tax credits
|
|
|
2,133
|
|
|
|
333
|
|
Other
|
|
|
5,143
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
|
Total non current assets
|
|
|
84,094
|
|
|
|
88,066
|
|
|
|
|
|
|
|
|
|
|
Non current liabilities:
|
|
|
|
|
|
|
|
|
Intangible & fixed assets
|
|
|
(28,319
|
)
|
|
|
(30,829
|
)
|
Deferred gain
|
|
|
(351
|
)
|
|
|
|
|
Non-cash interest amortization
|
|
|
(8,502
|
)
|
|
|
(12,604
|
)
|
Other
|
|
|
(4,786
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Total non current liabilities
|
|
|
(41,958
|
)
|
|
|
(43,447
|
)
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(35,628
|
)
|
|
|
(34,615
|
)
|
|
|
|
|
|
|
|
|
|
Net non current deferred tax assets/(liabilities)
|
|
|
6,508
|
|
|
|
10,004
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets/(liabilities)
|
|
$
|
35,405
|
|
|
$
|
34,139
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance of $36.1 million, $36.0 million
and $40.9 million is recorded against the Companys
gross deferred tax assets of $114.0 million,
$114.4 million and $116.5 million recorded at
December 31, 2009, 2008 and 2007, respectively. This
valuation allowance relates to deferred tax assets for certain
items that will be deductible for income tax purposes under very
limited circumstances and for which the Company believes it is
not more likely than not that it will realize the associated tax
benefit. The Company does not anticipate additional income tax
benefits through future reductions in the valuation allowance.
However, in the event that the Company determines that it would
be able to realize more or less than the recorded amount of net
deferred tax assets, an adjustment to the deferred tax asset
valuation allowance would be recorded in the period such a
determination is made.
The Companys valuation allowance increased by
$0.1 million in 2009 and decreased by $5.0 million in
2008. The movement for both years was mainly the result of
future realizability of net operating losses, and the valuation
allowance increased by $39.4 million in 2007 mainly as a
result of current year acquisitions of loss companies.
In conjunction with the 2008 Notes, the Company had previously
recognized a deferred tax liability related to the conversion
feature of the debt. As a result of the repayment of the 2008
Notes, the Company reversed the remaining balance of the
deferred tax liability which resulted in the recognition of a
$2.4 million valuation allowance on a deferred tax asset, a
$4.8 million increase to current income taxes payable and
$11.5 million of additional paid-in capital for the year
ended December 31, 2008.
As discussed in Note 5, Debt, in connection
with the issuance of the 2010 Notes and the 2012 Notes on
June 11, 2007, the Company entered into call transactions
and warrant transactions, primarily with affiliates of the
initial purchasers of the Notes (the hedge
participants), in connection with each series of Notes.
The cost of the purchased call transactions to the Company was
approximately $46.8 million. The Company recorded a
deferred
F-36
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
tax asset of approximately $17.5 million related to the
future deduction of costs related to this transaction that it
will be able to receive with a corresponding increase to
additional
paid-in-capital,
consistent with the recording of the purchased call.
The Company adopted the authoritative guidance on accounting for
uncertainty in income taxes on January 1, 2007. A
reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance, beginning of year
|
|
$
|
9,033
|
|
|
$
|
8,833
|
|
|
$
|
6,792
|
|
Additions for tax positions of prior years
|
|
|
3,785
|
|
|
|
948
|
|
|
|
2,540
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
(165
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Lapse of statute
|
|
|
(1,909
|
)
|
|
|
(748
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
10,909
|
|
|
$
|
9,033
|
|
|
$
|
8,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance of approximately $10.9 million at
December 31, 2009 relates to unrecognized tax positions
that, if recognized, would affect the annual effective tax rate.
Included in the balance of unrecognized tax positions at
December 31, 2009 is $4.1 million related to tax
positions for which it is reasonably possible that the total
amounts could significantly change during the twelve months
following December 31, 2009, as a result of expiring
statutes of limitations.
The Company recognized accrued interest and penalties relating
to unrecognized tax positions in income tax expense. During the
year ended December 31, 2009, the Company recognized
approximately $0.5 million in interest and penalties, all
of which was reflected in the income statement. During the year
ended December 31, 2008, the Company recognized
approximately $0.5 million in interest and penalties of
which $0.7 million was reflected in the income statement
and $(0.2) million was a balance sheet adjustment. During
the year ended December 31, 2007, the Company recognized
approximately $0.7 million in interest and penalties, of
which $0.5 million was reflected in the income statement
and $0.2 million was a balance sheet adjustment. The
Company had approximately $3.0 million, $2.5 million
and $2.0 million of interest and penalties accrued at
December 31, 2009, 2008 and 2007, respectively.
The Company files Federal income tax returns, as well as
multiple state, local and foreign jurisdiction tax returns. The
Company is no longer subject to examinations of its Federal
income tax returns by the Internal Revenue Service
(IRS) through fiscal year 2003. All significant
state and local matters have been concluded through fiscal 2004.
All significant foreign matters have been settled through fiscal
2001.
In 2009, the IRS examination of the tax returns of the
Companys non-consolidated subsidiary with operations in
Puerto Rico for 2004 and 2005 was finalized. No significant
adjustments were made with the exception of and increase to
taxable income for 2005 of approximately $1.9 million, but
this increase was offset in its entirety by a corresponding
reduction to the Companys U.S. consolidated Federal
taxable income for 2005. The IRS has not concluded its
examination of the Companys U.S. consolidated Federal
taxable income for 2005 through 2007 and has also begun an
examination of the return for 2008. At this time, the Company
does not anticipate any material adjustments will result from
these examinations.
F-37
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts used in the calculation of basic and diluted net income
per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands,
|
|
|
|
except per share amounts)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
$
|
25,749
|
|
Percentage allocated to common shares
|
|
|
99.8
|
%
|
|
|
98.1
|
%
|
|
|
98.3
|
%
|
Net income attributable to common shares
|
|
|
50,853
|
|
|
|
27,200
|
|
|
|
25,311
|
|
Weighted average common shares outstanding
|
|
|
29,038
|
|
|
|
27,781
|
|
|
|
27,712
|
|
Basic net income per share
|
|
$
|
1.75
|
|
|
$
|
0.98
|
|
|
$
|
0.91
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to diluted shares
|
|
$
|
50,853
|
|
|
$
|
27,200
|
|
|
$
|
25,317
|
|
Weighted average common shares outstanding Basic
|
|
|
29,038
|
|
|
|
27,781
|
|
|
|
27,712
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
254
|
|
|
|
597
|
|
|
|
733
|
|
Shares issuable upon conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for diluted earnings per share
|
|
|
29,292
|
|
|
|
28,378
|
|
|
|
29,373
|
|
Diluted net income per share
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
|
$
|
0.86
|
|
Weighted average common shares outstanding
|
|
|
29,038
|
|
|
|
27,781
|
|
|
|
27,712
|
|
Weighted average common shares and other participating securities
|
|
|
29,367
|
|
|
|
28,318
|
|
|
|
28,198
|
|
Common share percentage
|
|
|
99.8
|
%
|
|
|
98.1
|
%
|
|
|
98.3
|
%
|
Diluted share percentage
|
|
|
99.8
|
%
|
|
|
98.1
|
%
|
|
|
98.3
|
%
|
Common stock of approximately 2,097,000, 530,000 and
267,000 shares at December 31, 2009, 2008 and 2007,
respectively, that are issuable through exercise or conversion
of dilutive securities were not included in the computation of
diluted net income per share because their effect would have
been antidilutive.
Performance Shares and Restricted Units that entitle the holders
to 1,255,944 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.
|
|
13.
|
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 the sales of
products that are commercialized relative to the granted rights
and licenses. Royalty payments under these agreements by the
Company were not significant for any of the periods presented.
Various lawsuits, claims and proceedings are pending or have
been settled by the Company. The most significant of these is
described below.
In May 2006, Codman & Shurtleff, Inc., a subsidiary of
Johnson & Johnson, commenced an action in the United
States District Court for the District of New Jersey for
declaratory judgment against the Company with respect to United
States Patent No. 5,997,895 (the 895 Patent) held by
the Company. The Companys 895 Patent describes dural
repair technology related to the Companys
DuraGen®
family of duraplasty products. In August 2009, the parties
settled the litigation for an immaterial amount and entered into
covenants not to sue and mutual releases.
F-38
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In January 2010, the Company received a notice from the
sellers representative of the former Theken companies of a
disagreement in the calculation of trade sales used
in calculating a revenue performance payment that the Company
made in November 2009. The notice alleges that the Company owes
an additional $6.7 million. The Company is reviewing this
matter.
In addition to these matters, we are subject to various claims,
lawsuits and proceedings in the ordinary course of the
Companys business, including claims by current or former
employees, distributors and competitors and with respect to its
products. 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 our financial condition. However, it
is possible that the Companys 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.
|
|
14.
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
The Companys management reviews financial results and
manages the business on an aggregate basis. Therefore, financial
results are reported in a single operating segment, the
development, manufacture and marketing of medical devices for
use in cranial and spinal procedures, peripheral nerve repair,
small bone and joint injuries, and the repair and reconstruction
of soft tissue.
Revenue consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Integra Orthopedics
|
|
$
|
262,170
|
|
|
$
|
217,953
|
|
|
$
|
143,917
|
|
Integra NeuroSciences
|
|
|
256,544
|
|
|
|
256,869
|
|
|
|
242,631
|
|
Integra Medical Instruments
|
|
|
163,773
|
|
|
|
179,782
|
|
|
|
163,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
$
|
550,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net and long-lived assets (tangible) by major
geographic area are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
Asia
|
|
Other
|
|
|
|
|
States
|
|
Europe
|
|
Pacific
|
|
Foreign
|
|
Consolidated
|
|
|
(In thousands)
|
|
Total revenue, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
519,203
|
|
|
$
|
93,414
|
|
|
$
|
32,788
|
|
|
$
|
37,082
|
|
|
$
|
682,487
|
|
2008
|
|
|
494,459
|
|
|
|
98,848
|
|
|
|
28,509
|
|
|
|
32,788
|
|
|
|
654,604
|
|
2007
|
|
|
417,035
|
|
|
|
85,764
|
|
|
|
21,399
|
|
|
|
26,261
|
|
|
|
550,459
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
61,527
|
|
|
$
|
24,202
|
|
|
$
|
111
|
|
|
$
|
|
|
|
$
|
85,840
|
|
December 31, 2008
|
|
|
58,379
|
|
|
|
22,743
|
|
|
|
69
|
|
|
|
|
|
|
|
81,191
|
|
F-39
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
SELECTED
QUARTERLY INFORMATION UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
|
Total revenue, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
183,526
|
|
|
$
|
172,286
|
|
|
$
|
165,725
|
|
|
$
|
160,950
|
|
2008
|
|
$
|
174,370
|
|
|
$
|
167,028
|
|
|
$
|
157,198
|
|
|
$
|
156,008
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
119,581
|
|
|
$
|
109,265
|
|
|
$
|
105,921
|
|
|
$
|
102,802
|
|
2008
|
|
$
|
106,232
|
|
|
$
|
102,711
|
|
|
$
|
99,039
|
|
|
$
|
93,796
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
15,731
|
|
|
$
|
14,432
|
|
|
$
|
11,225
|
|
|
$
|
9,567
|
|
2008
|
|
$
|
23,255
|
|
|
$
|
(16,855
|
)
|
|
$
|
12,277
|
|
|
$
|
9,050
|
|
Basic net income (loss) per common share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
0.38
|
|
|
$
|
0.33
|
|
2008
|
|
$
|
0.80
|
|
|
$
|
(0.60
|
)
|
|
$
|
0.44
|
|
|
$
|
0.33
|
|
Diluted net income (loss) per common share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
$
|
0.38
|
|
|
$
|
0.32
|
|
2008
|
|
$
|
0.79
|
|
|
$
|
(0.60
|
)
|
|
$
|
0.43
|
|
|
$
|
0.32
|
|
|
|
|
(1) |
|
Per common share amounts for the quarters and full years have
been calculated separately. Accordingly, quarterly amounts do
not necessarily add to the annual amount because of differences
in the weighted average common shares outstanding during each
period principally due to the effect of the Companys
issuing shares of its common stock during the year. |
An in-process research and development charge of
$25.2 million related to the Integra Spine acquisition and
$18.4 million related to a stock-compensation charge and
related expenses were recorded in the third quarter of 2008.
A tax benefit of $10.0 million associated with the
restructuring of one of our German subsidiaries was recorded in
the fourth quarter of 2008.
In 2009 and 2008, the Company recorded immaterial charges in
connection with its restructuring activities.
During the fourth quarter of 2008, the Company noted certain
adjustments which related to prior quarters, primarily related
to income taxes. Because these changes are not material to the
current or previous periods, we have recorded them in the fourth
quarter of 2008. The impact of recording these adjustments
during the fourth quarter of 2008 resulted in a decrease to net
income of $2.6 million.
F-40
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Charged to
|
|
|
|
Balance at
|
|
|
Beginning of
|
|
Costs and
|
|
Other
|
|
|
|
End of
|
Description
|
|
Period
|
|
Expenses
|
|
Accounts(1)
|
|
Deductions
|
|
Period
|
|
|
(In thousands)
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns and allowances
|
|
$
|
10,052
|
|
|
$
|
2,645
|
|
|
$
|
|
|
|
$
|
(1,481
|
)
|
|
$
|
11,216
|
|
Inventory reserves
|
|
|
23,501
|
|
|
|
11,153
|
|
|
|
447
|
|
|
|
(7,376
|
)
|
|
|
27,725
|
|
Deferred tax asset valuation allowance
|
|
|
35,968
|
|
|
|
3,649
|
|
|
|
(3,286
|
)
|
|
|
(200
|
)
|
|
|
36,131
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns and allowances
|
|
$
|
7,816
|
|
|
$
|
3,016
|
|
|
$
|
|
|
|
$
|
(780
|
)
|
|
$
|
10,052
|
|
Inventory reserves
|
|
|
24,088
|
|
|
|
5,572
|
|
|
|
(1,254
|
)
|
|
|
(4,905
|
)
|
|
|
23,501
|
|
Deferred tax asset valuation allowance
|
|
|
40,925
|
|
|
|
|
|
|
|
(2,436
|
)
|
|
|
(2,521
|
)
|
|
|
35,968
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns and allowances
|
|
$
|
4,114
|
|
|
$
|
4,858
|
|
|
$
|
|
|
|
$
|
(1,156
|
)
|
|
$
|
7,816
|
|
Inventory reserves
|
|
|
14,786
|
|
|
|
10,627
|
|
|
|
4,455
|
|
|
|
(5,780
|
)
|
|
|
24,088
|
|
Deferred tax asset valuation allowance
|
|
|
1,632
|
|
|
|
2,302
|
|
|
|
36,991
|
|
|
|
|
|
|
|
40,925
|
|
|
|
|
(1) |
|
All inventory amounts shown were recorded to goodwill in
connection with acquisitions. All deferred tax asset valuation
allowance amounts were recorded to goodwill in connection with
acquisitions, except for $2.7 million and $2.0 million
in 2007 and 2008, respectively, charged to additional
paid-in
capital and the $3.3 million reduction in 2009, which was
no longer required as a result of the estimated expiration of
the carryforward period of a net operating loss carryforward for
which a deferred tax asset had been previously recorded. |
F-41
EXHIBIT INDEX
|
|
|
|
|
|
3
|
.1(a)
|
|
Amended and Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1(a) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
3
|
.1(b)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation dated May 22, 1998 (Incorporated by reference
to Exhibit 3.1(b) to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1998)
|
|
3
|
.1(c)
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation dated May 17, 1999 (Incorporated by reference
to Exhibit 3.1(c) to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)
|
|
3
|
.2(a)
|
|
Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3.1 to the Companys Current
Report on
Form 8-K
filed on November 3, 2006)
|
|
3
|
.2(b)
|
|
Amended and Restated By-laws of the Company (Incorporated by
reference to Exhibit 3.2 to the Companys Current
Report on
Form 8-K
filed on November 3, 2009)
|
|
4
|
.1
|
|
Indenture, dated as of March 31, 2003, between the Company
and Wells Fargo Bank Minnesota, National Association
(Incorporated by reference to Exhibit 4.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2003)
|
|
4
|
.2
|
|
Registration Rights Agreement, dated as of March 31, 2003,
between the Company and Credit Suisse First Boston, LLC, Banc of
America Securities LLC and U.S. Bancorp Piper Jaffray Inc.
(Incorporated by reference to Exhibit 4.3 to the
Companys Registration Statement on
Form S-3
filed on June 30, 2003 (File
No. 333-106625))
|
|
4
|
.3(a)
|
|
Credit Agreement, dated as of December 22, 2005, among
Integra LifeSciences Holdings Corporation, the lenders party
thereto, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 29, 2005)
|
|
4
|
.3(b)
|
|
First Amendment, dated as of February 15, 2006, among
Integra LifeSciences Holdings Corporation, the lenders party
thereto, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 4.3(b) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
4
|
.3(c)
|
|
Second Amendment, dated as of February 23, 2007, among
Integra LifeSciences Holdings Corporation, the lenders party
thereto, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, Citibank FSB and SunTrust Bank, as
Co-Syndication Agents, and Royal Bank of Canada and Wachovia
Bank, National Association, as Co-Documentation Agents
(Incorporated by reference to Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed on February 27, 2007)
|
|
4
|
.3(d)
|
|
Third Amendment, dated as of June 4, 2007, among Integra
LifeSciences Holdings Corporation, the lenders party thereto,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, Citibank, N.A., successor by merger to
Citibank, FSB, as Syndication Agent and JPMorgan Chase Bank,
N.A., Deutsche Bank Trust Company Americas and Royal Bank
of Canada, as Co-Documentation Agents (Incorporated by reference
to Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on June 6, 2007)
|
|
4
|
.3(e)
|
|
Fourth Amendment, dated as of September 5, 2007, among
Integra LifeSciences Holdings Corporation, the lenders party
thereto, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, Citibank, N.A., successor by merger
to Citibank FSB, as Syndication Agent and JPMorgan Chase Bank,
N.A., Deutsche Bank Trust Company Americas and Royal Bank
of Canada, as Co-Documentation Agents (Incorporated by reference
to Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on September 6, 2007)
|
|
4
|
.4
|
|
Security Agreement, dated as of December 22, 2005, among
Integra LifeSciences Holdings Corporation and the additional
grantors party thereto in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.4 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
4
|
.5
|
|
Pledge Agreement, dated as of December 22, 2005, among
Integra LifeSciences Holdings Corporation and the additional
grantors party thereto in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.5 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
|
|
|
|
|
4
|
.6
|
|
Subsidiary Guaranty Agreement, dated as of December 22,
2005, among the guarantors party thereto and individually as a
Guarantor), in favor of Bank of America, N.A., as
administrative and collateral agent (Incorporated by reference
to Exhibit 4.6 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)
|
|
4
|
.7
|
|
Indenture, dated as of September 29, 2006, between the
Company and Wells Fargo Bank, N.A. (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on October 5, 2006)
|
|
4
|
.8
|
|
Indenture, dated June 11, 2007, among Integra LifeSciences
Holdings Corporation, Integra LifeSciences Corporation and Wells
Fargo Bank, N.A., as trustee (Incorporated by reference to
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
4
|
.9
|
|
Form of 2.75% Senior Convertible Note due 2010 (included in
Exhibit 4.8) (Incorporated by reference to Exhibit 4.2
to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
4
|
.10
|
|
Indenture, dated June 11, 2007, among Integra LifeSciences
Holdings Corporation, Integra LifeSciences Corporation and Wells
Fargo Bank, N.A., as trustee (Incorporated by reference to
Exhibit 4.3 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
4
|
.11
|
|
Form of 2.375% Senior Convertible Note due 2012 (included
in Exhibit 4.10) (Incorporated by reference to
Exhibit 4.4 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
4
|
.12
|
|
Registration Rights Agreement, dated June 11, 2007, among
Integra LifeSciences Holdings Corporation, Banc of America
Securities LLC, J.P. Morgan Securities Inc. and Morgan
Stanley & Co., Incorporated, as representatives of the
several initial purchasers (Incorporated by reference to
Exhibit 4.5 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
4
|
.13
|
|
Registration Rights Agreement, dated June 11, 2007, among
Integra LifeSciences Holdings Corporation, Banc of America
Securities LLC, J.P. Morgan Securities Inc. and Morgan
Stanley & Co., Incorporated, as representatives of the
several initial purchasers (Incorporated by reference to
Exhibit 4.6 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
10
|
.1(a)
|
|
Lease between Plainsboro Associates and American Biomaterials
Corporation dated as of April 16, 1985, as assigned to
Colla-Tec, Inc. on October 24, 1989 and as amended through
November 1, 1992 (Incorporated by reference to
Exhibit 10.30 to the Companys Registration Statement
on Form 10/A (File
No. 0-26224)
which became effective on August 8, 1995)
|
|
10
|
.1(b)
|
|
Lease Modification #2 entered into as of the 28th day of
October, 2005, by and between Plainsboro Associates and Integra
LifeSciences Corporation (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on November 2, 2005)
|
|
10
|
.2
|
|
Equipment Lease Agreement between Medicus Corporation and the
Company, dated as of June 1, 2000 (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2000)
|
|
10
|
.3
|
|
Form of Indemnification Agreement between the Company and
o
dated August 16, 1995, including a schedule identifying the
individuals that are a party to such Indemnification Agreements
(Incorporated by reference to Exhibit 10.37 to the
Companys Registration Statement on
Form S-1
(File
No. 33-98698)
which became effective on January 24, 1996)*
|
|
10
|
.4
|
|
1993 Incentive Stock Option and Non-Qualified Stock Option Plan
(Incorporated by reference to Exhibit 10.32 to the
Companys Registration Statement on Form 10/A (File
No. 0-26224)
which became effective on August 8, 1995)*
|
|
10
|
.5
|
|
1996 Incentive Stock Option and Non-Qualified Stock Option Plan
(as amended through December 27, 1997) (Incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K
filed on February 3, 1998)*
|
|
10
|
.6
|
|
1998 Stock Option Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005)*
|
|
10
|
.7
|
|
1999 Stock Option Plan (amended and restated as of July 26,
2005) (Incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005)*
|
|
10
|
.8(a)
|
|
Employee Stock Purchase Plan (as amended on May 17, 2004)
(Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on
Form S-8
(Registration
No. 333-127488)
filed on August 12, 2005)*
|
|
|
|
|
|
|
10
|
.8(b)
|
|
First Amendment to the Companys Employee Stock Purchase
Plan, dated October 26, 2005 (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on November 1, 2005)*
|
|
10
|
.9
|
|
2000 Equity Incentive Plan (amended and restated as of
July 26, 2005) (Incorporated by reference to
Exhibit 10.5 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005)*
|
|
10
|
.10
|
|
2001 Equity Incentive Plan (amended and restated as of
July 26, 2005) (Incorporated by reference to
Exhibit 10.6 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005)*
|
|
10
|
.11(a)
|
|
2003 Equity Incentive Plan (amended and restated as of
July 26, 2005) (Incorporated by reference to
Exhibit 10.7 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005)*
|
|
10
|
.11(b)
|
|
Integra LifeSciences Holdings Corporation Amended and Restated
2003 Equity Incentive Plan effective July 9, 2008
(Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed on July 11, 2008)*
|
|
10
|
.11(c)
|
|
Amendment to the Integra LifeSciences Holdings Corporation 2003
Equity Incentive Plan dated July 9, 2008 (Incorporated by
reference to Exhibit 10.3 to the Companys Current
Report on
Form 8-K
filed on July 11, 2008)*
|
|
10
|
.12(a)
|
|
Second Amended and Restated Employment Agreement dated
July 27, 2004 between the Company and Stuart M. Essig
(Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004)*
|
|
10
|
.12(b)
|
|
Amendment
2006-1,
dated as of December 19, 2006, to the Second Amended and
Restated Employment Agreement, between the Company and Stuart M.
Essig (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 22, 2006)*
|
|
10
|
.12(c)
|
|
Amendment
2008-1,
dated as of March 6, 2008, to the Second Amended and
Restated Employment Agreement, between the Company and Stuart M.
Essig (Incorporated by reference to Exhibit 10.12(c) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.12(d)
|
|
Amendment
2008-2,
dated as of August 6, 2008, to the Second Amended and
Restated Employment Agreement between Stuart M. Essig and the
Company (Incorporated by reference to Exhibit 10.7 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008)*
|
|
10
|
.12(e)
|
|
Amendment
2009-1,
dated as of April 13, 2009, to the Second Amended and
Restated Employment Agreement between Stuart M. Essig and the
Company (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed on April 13, 2009)*
|
|
10
|
.13
|
|
Indemnity letter agreement dated December 27, 1997 from the
Company to Stuart M. Essig (Incorporated by reference to
Exhibit 10.5 to the Companys Current Report on
Form 8-K
filed on February 3, 1998)*
|
|
10
|
.14(a)
|
|
Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on February 3, 1998)*
|
|
10
|
.14(b)
|
|
Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed on January 8, 2001)*
|
|
10
|
.14(c)
|
|
Registration Rights Provisions for Stuart M. Essig (Incorporated
by reference to Exhibit B of Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004)*
|
|
10
|
.15(a)
|
|
Amended and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company dated December 19, 2005
(Incorporated by reference to Exhibit 10.16 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)*
|
|
10
|
.15(b)
|
|
Amendment
2008-1,
dated as of January 2, 2008, to the Amended and Restated
2005 Employment Agreement between John B. Henneman, III and
the Company (Incorporated by reference to Exhibit 10.15(b)
to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.15(c)
|
|
Amendment
2008-2,
dated as of December 18, 2008, to the Amended and Restated
2005 Employment Agreement between John B. Henneman, III and
the Company (Incorporated by reference to Exhibit 10.2 to
the Companys Current Report on
Form 8-K
filed on December 24, 2008)*
|
|
|
|
|
|
|
10
|
.15(d)
|
|
Amendment
2009-1,
dated as of April 13, 2009, to the Amended and Restated
2005 Employment Agreement between John B. Henneman, III and
the Company (Incorporated by reference to Exhibit 10.5 to
the Companys Current Report on
Form 8-K
filed on April 13, 2009)*
|
|
10
|
.16(a)
|
|
Amended and Restated 2005 Employment Agreement between Gerard S.
Carlozzi and the Company dated December 19, 2005
(Incorporated by reference to Exhibit 10.17 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)*
|
|
10
|
.16(b)
|
|
Amendment
2008-1,
dated as of January 2, 2008, to the Amended and Restated
2005 Employment Agreement between Gerard S. Carlozzi and the
Company (Incorporated by reference to Exhibit 10.16(b) to
the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.16(c)
|
|
Amendment
2008-2,
dated as of December 18, 2008, to the Amended and Restated
2005 Employment Agreement between Gerard S. Carlozzi and the
Company (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 24, 2008)*
|
|
10
|
.16(d)
|
|
Amendment
2009-1,
dated as of April 13, 2009, to the Amended and Restated
2005 Employment Agreement between Gerard S. Carlozzi and the
Company (Incorporated by reference to Exhibit 10.4 to the
Companys Current Report on
Form 8-K
filed on April 13, 2009)*
|
|
10
|
.17
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 4, 2010*+
|
|
10
|
.18
|
|
Lease Contract, dated April 1, 2005, between the Puerto
Rico Industrial Development Company and Integra CI, Inc.
(executed on September 15, 2006) (Incorporated by reference
to Exhibit 10.3 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006)
|
|
10
|
.19(a)
|
|
Industrial Real Estate Triple Net Sublease dated July 1,
2001 between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(a) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)
|
|
10
|
.19(b)
|
|
First Amendment to Sublease dated as of July 1, 2003 by and
between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(b) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)
|
|
10
|
.19(c)
|
|
Second Amendment to Sublease dated as of June 1, 2004 by
and between Sorrento Montana, L.P. and Camino NeuroCare, Inc.
(Incorporated by reference to Exhibit 10.24(c) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)
|
|
10
|
.19(d)
|
|
Third Amendment to Sublease dated as of June 15, 2004 by
and between Sorrento Montana, L.P. and Integra LifeSciences
Corporation (Incorporated by reference to Exhibit 10.24(d)
to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)
|
|
10
|
.19(e)
|
|
Fourth Amendment to Sublease, dated as of August 15, 2006,
by and between Sorrento Montana, L.P. and Integra LifeSciences
Corporation (Incorporated by reference to Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed on August 17, 2006)
|
|
10
|
.20
|
|
Restricted Units Agreement dated December 27, 1997 between
the Company and Stuart M. Essig (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K
filed on February 3, 1998)*
|
|
10
|
.21
|
|
Stock Option Grant and Agreement dated December 22, 2000
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed on January 8, 2001)*
|
|
10
|
.22
|
|
Stock Option Grant and Agreement dated December 22, 2000
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 4.2 to the Companys Current
Report on
Form 8-K
filed on January 8, 2001)*
|
|
10
|
.23(a)
|
|
Restricted Units Agreement dated December 22, 2000 Between
the Company and Stuart M. Essig (Incorporated by reference to
Exhibit 4.3 to the Companys Current Report on
Form 8-K
filed on January 8, 2001)*
|
|
10
|
.23(b)
|
|
Amendment
2006-1,
dated as of October 30, 2006, to the Stuart M. Essig
Restricted Units Agreement dated as of December 22, 2000
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on November 3, 2006)*
|
|
10
|
.24
|
|
Stock Option Grant and Agreement dated July 27, 2004
between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 10.30 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
10
|
.25(a)
|
|
Contract Stock/Restricted Units Agreement dated July 27,
2004 between the Company and Stuart M. Essig (Incorporated by
reference to Exhibit 10.31 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
|
|
|
|
|
10
|
.25(b)
|
|
Amendment
2006-1,
dated as of October 30, 2006, to the Stuart M. Essig
Contract Stock/Restricted Units Agreement dated as of
July 27, 2004 (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed on November 3, 2006)*
|
|
10
|
.25(c)
|
|
Amendment
2008-1,
dated as of March 6, 2008, to the Stuart M. Essig Contract
Stock/Restricted Units Agreement dated as of July 27, 2004
(Incorporated by reference to Exhibit 10.25(c) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.26
|
|
Form of Stock Option Grant and Agreement between the Company and
Stuart M. Essig (Incorporated by reference to Exhibit 10.32
to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
10
|
.27
|
|
Form of Contract Stock/Restricted Units Agreement for Stuart M.
Essig (Incorporated by reference to Exhibit 10.8 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008)*
|
|
10
|
.28
|
|
Form of Performance Stock Agreement for Stuart M. Essig
(Incorporated by reference to Exhibit 10.9 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008)*
|
|
10
|
.29
|
|
Form of Restricted Stock Agreement for Stuart M. Essig for 2009
(Incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed April 13, 2009)*
|
|
10
|
.30
|
|
Form of Notice of Grant of Stock Option and Stock Option
Agreement (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on July 29, 2005)*
|
|
10
|
.31
|
|
Form of Non-Qualified Stock Option Agreement
(Non-Directors)
(Incorporated by reference to Exhibit 10.35 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
10
|
.32
|
|
Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 10.36 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
10
|
.33
|
|
Form of Non-Qualified Stock Option Agreement (Directors)
(Incorporated by reference to Exhibit 10.37 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2004)*
|
|
10
|
.34
|
|
Compensation of Directors of the Company effective July 9,
2008 (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on July 11, 2008)*
|
|
10
|
.35(a)
|
|
Form of Restricted Stock Agreement for Non-Employee Directors
under the Integra LifeSciences Holdings Corporation 2003 Equity
Incentive Plan (Incorporated by reference to Exhibit 10.2
to the Companys Current Report on
Form 8-K
filed on May 17, 2005)*
|
|
10
|
.35(b)
|
|
Form of Restricted Stock Agreement for Non-Employee Directors
under the Integra LifeSciences Holdings Corporation 2003 Equity
Incentive Plan (Incorporated by reference to Exhibit 10.4
to the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008*
|
|
10
|
.35(c)
|
|
New Form of Restricted Stock Agreement for Non-Employee
Directors under the Integra LifeSciences Holdings Corporation
2003 Equity Incentive Plan (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on April 13, 2009)*
|
|
10
|
.36(a)
|
|
Form of Restricted Stock Agreement for Executive
Officers Cliff Vesting (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on January 9, 2006)*
|
|
10
|
.36(b)
|
|
New Form of Restricted Stock Agreement for Executive
Officers Annual Vesting (Incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on February 25, 2009)*
|
|
10
|
.36(c)
|
|
New Form of Restricted Stock Agreement with Cliff Vesting for
Executive Officers (Incorporated by reference to
Exhibit 10.8 to the Companys Quarter Report on
Form 10-Q
for the quarter ended March 31, 2009)*
|
|
10
|
.36(d)
|
|
Form of Restricted Stock Agreement for Messrs. Carlozzi and
Henneman for 2008 and 2009 (Incorporated by reference to
Exhibit 10.6 to the Companys Current Report on
Form 8-K
filed on April 13, 2009)*
|
|
10
|
.37
|
|
Asset Purchase Agreement, dated as of September 7, 2005, by
and between Tyco Healthcare Group LP and Sherwood Services, AG
and Integra LifeSciences Corporation and Integra LifeSciences
(Ireland) Limited (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on September 13, 2005)
|
|
10
|
.38
|
|
Performance Stock Agreement by and between John B.
Henneman, III and the Company dated January 3, 2006
(Incorporated by reference to Exhibit 10.42 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005)*
|
|
10
|
.39
|
|
Performance Stock Agreement by and between Gerard S. Carlozzi
and the Company dated January 3, 2006 (Incorporated by
reference to Exhibit 10.43 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2005)*
|
|
|
|
|
|
|
10
|
.40(a)
|
|
Form of Performance Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on March 21, 2007)*
|
|
10
|
.40(b)
|
|
Form of Performance Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to
Exhibit 10.37(b) to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.41
|
|
Stock Purchase Agreement, dated as of April 19, 2006, by
and between ASP/Miltex LLC and Integra LifeSciences Corporation
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on April 25, 2006)
|
|
10
|
.42
|
|
Stock Agreement and Plan of Merger, dated as of June 30,
2006, by and between Integra LifeSciences Corporation, Integra
California, Inc., Kinetikos Medical, Inc., Telegraph Hill
Partners Management LLC, as Shareholders Representative, and the
Shareholders party thereto (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on July 7, 2006)
|
|
10
|
.43(a)
|
|
Integra LifeSciences Holdings Corporation Management Incentive
Compensation Plan (Incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2006)*
|
|
10
|
.43(b)
|
|
First Amendment to Integra LifeSciences Holdings Corporation
Management Incentive Compensation Plan (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2007)*
|
|
10
|
.43(c)
|
|
Integra LifeSciences Holdings Corporation Management Incentive
Compensation Plan, as amended and restated as of January 1,
2008 (Incorporated by reference to Exhibit 10.43(c) to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2007)*
|
|
10
|
.44
|
|
Form of Restricted Stock Agreement for Gerard S. Carlozzi and
John B. Henneman, III (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on February 27, 2007)*
|
|
10
|
.45
|
|
Form of 2010 Convertible Bond Hedge Transaction Confirmation,
dated June 6, 2007, between Integra LifeSciences Holdings
Corporation and dealer (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
10
|
.46
|
|
Form of 2012 Convertible Bond Hedge Transaction Confirmation,
dated June 6, 2007, between Integra LifeSciences Holdings
Corporation and dealer (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed on June 12, 2007)
|
|
10
|
.47
|
|
Form of 2010 Amended and Restated Issuer Warrant Transaction
Confirmation, dated June 6, 2007, between Integra
LifeSciences Holdings Corporation and dealer (Incorporated by
reference to Exhibit 10.3 to the Companys Current
Report on
Form 8-K
filed on June 12, 2007)
|
|
10
|
.48
|
|
Form of 2012 Amended and Restated Issuer Warrant Transaction
Confirmation, dated June 6, 2007, between Integra
LifeSciences Holdings Corporation and dealer (Incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K
filed on June 12, 2007)
|
|
10
|
.49
|
|
Agreement and Plan of Merger among Integra LifeSciences Holdings
Corporation, ICE Mergercorp, Inc. and IsoTis, Inc., dated as of
August 6, 2007 (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on August 7, 2007)
|
|
10
|
.50
|
|
Form of Option Agreement among Integra LifeSciences Holdings
Corporation and John B. Henneman, III (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K
filed on June 6, 2008)*
|
|
10
|
.51
|
|
Unit Purchase Agreement, dated as of July 23, 2008, by and
among Integra LifeSciences Holdings Corporation, Theken Spine
LLC, Randall R. Theken and the other members of Theken Spine,
LLC party thereto (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on July 24, 2008)
|
|
10
|
.52
|
|
Form of Indemnification Agreement for Non-Employee Directors and
Officers (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 24, 2008)*
|
|
10
|
.53
|
|
Form of Contract Stock/Restricted Units Agreement for
Mr. Carlozzi and Mr. Henneman (Incorporated by
reference to Exhibit 10.4 to the Companys Current
Report on
Form 8-K
filed on December 24, 2008)*
|
|
10
|
.54
|
|
Piggyback Registration Rights Agreement dated December 22,
2008 between Integra LifeSciences Holdings Corporation and
George Heenan, Thomas Gilliam and Michael Evers, as trustees of
The Bruce A. LeVahn 2008 Trust and Steven M. LeVahn
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 29, 2008)
|
|
|
|
|
|
|
10
|
.55(a)
|
|
Lease Agreement between 109 Morgan Lane, LLC and Integra
LifeSciences Corporation, dated May 15, 2008 (Incorporated
by reference to Exhibit 10.10 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008)
|
|
10
|
.55(b)
|
|
First Amendment to Lease Agreement between 109 Morgan Lane, LLC
and Integra LifeSciences Corporation, dated March 9, 2009
(Incorporated by reference to Exhibit 10.9 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009)
|
|
21
|
|
|
Subsidiaries of the Company+
|
|
23
|
|
|
Consent of PricewaterhouseCoopers LLP+
|
|
31
|
.1
|
|
Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002+
|
|
31
|
.2
|
|
Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002+
|
|
32
|
.1
|
|
Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002+
|
|
32
|
.2
|
|
Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002+
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
+ |
|
Indicates this document is filed as an exhibit herewith. |
The Companys Commission File Number for Reports on
Form 10-K,
Form 10-Q
and
Form 8-K
is 0-26224.