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,
2010
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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
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(I.R.S. EMPLOYER
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INCORPORATION OR
ORGANIZATION)
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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 þ 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)
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, 2010, the aggregate market value of the
registrants common stock held by non-affiliates was
approximately $780.1 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 21, 2011 was 28,603,792.
DOCUMENTS
INCORPORATED BY REFERENCE:
Certain portions of the registrants definitive proxy
statement relating to its scheduled May 17, 2011 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 medical devices. We employ approximately
3,000 people around the world who are dedicated to limiting
uncertainty for surgeons, so they can concentrate on providing
the best patient care. Integra offers innovative solutions in
orthopedic surgery, neurosurgery, spine surgery, and
reconstructive and general surgery. Revenues grew to
$732.1 million in 2010, an increase of 7% from
$682.5 million in 2009.
Integras orthopedic products include devices and implants
for foot and ankle, hand and wrist, tendon and peripheral nerve
protection and repair, wound repair and spine. Integra is a
leader in cranial neurosurgery, offering a broad portfolio of
implants, devices, instruments and systems used in neurosurgery,
neuromonitoring, neurotrauma, and related critical care. In the
United States, we are one of the largest providers of surgical
instruments to hospitals, surgery centers and alternate care
sites, including physician and dental offices.
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:
Limiting Uncertainty. We work with customers
whose time is at a premium. We are committed to limit the
surgeons uncertainty by making our products and processes
simpler, involving surgeons in new product development, and
ensuring that we have the best trained professionals who can
anticipate the needs of our customers.
Driving a cohesive corporate identity. We have
defined a clear brand position around limiting uncertainty and
are tying our individual products to the Integra brand.
Marketing innovative medical devices. We
develop innovative medical devices for orthopedic and spinal
surgery, neurosurgery, and general surgery.
Investing in sales distribution channels to increase market
penetration. Around the world, we employ more
than 500 direct sales professionals and engage a large network
of distributors to sell our products. The recruitment,
management, and training of sales organizations is one of our
core competencies.
Achieving economies of scale. We are
integrating facilities around the world to become more
efficient, and are simplifying our product lines.
Developing innovative products based on core
technologies. We are a leader in regenerative
medicine. 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 or in-licensing products that fit existing sales
channels. We acquire businesses and acquire or
in-license new products 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 seven acquisitions since the beginning of 2008, have
demonstrated that we can quickly and profitably integrate new
products and businesses, and have an active program to evaluate
similar 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.
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SALES AND
DISTRIBUTION
We sell products in three market categories
Orthopedics, Neurosurgery and Instruments. Within the
Orthopedics category, we sell through a large direct sales
organization and through specialty distributors focused on their
respective surgical specialties. Neurosurgery sells products
through directly-employed sales representatives. Instruments are
sold through two sales channels, both directly and through
distributors and wholesalers, depending on the customer call
point.
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 limit uncertainty in the surgical
theatre. These products include implants, instruments and
equipment for orthopedic surgery, neurosurgery and general
surgery. We distinguish ourselves by emphasizing the importance
of the relatively new field of regenerative medicine
which we define as surgical implants derived from our
proprietary collagen matrix technology.
In 2010, approximately 23% of our revenues came from
regenerative medicine. 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 promote the development of 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 these regenerative
medicine products through most of our sales channels.
ORTHOPEDICS
PRODUCT PORTFOLIO
Our orthopedics market category includes products sold by our
Extremity Reconstruction and Spine 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.
Skin and Wound. Our dermal repair and
regeneration products are used to treat acute and chronic wounds.
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 24 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.
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 estimated
$1 billion market in the United States.
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Lower Extremity. We are a leading
developer and marketer of specialty implants and instruments
specifically designed for foot and ankle surgery. Our customers
include orthopedic and podiatric surgeons specializing in lower
extremity injuries, of which there are approximately 2,300 and
6,200, respectively, in the United States. We have a full suite
of orthopedic procedure sets to address pathology in the
forefoot, midfoot, hindfoot, and ankle. The lower extremity
market is estimated to be in excess of $700 million in the
United States.
Upper Extremity. For upper extremity
reconstruction, we are recognized for the premier implant for
wrist arthroplasty, a procedure that restores the function of
the arthritic wrist. Our other leading products in this
therapeutic area are used in small bone fixation, treatment of
carpel tunnel syndrome and treatment of cubital tunnel syndrome.
The upper extremity market is estimated to be nearly
$250 million in the United States.
Bone Graft Substitutes for Extremity
Reconstruction. Our comprehensive line of
synthetic bone graft substitute products includes three distinct
products a bone void filler manufactured from beta
tri-calcium phosphate and type I bovine collagen; demineralized
bone matrix (DBM); and 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.
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
regenerative medicine products for peripheral nerve repair and
protection and tendon repair. We estimate that the worldwide
market for the repair of severed, injured, compressed and
scarred peripheral nerves is approximately $50 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.
Integra
Spine Product Portfolio
Orthopedic and neurological spine surgeons treat debilitating
pain arising from disorders, which include degenerative disk
disease (DDD), deformity, trauma and tumors. DDD is
the most common disorder and is expected to increase in the
United States due to the aging population. To treat the pain
arising from spinal disorders, surgeons may need to perform
spinal fusion procedures. We offer comprehensive spinal fusion
technologies that are used from the occiput to the sacrum, and a
full line of related orthobiologics.
In 2010, 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 $5 billion. The United States market size
for bone graft substitutes in orthopedic spinal procedures is
estimated to be over $500 million.
Spinal Fusion Implant Technologies. In
2010, over 250,000 interbody fusion devices were implanted in
patients across the United States. The 2010 estimated market
size for interbody fusion devices was over $1.5 billion.
The market is usually divided by region (cervical or
thoracolumbar) and approach (anterior, lateral, posterior, or
transforaminal). Interbody/vertebral body replacements are
shaped like a cage and used to hold the graft in place during a
fusion procedure. Interbody devices are placed in the disc space
and filled with bone graft or bone type material. According to
industry sources, in 2010, the anterior interbody market was
valued at over $200 million. Since its launch in early
2009, our proprietary fusion device has been implanted widely
throughout the United States. Our next generation fusion device
technology provides an internal locking mechanism that enhances
implant stability and reduces the risk of unintended expulsion.
In 2010, we launched new implants to aid surgeons with
thoracolumbar, cervical and deformity procedures as follows:
Anterior Interbody Fusion Devices. The
device used in the thoracolumbar region is an anterior interbody
device that combines our novel internal locking mechanism with
an integrated screw system. This system is widely used to limit
the uncertainty around implant stability and expulsion. The
integrated screws reduce the need for a surgeon to provide
additional posterior fixation and simplifies the procedures.
Cervical Fixation. To treat disorders
of the cervical spine, in 2010 we launched our third anterior
cervical plating system. The new system provides an easy to use
one-step locking mechanism on a narrow, low profile plate with
intuitive instrumentation. The result is an elegant solution for
surgeons who desire simplicity
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in anterior cervical procedures. In 2010, the anterior cervical
fixation market was estimated to be nearly $800 million.
Deformity Correction. To enhance our
treatment options for deformity procedures, in 2010 we launched
a stainless steel implant system that provides additional
construct strength and stiffness, which may be necessary to
correct abnormal curvitures of the spine. The launch of this
system marks an important step in the evolution of the Integra
Spine deformity franchise, which we plan to continue to build.
The deformity market is estimated to be nearly $400 million.
Orthobiologics. 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 other orthopedic surgical
procedures.
Minimally Invasive Solutions. We
design, develop, manufacture and sell spinal implant products
focused on minimally invasive surgery and motion preservation
techniques using the technology from the acquisition of IST and
our own internal product initiatives. Minimally invasive
fixation systems offer surgeons an opportunity to deliver
pedicle screws with a small incision, potentially reducing blood
loss and recovery time.
NEUROSURGERY
PRODUCT PORTFOLIO
Our Integra Neurosurgery sales organization sells a full line of
products specifically for neurosurgery and neuro critical care.
We have products for each step of a cranial procedure and the
care of the patient after surgery. We sell equipment used in the
neurosurgery operating room and neurosurgery intensive care unit
(NICU).
Tissue Ablation Equipment. Our tissue
ablation equipment uses high frequency acoustic pulses to
selectively dissect soft tissues according to their density.
Integras
CUSA®
tissue ablation system thereby facilitates the ablation of
unwanted tissue (such as tumors) adjacent to or attached to
vital structures, helping to limit uncertainty for the surgeon.
The
CUSA®
tissue ablation system has been the leading ultrasonic surgical
aspirator for over 25 years, and the related accessories
for these products generate a recurring revenue stream.
Our 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, and gynecological and liver tumors. According to
industry sources, the total United States market for ultrasonic
tissue ablation products is estimated at 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 to meet these new
clinical applications.
Dural Repair Products. In the United
States, over 225,000 craniotomy procedures are performed each
year representing a market estimated to be over
$500 million. Most of these surgeries require an incision
of the dura mater, which is the tough, fibrous membrane that
surrounds and protects the brain and spinal cord. The incision
must be repaired, either by suturing or applying a dural graft
to prevent cerebrospinal fluid leaks and facilitate healing.
Since our introduction of the original
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. Our dural repair
products are alternatives to tissue being removed and grafted
from another location in the patients body.
Cerebral Spinal Fluid (CSF) Management
Devices. CSF drainage is an important
component of managing the intracranial pressure of the
neurologically compromised patient or a patient undergoing
abdominal aortic aneurysm surgery. Over 250,000 procedures are
performed annually in the United States using lumbar or
ventricular drainage systems, including permanently implanted
shunt systems and external ventricular drainage, representing an
estimated $150 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 catheter 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 control valve to maintain a
normal level of CSF. Each year there are approximately 50,000
new shunt 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,
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peritoneal and cardiac catheters. In 2010, Integra introduced
new valve systems for the treatment of hydrocephalus that are
designed to treat hydrocephalus by regulating the drainage of
cerebrospinal fluid (CSF) from the lumbar spine.
Intracranial Monitoring Equipment. The
NICU monitors a patients post-operative condition,
following most neurosurgical procedures involving craniotomy. We
offer the leading products for monitoring intracranial pressure
and brain tissue oxygenation and also offer equipment for the
drainage of excess CSF.
Our 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 using our products to
monitor and manage intracranial pressure and brain tissue oxygen.
Cranial Stabilization Equipment. Most
neurosurgery procedures require rigid fixation of the head. Our
MAYFIELD®
line of cranial stabilization equipment rigidly fixes the head
in an orientation determined by the surgeon. The device fixes
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 to properly position the head for the
surgical procedure. This system is used worldwide in over
400,000 brain procedures annually.
Intraoperative real time imaging is being utilized more
frequently in neurosurgical procedures and we market
stabilization equipment that is made from a composite material
that reduces the distortion in images compared to metal systems.
INSTRUMENTS
PRODUCT PORTFOLIO
We are the largest surgical instrument company 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. In addition to
hand-held instruments, we sell surgical headlight systems and
table-mounted retractors. Our instruments are sold and marketed
via separate organizations to acute care and alternate site
customers.
The
Jarit®
and
Miltex®
brands of hand-held reusable surgical instrumentation encompass
all of the clinical specialties within the acute care and
alternate site clinical setting. Our markets include minimally
invasive endoscopy surgery, general surgery, cardiovascular,
neurosurgery, gynecological, orthopedic, ear, nose and throat,
ophthalmology and all other venues that provide surgical care
inside and outside the hospital setting. We are also a major
player in animal health specialties, such as dentistry and
orthopedics, as well as the emerging life sciences sector.
Integra is a premium manufacturer of dental instruments related
to hygiene, oral surgery, periodontal and endodontic
instrumentation. We offer the dental market the largest array of
choices in extraction forceps, market leadership in
sterilization cassettes, and unique intra-oral lighting
technologies. The
Miltex®
brand has successfully incorporated Integras regenerative
medicine materials into its oral surgery and periodontal
offerings.
RESEARCH
AND DEVELOPMENT STRATEGY
Our research and development activities focus on identifying
unmet surgical needs and meeting those needs with innovative
solutions and products. We apply our core competency in
regenerative medicine to products for neurosurgical, orthopedic
and spinal applications, and have extensive programs in
neuro-monitoring and CSF management, cranial stabilization,
tissue ablation, surgical instruments and spine, soft tissue,
extremity small bone, and joint fixation. Our activities include
the acquisition or in-licensing of new products.
Regenerative Medicine. Because regenerative
medicine implants represent a fast-growing, high-margin
opportunity for us, we allocate a large portion of our research
and development budget to these products. Our regenerative
medicine development program applies our expertise in
biomaterials and collagen matrices to
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neurosurgical, orthopedic and spinal surgery applications, as
well as dermal regeneration, tendon and nerve repair, and
chronic and acute wounds.
Extremity Reconstruction. We develop fixation
devices and other implants and instruments for upper and lower
extremities. Our objective is to launch 3-5 important new
products a year.
Spine. Our expertise in implant engineering,
biomaterials development and biomechanical testing provides a
strong foundation for developing new products for the spine.
Additionally, Integra holds a number of spine patents that serve
as a platform for future products, with particular emphasis in
minimally invasive technologies. While we plan to continue
filling the gaps in our portfolio so our current customers can
use our products for more procedures, we are also developing
novel technologies and new indications.
We have based our strong orthobiologic product development
capability that on our bone matrix technology and our collagen
technology, which is the basis of our osteoconductive collagen
ceramic scaffold. We continue to develop line extensions based
on these foundation technologies that further complete our
offerings. In 2010, we created a complete portfolio of
orthobiologic products specifically for our spine distribution
network. We will continue to invest in the development of new
novel technologies for bone grafting.
Neurosurgery. Our research and product
development efforts are focused on protecting and extending our
leadership positions in dural repair, developing the next
generation tissue ablation system, a new critical care neuro
monitoring system, and an advanced hydrocephalus shunt valve.
COMPETITION
Our competition in extremity reconstruction includes
Johnson & Johnson, Synthes, Inc., Stryker Corporation,
Tornier, Inc., Wright Medical Group, Inc. Zimmer, Inc., and
Small Bone Innovations, Inc., as well as other major orthopedic
companies that carry a full line of small bone and joint
fixation and soft tissue products.
Competitors in the spine and orthobiologics markets include
Medtronic, Inc., Johnson & Johnson, Globus Medical
Inc., NuVasive, Inc., Orthofix, Stryker Corporation, Synthes,
Inc., Zimmer, Inc., and Alphatec Spine, Inc., and also include
several smaller, biologic-focused companies, such as Orthovita.
Our competitors in the neurosurgery markets are
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.
We compete with the Aesculap division of B. Braun Medical Inc.,
as well as V. Mueller, a division of CareFusion in the United
States. 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 and allied surgical products.
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.
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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). Obtaining these
approvals and clearances can take up to several years and
involves preclinical studies and clinical testing. On
January 19, 2011, the FDA announced its plan to implement
changes to the 510(k) Premarket Notification process. The plan
delineates many changes to the current process. The Institute of
Medicine will have an opportunity to review the plan before
these changes are made final. These changes to the 510(k)
Premarket Notification process, when final, could result in more
extensive testing, clinical trial requirements and other
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 other regulatory submissions.
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.
The American Association of Tissue Banks (AATB) has
issued operating standards for tissue banking. Compliance with
these standards is a requirement in order to become an
AATB-accredited tissue establishment. In addition, some states
have their own tissue banking regulations. We are licensed or
have permits for tissue banking in California, Florida, New York
and Maryland.
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
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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.
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 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 became 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
8
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 and
compete in the marketplace.
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,
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 payors, including the Medicare and Medicaid programs
and private payors, 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 payors. 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 payors 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
payors 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.
9
INTELLECTUAL
PROPERTY
We seek patent and trademark 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 and trademark rights. In general, however, we do not rely
solely on our patent and trademark estate to provide us with any
significant competitive advantages as it relates to our existing
product lines. We also 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®,
Advansys®,
Atolltm,
Auragentm,
Bold®,
Budde®,
Buzztm,
Camino®,
CRW®,
Coraltm,
CUSA®,
CUSA
Excel®,
DenLite®,
Dissectrontm,
DuraGen®,
DuraGen
Plus®,
DynaGraft®II,
Hallu®,
HeliCote®,
HeliPlug®,
HeliTape®,
HeliMEND®,
HINTEGRA®,
ICOStm,
Inforce®,
Integra®,
Integra
Mozaiktm,
Integra
OS®,
Jarit®,
LICOX®,
LimiTorrtm,
Luxtec®,
Manta
Raytm,
Miltex®,
NeuraGen®,
NeuraWraptm,
Newdeal®,
Omni-Tract®,
OrthoBlast®II,
OSV
II®,
Qwix®,
Padgett®,
Panta®,
Paramount®,
Radionics®,
Redmondtm,
Rugglestm,
SafeGuard®,
Selector®,
Subtalar
MBA®,
TenoGlide®,
Tethertm,
Trel-Xtm,
Trel-XC®,
Tibiaxys®,
Uni-CPtm,
Uni-Clip®,
Universal2tm,
Ventrix®,
XKnife®
and the Integra 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.
EMPLOYEES
At December 31, 2010, 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 13, 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 reported 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
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(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 Securities and Exchange Commission, in the SEC
Filings page of the Investor Relations section of our
website at www.integralife.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.
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;
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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; and
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FDAs reform to the 510(k) Premarket Notification process
which could make it more difficult to obtain clearance of our
medical devices and could result in the requirement of clinical
trial data in order to obtain FDA clearance.
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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 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 and Stryker
Corporation. 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 and orthobiologics markets include Medtronic,
Inc., Johnson & Johnson, Synthes, Inc., Stryker
Corporation, Zimmer, Inc., NuVasive, Inc., Globus Medical, Inc.,
Alphatec Spine, Inc., Orthofix and several smaller, biologically
focused companies such as Osteotech and Orthovita. In surgical
instruments, we compete with V. Mueller, as well as the Aesculap
division of B. Braun Medical, Inc. In addition, we compete with
Johnson & Johnson and many smaller instrument
companies in the reusable and disposable specialty instruments
markets. 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
2008, we have acquired 7 businesses or product lines at a total
cost of approximately $177.2 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
13
significant to us. Any new acquisition could result in material
transaction expenses, increased interest and amortization
expense, increased depreciation expense, increased operating
expense, and possible in-process research and development
charges for acquisitions that do not meet the definition of a
business, 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.
Our
future financial results could be adversely affected by
impairments or other charges.
Since we have grown through acquisitions, we have
$261.9 million of goodwill and $49.7 million of
indefinite-lived intangible assets as of December 31, 2010.
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 the discount
rates used in the calculations of discounted cash flow change
significantly, 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, 2010, we had $145.2 million
of definite-lived intangible assets.
Decisions relating to our trade names may occur over time as our
re-branding strategy is implemented. Additionally, we may
discontinue certain products in the future as we continue to
assess the profitability of our product lines. As a result, we
may need to record impairment charges or accelerate amortization
on certain trade names or technology-related intangible assets
in the future.
The value of a medical device business 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.
14
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.
Governmental austerity policies in Europe and other markets have
reduced and may continue to reduce the amount of money available
to purchase medical products, including our products.
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, 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 a reform
of the 510(k) Premarket Notification process that could make it
more difficult to obtain clearance for our medical devices,
especially for innovative devices. The FDA has proposed changes
for which FDA clearance to market would possibly require
clinical data, more extensive manufacturing information and
postmarket data. The FDA is also proposing that an FDA
inspection of the manufacturing facility may be required for
certain products prior to clearance of the 510(k), which is
similar to the requirements of a Class III device. As part
of the 510(k) reform, the FDA proposes to issue regulations
defining grounds and procedures for rescission of 510(k)
applications that have previously been cleared to market. 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
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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
payors 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 payors 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 (current 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 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
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outside the United States. The EU has revised the Medical Device
Directive (93/42/EC as amended by 2007/47/EC). Compliance with
these regulations requires extensive documentation, clinical
reports for all products sold in the EU and other requirements.
Requirements to meet these regulations can be costly and are
mandatory 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 demineralized 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 EU 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 EU 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. In
addition, certain EU member states have instituted new
requirements for additional testing that may be prohibitive to
obtaining approval in those member states.
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
a source of collagen from a country outside the United States
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
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 EU 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.
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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.
The American Association of Tissue Banks (AATB) has
issued operating standards for tissue banking. Compliance with
these standards is a requirement in order to become a licensed
tissue bank. In addition, some states have their own tissue
banking regulations. We are licensed or have permits as a tissue
bank in California, Florida, New York and Maryland.
In addition, 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.
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 EU 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
EU 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 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.
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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 may take several 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. We cannot assure you, however, that these
agreements will provide meaningful protection for our
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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 products 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.
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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 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.
Further, we manufacture certain products in Europe and our
European headquarters is located in France, which country has
experienced labor strikes. Thus far, strikes have not had a
material impact on our business; however, if such strikes
continue, there is no assurance that they would not disrupt our
business, which disruption could have a material adverse effect
on the business.
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
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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 5,
Derivative Instruments.
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, disruptions from strikes, 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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new legislation, which is intended to expand access to health
insurance coverage over time, will result in major changes in
the United States healthcare system that could have an adverse
effect on our business, including a 2.3% excise tax on
U.S. sales of most medical devices, which is scheduled to
be implemented in 2013, and which could have a material adverse
effect on our earnings;
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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;
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Medicare, Medicaid and private healthcare insurer cutbacks could
create downward price pressure on our products;
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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;
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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;
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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;
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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;
|
|
|
|
proposed laws or regulations will permit hospitals to provide
financial incentives to doctors for reducing hospital costs
(known as gainsharing), will award physician efficiency (known
as physician profiling), and will encourage partnership with
healthcare service and goods providers to reduce prices;
|
|
|
|
the growing prevalence of physician-owned distributorships
catering to the spinal surgery market has reduced and may
continue to reduce our ability to compete effectively for
business from surgeons who own such distributorships; 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 and compete in the
marketplace.
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.
|
Correspondingly, federal and state laws are also sometimes open
to interpretation, and from time to time we may find ourselves
at a competitive disadvantage if our interpretation differs from
that of our competitors.
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, recent
federal legislation and 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. Various hospital organizations,
medical societies and trade associations are establishing their
own practices that may require detailed disclosures of
relationships between healthcare
23
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.
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.
24
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our principal executive offices are located in Plainsboro, New
Jersey. Our principal manufacturing and research facilities are
located in California, Massachusetts, New Jersey, Ohio,
Pennsylvania, France, Germany, Ireland, Mexico, Puerto Rico and
the United Kingdom. Our instrument procurement operations are
located in Germany. Our primary distribution centers are located
in Nevada, Ohio, Pennsylvania, Australia, Belgium, Canada and
France. 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 own our facilities in Biot, France and
the United Kingdom, and certain facilities in Ohio and
Pennsylvania and we lease all of our other facilities. We also
have repair centers in California, Massachusetts, Ohio 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 are described
below.
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 related to the first performance year that ended
September 30, 2009. The notice alleges that we owed an
additional $6.7 million. In January 2011, we received a
notice from the sellers representative that the alleged
amount owed had been reduced to $5.7 million. The Company
is currently discussing this matter with the sellers
representative in an attempt to resolve the dispute in
accordance with the provisions contained in the asset purchase
agreement governing the transaction. We have accrued
$3.4 million as our best estimate of the settlement in this
matter. The Company believes that there are no additional
amounts due under the asset purchase agreement for the second
performance year that ended September 30, 2010.
We also have various product liability claims pending against us
for which we currently have accruals totaling $2.1 million
recorded in our financial statements. All matters are covered by
our insurance policies and we have recorded a corresponding
receivable. Therefore, there is no impact on our consolidated
statements of operations.
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.
25
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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Fourth Quarter
|
|
$
|
49.85
|
|
|
$
|
38.17
|
|
|
$
|
37.41
|
|
|
$
|
29.69
|
|
Third Quarter
|
|
$
|
39.93
|
|
|
$
|
33.63
|
|
|
$
|
36.20
|
|
|
$
|
24.77
|
|
Second Quarter
|
|
$
|
46.73
|
|
|
$
|
36.81
|
|
|
$
|
27.49
|
|
|
$
|
22.15
|
|
First Quarter
|
|
$
|
44.99
|
|
|
$
|
36.51
|
|
|
$
|
36.00
|
|
|
$
|
18.97
|
|
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 Amended and Restated Senior Credit
Agreement. 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 21,
2011 was approximately 587, 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. 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. We did not repurchase any shares of our common stock in
2008 or 2009. Prior to October 2010, we repurchased
approximately 858,000 shares of common stock valued at
$31.3 million. On October 29, 2010, our Board of
Directors terminated the repurchase authorization it adopted in
October 2008 and authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed
$75.0 million through December 31, 2012. Shares may be
purchased either in the open market or in privately negotiated
transactions. As of December 31, 2010, there remained
$75.0 million available for share repurchases under this
latest authorization. See Note 6, Treasury
Stock, for further details.
26
|
|
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.
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net
|
|
$
|
732,068
|
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
$
|
550,459
|
|
|
$
|
419,297
|
|
Costs and expenses(1)
|
|
|
633,374
|
|
|
|
584,663
|
|
|
|
607,193
|
|
|
|
483,171
|
|
|
|
360,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
98,694
|
|
|
|
97,824
|
|
|
|
47,411
|
|
|
|
67,288
|
|
|
|
58,744
|
|
Interest income (expense), net(2)
|
|
|
(18,131
|
)
|
|
|
(22,596
|
)
|
|
|
(27,971
|
)
|
|
|
(23,561
|
)
|
|
|
(10,304
|
)
|
Other income (expense), net
|
|
|
1,551
|
|
|
|
(2,076
|
)
|
|
|
(905
|
)
|
|
|
2,971
|
|
|
|
(2,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
82,114
|
|
|
|
73,152
|
|
|
|
18,535
|
|
|
|
46,698
|
|
|
|
46,430
|
|
Provision for (benefit from) income taxes
|
|
|
16,445
|
|
|
|
22,197
|
|
|
|
(9,192
|
)
|
|
|
20,949
|
|
|
|
18,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,669
|
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
$
|
25,749
|
|
|
$
|
28,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
2.17
|
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
|
$
|
0.86
|
|
|
$
|
0.96
|
|
Weighted average common shares outstanding for diluted net
income per share
|
|
|
30,149
|
|
|
|
29,292
|
|
|
|
28,378
|
|
|
|
29,373
|
|
|
|
32,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents
|
|
$
|
128,763
|
|
|
$
|
71,891
|
|
|
$
|
183,546
|
|
|
$
|
57,339
|
|
|
$
|
22,697
|
|
Total assets
|
|
|
1,017,308
|
|
|
|
940,102
|
|
|
|
1,026,014
|
|
|
|
819,788
|
|
|
|
613,618
|
|
Long-term borrowings under the revolving portion of the senior
credit facility(2)
|
|
|
|
|
|
|
160,000
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
Long-term debt(2)
|
|
|
294,842
|
|
|
|
148,754
|
|
|
|
299,480
|
|
|
|
286,742
|
|
|
|
508
|
|
Retained earnings
|
|
|
232,830
|
|
|
|
167,161
|
|
|
|
116,206
|
|
|
|
89,368
|
|
|
|
65,251
|
|
Stockholders equity
|
|
|
499,963
|
|
|
|
444,885
|
|
|
|
372,309
|
|
|
|
287,594
|
|
|
|
301,783
|
|
|
|
|
(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 2009, 2007 and
2006, we recorded similar in-process research and development
charges of $0.3 million for the Innovative Spinal
Technologies, Inc. acquisition, $4.6 million for the
IsoTis, Inc. acquisition, and $5.9 million for the
Kinetikos Medical, Inc. acquisition, respectively. |
|
(2) |
|
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. |
|
|
|
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 |
27
|
|
|
|
|
Notes, the Notes). The 2010 Notes were paid off in
June 2010 in accordance with their terms. We expect to satisfy
any conversion of the 2012 Notes with cash up to their principal
amount pursuant to the net share settlement mechanism set forth
in the indenture and, with respect to any excess conversion
value, with shares of our common stock. |
|
|
|
In both 2008 and 2009 we classified $160.0 million of the
revolving portion of our senior credit facility borrowings as
long-term debt based on our current intent and ability to repay
the borrowings outside of the following twelve-month periods. In
2010 we converted $150.0 million of our revolving loan
balance to a term loan as part of our amended and restated
senior credit facility that is due at various dates through
August 2015. At December 31, 2010, we have a total of
$248.1 million outstanding on our senior credit facility
and $350.0 million available for future borrowings. |
|
|
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 world leader in medical devices focused on limiting
uncertainty for surgeons so they can concentrate on providing
the best patient care. 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, Neurosurgery and 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 neurosurgery 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 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.
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
Orthopedics sales channel, we sell through a large direct sales
organization, and through specialty distributors focused on
their respective surgical specialties. Neurosurgery sells
products through directly employed sales representatives.
Instruments are sold through two sales channels, both directly
and through distributors and wholesalers, depending on the
customer call point.
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
by acquiring or in-licensing already successful product lines.
28
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 (1) revenue
growth (derived through acquisitions and products developed
internally), (2) gross margins on total revenues,
(3) operating margins (which we aim to continually expand
as we leverage our existing infrastructure), (4) earnings
before interest, taxes, depreciation, and amortization, and
(5) earnings per diluted share of common stock.
We believe that we are particularly effective in the following
aspects of our business:
|
|
|
|
|
Developing, manufacturing and selling regenerative
medicine. 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 23%, 22%
and 22% of revenues in the years ended December 31, 2010,
2009 and 2008, respectively.
|
|
|
|
Developing metal implants for bone and joint repair, fixation
and fusion. We have significant expertise in
developing metal implants for use in bone and joint repair,
fixation and fusion and in successfully bringing those products
to market.
|
|
|
|
Acquiring and integrating new product lines and complementary
businesses. Since 2008, we have acquired and
integrated 7 product lines or businesses through a disciplined
acquisition program. We emphasize acquiring companies or product
lines at reasonable valuations which complement our existing
products or can be used to gain more advantage from our broad
technology platform in tissue regeneration and metal implants.
Our management is experienced 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, 2010
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 (i) 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
(ii) capitalizing 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.
From January 2008 through December 2010, we have acquired the
following businesses, assets and product lines:
In September 2010, we acquired certain assets as well as the
distribution rights for our extremity reconstruction product
lines in Australia from Culley Investments Pty. Ltd.
(Culley) for approximately $1.6 million
(1.7 million Australian dollars) in cash. For eight years,
Culley has been our distributor of these products in Australia.
The acquisition provides us with the ability to sell orthopedic
products directly to our Australian customers.
In May 2010, we acquired certain assets and liabilities of the
surgical headlight business of Welch Allyn, Inc.
(Welch) for approximately $2.4 million in cash
and $0.2 million of working capital adjustments. We believe
that the assets acquired will further our goal of expanding our
reach into the surgical headlight market.
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
29
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 resulted
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.
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®,
Redmondtm,
and
Luxtec®
lines of surgical instruments and illumination systems sold by
the 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 and paid an additional $1.0 million (1.0 million
Australian dollars) in December 2010. With this acquisition of
our long-standing distributor, we have 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 each of the two years after closing. We paid
approximately $52.0 million for the first year performance
obligation in November 2009 and accrued an additional
$3.4 million at December 31, 2010 related to a
disputed settlement amount. We believe that there are no
additional amounts due for the second performance year, which
ended on September 30, 2010. 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 sales management team with extensive experience in the
orthopedic spine market.
FACILITY
CONSOLIDATION, MANUFACTURING AND DISTRIBUTION TRANSFER
ACTIVITIES
As a result 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 regenerative medicine
products.
In 2010 we began using third-party manufacturers to provide the
light source and fiber-optic cables used in our
Luxtec®
products and curtailed our own manufacturing in West Boylston,
Massachusetts. Additionally, in 2010 we moved a portion of our
instruments distribution operations from Hawthorne, New York to
York, Pennsylvania.
30
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 2008, we completed
the integration of the LXU Healthcare acquisition and closed its
administrative facility in Tucson, Arizona.
In connection with these restructuring activities, we recorded
$0.6 million, $0.4 million and $0.5 million in
2010, 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 2010 was $65.7 million, or $2.17 per diluted
share, as compared to $51.0 million, or $1.74 per diluted
share in 2009, and $27.7 million, or $0.96 per diluted
share in 2008.
Special
Charges
Income before taxes includes the following special charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
SPECIAL CHARGES
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development
|
|
$
|
|
|
|
$
|
277
|
|
|
$
|
25,240
|
|
Stock-based compensation charge from renewal of the Chief
Executive Officers employment agreement and other related
charges
|
|
|
|
|
|
|
|
|
|
|
18,356
|
|
Charges related to our Chief Operating Officers
fully-vested equity and cash signing bonus compensation and
other expenses related to his joining the Company
|
|
|
2,188
|
|
|
|
|
|
|
|
|
|
Charges associated with discontinued or withdrawn product lines
|
|
|
506
|
|
|
|
246
|
|
|
|
1,207
|
|
Incremental professional and bank fees related to the
possibility of obtaining a waiver under our revolving credit
facility
|
|
|
|
|
|
|
350
|
|
|
|
1,041
|
|
Facility consolidation, manufacturing and distribution transfer
charges
|
|
|
1,676
|
|
|
|
768
|
|
|
|
1,035
|
|
Systems implementation charges
|
|
|
3,462
|
|
|
|
|
|
|
|
|
|
Certain employee termination and related charges
|
|
|
1,498
|
|
|
|
674
|
|
|
|
|
|
Acquisition-related charges
|
|
|
2,509
|
|
|
|
5,322
|
|
|
|
7,013
|
|
Litigation settlement (gain) and related charges
|
|
|
|
|
|
|
(253
|
)
|
|
|
437
|
|
Charges recorded in connection with terminating defined benefit
plans
|
|
|
|
|
|
|
|
|
|
|
372
|
|
Intangible asset impairment charges
|
|
|
856
|
|
|
|
1,519
|
|
|
|
|
|
Non-cash amortization of imputed interest as a result of the
adoption of the current convertible debt accounting
|
|
|
7,125
|
|
|
|
9,900
|
|
|
|
12,471
|
|
Charges related to restructuring European entities (1)
|
|
|
1,329
|
|
|
|
1,876
|
|
|
|
|
|
Gain related to early extinguishment of convertible notes
|
|
|
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,149
|
|
|
$
|
20,210
|
|
|
$
|
67,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
(1) |
|
The foreign exchange loss in 2009 of $1.9 million 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 2010, 2009 and 2008 includes foreign
exchange gains and losses associated with intercompany loans not
related to any restructuring. |
The items reported above are reflected in the consolidated
statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of product revenues
|
|
$
|
3,642
|
|
|
$
|
7,200
|
|
|
$
|
8,779
|
|
Research and development
|
|
|
102
|
|
|
|
570
|
|
|
|
25,240
|
|
Selling, general and administrative
|
|
|
9,424
|
|
|
|
1,236
|
|
|
|
20,682
|
|
Intangible asset amortization
|
|
|
856
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,125
|
|
|
|
10,050
|
|
|
|
12,471
|
|
Other income (expense), net
|
|
|
|
|
|
|
1,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,149
|
|
|
$
|
20,210
|
|
|
$
|
67,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 that they can analyze our operating results in the
same way that management does and to use this information in
their assessment of our core business and 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 for which the amounts are non-cash in nature, or for
which the amounts are not expected to recur at the same
magnitude as we implement certain tax planning strategies. We
believe that, given our ongoing strategy of seeking
acquisitions, our continuing focus on rationalizing our existing
manufacturing and distribution infrastructure and our continuing
review of various product lines in relation to our current
business strategy, certain of the special charges discussed
above could recur with similar materiality in the future.
Beginning in 2010, we are investing significant resources in 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Orthopedics
|
|
$
|
290,050
|
|
|
$
|
262,170
|
|
|
$
|
217,953
|
|
Neurosurgery
|
|
|
275,046
|
|
|
|
256,544
|
|
|
|
256,869
|
|
Instruments
|
|
|
166,972
|
|
|
|
163,773
|
|
|
|
179,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
732,068
|
|
|
|
682,487
|
|
|
|
654,604
|
|
Cost of product revenues
|
|
|
268,188
|
|
|
|
244,918
|
|
|
|
252,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
463,880
|
|
|
$
|
437,569
|
|
|
$
|
401,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of revenues
|
|
|
63.4
|
%
|
|
|
64.1
|
%
|
|
|
61.3
|
%
|
For the year ended December 31, 2010, total revenues
increased by $49.6 million or 7%, to $732.1 million
from $682.5 million during the prior-year. Domestic
revenues increased by 8% to $561.2 million and were 77% of
total revenues for the year ended December 31, 2010.
International revenues increased $7.5 million to
$170.8 million, an increase of 5% compared to 2009. Foreign
exchange fluctuations, arising primarily from a weaker euro and
a stronger Australian dollar compared to the U.S. dollar
than in 2009, accounted for a net $0.7 million decrease in
revenues for the year ended December 31, 2010.
32
Orthopedics revenues were $290.1 million, an increase of
11% over the prior-year period. Our extremities reconstruction
products led the dollar growth in this category followed by our
private-label products. Most of the increase in extremities
products came from sales of regenerative medicine products for
skin and wound repair and from metal implants from the forefoot,
mid- and hindfoot. Sales of metal spinal implants were up only
slightly compared to 2009. The growth in the spinal hardware
market has slowed dramatically in the past year, and we are
facing new competition, particularly from physician-owned
distributorships.
Neurosurgery revenues were $275.0 million, an increase of
7% over the prior year period. Sales of ultrasonic tissue
ablation products led the growth in neurosurgery, followed by
stereotaxy and cranial stabilization systems as capital spending
at hospitals improved over 2009. Sales of implants, including
duraplasty products and shunts, grew more slowly than the
capital equipment products.
Instruments revenues were $167.0 million, an increase of 2%
over the prior year period. This growth principally came from
increases in hospital-based instrument sales and surgical
lighting systems. Sales to physician, dental, and veterinary
offices lagged.
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. Neurosurgery 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. 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.
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.
Gross margin as a percentage of revenues was 63.4% in 2010,
64.1% in 2009 and 61.3% in 2008. The decrease in gross margin
percentage from 2009 to 2010 results from higher overall
production costs and engineering expenses associated with
manufacturing improvement projects, which offset an improvement
in the mix of sales toward higher margin products. The increase
from 2008 to 2009 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 2010, 2009
and 2008, respectively, included $1.8 million,
$4.6 million and $6.7 million in fair value inventory
purchase accounting adjustments recorded in connection with
acquisitions. The following charges also negatively affected our
gross margin: in 2010, $1.9 million related to
manufacturing transitions and severance, in 2009,
$0.9 million technology-related intangible asset
impairments; and in 2008, $1.2 million associated with
discontinued or withdrawn product lines. In 2010, 2009 and 2008,
respectively, cost of product revenues included
$5.9 million, $6.6 million and $4.8 million of
intangible asset amortization for technology-based intangible
assets.
In 2011, we expect our consolidated gross margin to increase
because we expect (i) to improve the efficiency of our
manufacturing operations resulting in better yields and lower
costs, and to a lesser extent, (ii) 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
regenerative medicine production capacity in 2011 and 2012.
Future gross margin improvements in our business are expected to
be generated by the implementation of programs to reduce costs
at our manufacturing plants, more efficient management of our
inventory and from changes in the sales mix.
33
Other
Operating Expenses
The following is a summary of other operating expenses as a
percent of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Research and development
|
|
|
6.6
|
%
|
|
|
6.4
|
%
|
|
|
9.2
|
%
|
Selling, general and administrative
|
|
|
41.7
|
%
|
|
|
41.1
|
%
|
|
|
42.9
|
%
|
Intangible asset amortization
|
|
|
1.6
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
RESEARCH AND DEVELOPMENT. Research and
development expenses increased to $48.1 million in 2010,
compared to $44.3 million in 2009, which decreased from
$60.5 million in 2008. Research and development expenses in
2009 and 2008, respectively, included $0.3 million and
$25.2 million of in-process research and development
charges related to the IST and Integra Spine acquisitions,
respectively. There were no in-process research and development
charges incurred during 2010. The increased research and
development expense in 2010 resulted primarily from additional
headcount in product development personnel. 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.
The Integra Spine in-process research and development charge was
primarily comprised $20.2 million related to eDisc products
and $4.7 million related to spinal fixation implants. The
Company has suspended the development of the eDisc products and
is considering other opportunities for the technology. Of the 13
implant systems that were in development at the time of the
acquisition, 12 were successfully launched and one was
discontinued. These changes in plans will not have a significant
impact on the Companys overall financial condition.
We continuously monitor our research and development projects.
We believe that the assumptions used in the valuation of
acquired development projects represent a reasonably reliable
estimate of the future benefits attributable to the acquired
in-process research and development.
Excluding acquisition-related and other special charges, we
target future spending on research and development to be about
6.5% to 7% of total revenues. In order to focus our research and
development on high growth, high margin products, we are
concentrating most of our planned spending for 2011 on product
development efforts for our spine, neurosurgery and extremity
reconstruction product lines. We do not generally invest in
product development for the majority of our hand-held surgical
instruments.
SELLING, GENERAL AND ADMINISTRATIVE. Selling,
general and administrative expenses in the year ended
December 31, 2010 increased by $24.0 million to
$305.1 million compared to $281.1 million in 2009.
Selling expenses increased by $9.2 million primarily
because of an increase in revenues and the corresponding
commission costs. General and administrative costs increased
$11.6 million to $132.2 million compared to
$120.5 million in the same period last year resulting from
increases in compensation, due in part to increases in headcount
for our enterprise resource planning system implementation, and
also the impact of $2.2 million of signing bonus and other
expenses related to the hiring of the new President and Chief
Operating Officer. 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 reflects 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.
For 2010, 2009 and 2008, respectively, we reported
$16.7 million (inclusive of a stock-compensation charge of
$1.5 million relating to grants made in connection with the
hiring of our new President and Chief Operating Officer),
$15.0 million and $31.7 million (inclusive of a
stock-compensation charge of $18.0 million relating to
grants made in connection with the renewal of our CEOs
employment agreement), of stock-based compensation charges in
selling, general and administrative expenses.
34
For 2011, we expect general and administrative expenses to be
flat; however, we expect to grow the sales team, resulting in
similar overall costs as a percentage of revenue. We also expect
to incur significant costs related to upgrading our enterprise
resource planning system, which will be characterized as special
charges. Excluding all 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 2010,
amortization expense (excluding amount reported in cost of
product revenues for technology-based intangible assets)
decreased by $2.3 million to $12.0 million compared to
$14.4 million in 2009. The decrease resulted mainly from
the completion of the amortization period for certain intangible
assets and impairments recorded in 2009, partially offset by
$0.8 million for impairment of several trade names in
connection with our re-branding strategy in 2010. Additionally,
we may discontinue certain products in the future as we continue
to assess the profitability of our product lines. As this
re-branding strategy and product profitability assessment
evolves, we may make further decisions about our trade names and
our product lines and incur additional impairment charges or
accelerate amortization on certain trade names or
technology-related intangible assets. 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.
Including the impact of intangible assets acquired in 2010, we
expect total annual amortization expense (including amounts
reported in cost of product revenues) to be approximately
$16.9 million in 2011, $16.6 million in 2012,
$13.9 million in 2013, $12.9 million in 2014, and
$11.4 million in 2015.
Non-Operating
Income and Expenses
We recorded interest income on our invested cash of
$0.2 million, $0.6 million and $2.1 million in
2010, 2009 and 2008, respectively. Interest income decreased in
2010 and 2009 because of lower yields on invested cash and cash
equivalents and lower average cash balances.
Interest expense was $18.4 million, $23.2 million and
$30.1 million in 2010, 2009 and 2008, 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 $600.0 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 the current convertible debt
accounting was $7.1 million, $9.9 million
$12.5 million, respectively.
The interest expense decreased in 2010 primarily because of
repurchases of our 2010 Notes throughout 2009 and their
settlement in June 2010, and our non-cash interest expense
decreased for the same reason. These decreases were partially
offset by a higher interest rate paid on borrowings from our
amended and restated senior credit facility beginning in August
2010.
The interest expense 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 the
current convertible debt accounting decreased for the same
reason. Interest expense to be paid on our credit facility
decreased primarily as a result of
35
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.
Our reported interest expense for the years ended
December 31, 2010, 2009 and 2008 included
$1.6 million, $1.8 million and $2.4 million,
respectively, of non-cash amortization of debt issuance costs.
In 2010, net other income was $1.6 million consisting
primarily of foreign exchange gains of $1.1 million, and
other gains of $0.5 million. 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.
Income
Taxes
Our effective income tax rate was 20.0%, 30.3% and (49.6)% of
income before income taxes in 2010, 2009 and 2008, respectively.
See Note 10, Income Taxes, in our consolidated
financial statements for a reconciliation of the United States
Federal statutory rate to our effective tax rate. In 2010, we
recorded a tax benefit of $4.5 million related to the
settlement of several uncertain tax positions and a benefit
related to the passing of the Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010 (the TRUJ
Act). Since the TRUJ Act was passed during the fourth
quarter of 2010, the tax impact for the entire year was recorded
at that time. We expect the TRUJ Act to have a positive impact
on our effective tax rate through the end of 2011. 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.
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 2011 to be between 20% and 21%.
The net increase in our deferred tax asset valuation allowance
was $0.5 million in 2010 and $0.1 million in 2009. Our
deferred tax asset valuation allowance decreased by
$5.0 million in 2008.
A valuation allowance of $36.6 million is recorded against
the remaining $112.9 million of gross deferred tax assets
recorded at December 31, 2010. 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, 2010 we had net operating loss
carryforwards of $9.4 million for federal income tax
purposes, $135.6 million for foreign income tax purposes
and $35.1 million for state income tax purposes to offset
future taxable income. The federal net operating loss
carryforwards expire through 2027, $46.0 million of the
foreign net operating loss carryforwards expire through 2018
with the remaining $89.7 million having an indefinite carry
forward period. The state net operating loss carry forwards
expire through 2029.
At December 31, 2010, certain of our subsidiaries had
unused net operating loss carryforwards and tax credit
carryforwards arising from periods prior to our ownership which
expire through 2027. The Internal Revenue Code limits the timing
and manner in which we may use any acquired net operating losses
or tax credits.
36
INTERNATIONAL
REVENUES AND OPERATIONS
Revenues by major geographic area are summarized below:
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For Years Ended December 31
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2010
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2009
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2008
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|
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United States
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$
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561,240
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|
|
$
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519,203
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$
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494,459
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Europe
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89,381
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93,414
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98,848
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Asia Pacific
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40,584
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|
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32,788
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28,509
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Other Foreign
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40,863
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37,082
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32,788
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Consolidated
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$
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732,068
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$
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682,487
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$
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654,604
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In 2010, revenues from customers outside the United States
totaled $170.8 million or 23% of consolidated revenues, of
which approximately 52% were sales to European customers.
Revenues from customers outside the United States included
$125.8 million of revenues generated in foreign currencies.
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.
Generally, more than 75% of our revenues are from customers
within the United States. Over the past several years, revenues
from our European customers have been trending down largely due
to the continuing impact that austerity measures put in place by
various EU governments have had on healthcare spending. This
trend has been offset by increases in sales to our foreign
customers in Asia, Australia, Canada and South America as we
continue to expand our sales efforts in these areas.
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.
37
LIQUIDITY
AND CAPITAL RESOURCES
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December 31,
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2010
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2009
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(In millions)
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Cash and cash equivalents
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$
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128.8
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|
|
$
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71.9
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|
Borrowings under senior credit facility
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(248.1
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)
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(160.0
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)
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Convertible securities
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(155.2
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)
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(225.5
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)
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Net cash position
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$
|
(274.5
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)
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|
$
|
(313.6
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)
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The increase in our net cash position at December 31, 2010
primarily results from cash flows from operations of
$105.6 million, offset by $37.1 million of capital
expenditures and $31.3 million of stock repurchases. We
believe that our existing cash, future cash expected to be
generated from operations, and our remaining $350.0 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 approximately $97.7 million of 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, certain
amounts could be subject to United States tax for the
incremental amount in excess of the foreign tax paid.
Cash
Flows
We generated positive operating cash flows of
$105.6 million, $143.2 million and $72.6 million
in 2010, 2009 and 2008, respectively. Net income for the year
ended December 31, 2010, plus items included in those
earnings that did not result in a change to our cash balance,
amounted to approximately $131.2 million. Additionally, we
paid $6.6 million in accreted interest related to the
repurchase of our 2010 Notes at their maturity. In 2010, the net
impact of working capital items on operating cash flows was a
decrease of $11.3 million. Increases in both accounts
receivable and inventory resulted in a use of cash; however,
those increases were due to overall higher sales, and accounts
receivable was lower as a percentage of sales compared to 2009.
Additionally, increases in our prepaid expenses and other
current assets used $6.5 million of cash. These uses of
cash were offset primarily by increases in accounts payable and
accrued expenses. The change in other liabilities is due in part
to $4.5 million in reversals of income tax reserves for
audits that were concluded during the year. In 2009, changes in
working capital items increased operating cash flows by
$30.5 million. 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. In 2008,
changes in working capital items reduced operating cash flows by
$26.4 million. The 2008 reduction of inventory provided
$10.8 million of operating cash flows, which was offset by
the payment of income taxes which used $41.2 million and
the reduction of other operating liabilities, including those
acquired through acquisitions, used $17.3 million.
In 2011, we anticipate our principal uses of cash to include
$100.0 million in repayments under the revolving portion of
our credit facility, and between $40 million and
$50 million on capital expenditures. Our planned capital
spending is expected to increase primarily due to expansion of
regenerative medicine 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,
2010 were $37.1 million in capital expenditures,
$31.3 million in repurchases of our common stock,
$5.2 million for acquisitions of businesses, and
$6.8 million in debt issuance costs. In addition to the
$105.6 million in operating cash flows we generated in
2010, our net outstanding borrowings increased by
$16.8 million, and we received $16.1 million from the
issuance of common stock through the exercise of stock options
during the period.
38
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.
Working
Capital
At December 31, 2010 and 2009, working capital was
$244.8 million and $208.6 million, respectively. While
we do have increases in accounts receivable, inventory and
prepaid expenses and other current assets, most of the
$36.2 million increase in working capital is due to
increased cash balances offset by an increase in borrowings
classified as short-term.
Convertible
Debt and Related Hedging Activities
We paid interest each June 1 and December 1 on our
$77.9 million 2010 Notes at an annual rate of 2.75% and we
repaid the 2010 Notes in full during June 2010 in accordance
with the agreement. We also pay interest each June 1 and
December 1 on our $165.0 million 2012 Notes at an annual
rate of 2.375%.
The 2012 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 15.3935 shares per $1,000 principal amount
of notes (which represents an initial conversion price of
approximately $64.96 per share). We expect to satisfy any
conversion of the 2012 Notes with cash up to the principal
amount pursuant to the net share settlement mechanism set forth
in the indenture and, with respect to any excess conversion
value, with shares of our common stock. The 2012 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 2012 Notes is less than or equal to 97% of the
average conversion value of the 2012 Notes during a period as
defined in the indenture; (3) at any time after
December 15, 2011; or (4) if specified corporate
transactions occur.
The 2012 Notes, under the terms of the private placement
agreement, are guaranteed fully by Integra LifeSciences
Corporation, a subsidiary of Integra. The Notes are
Integras direct senior unsecured obligations and will rank
equal in right of payment to all of our existing and future
unsecured and unsubordinated indebtedness.
In connection with the original 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 calls related
to the 2010 Notes expired with the maturity of these notes
and the warrants related to the 2010 Notes expire at various
times through January 2011.
The initial strike price of the remaining call transactions is
approximately $64.96 for the 2012 Notes, subject to
anti-dilution adjustments substantially similar to those in the
2012 Notes. The initial strike price of the warrant transactions
is (i) for the 2010 Notes, approximately $77.96 per share
of Common Stock which expired at various dates through January
2011, and (ii) for the 2012 Notes, approximately $90.95, in
each case subject to customary anti-dilution adjustments.
39
We may from time to time seek to retire or purchase additional
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 4, Debt, of our consolidated financial
statements for additional information.
Amended
and Restated Senior Credit Agreement
In December 2005, we established a $200.0 million,
five-year, senior secured revolving credit facility. We amended
the credit facility in February 2007 to increase the size of the
credit facility to $300.0 million, which could be increased
to $400.0 million should additional financing be required
in the future. During 2010, the Company entered into an amended
and restated credit agreement with a syndicate of lending banks
(the Senior Credit Facility). The Senior Credit
Facility increased the size of the Companys prior
revolving credit facility from $300.0 million to
$450.0 million, provided for a $150.0 million term
loan component and allowed the Company to further increase the
size of either the term loan or the revolving credit facility,
or a combination thereof, by an aggregate of $150.0 million
with additional commitments. The Senior Credit Facility extended
the prior revolving credit facilitys maturity date from
December 21, 2011 to August 10, 2015 and increased the
applicable rates used for borrowings and the annual commitment
fee. The Senior Credit Facility is collateralized by
substantially all of the assets of the Companys
U.S. subsidiaries, excluding intangible assets.
Amounts borrowed under the Senior Credit Facility bear interest,
at the Companys option, at a rate equal to (i) the
Eurodollar Rate (as defined in the Senior Credit Facility) in
effect from time to time plus the applicable rate (ranging from
1.75% to 2.5%) or (ii) the highest of (x) the weighted
average overnight Federal funds rate, as published by the
Federal Reserve Bank of New York, plus 0.5%, (y) the prime
lending rate of Bank of America, N.A. or (z) the one-month
Eurodollar Rate plus 1.0%. The applicable fixed rates are based
on the Companys consolidated total leverage ratio (defined
as the ratio of (a) consolidated funded indebtedness less
cash in excess of $40.0 million that is not subject to any
restriction on the use or investment thereof to
(b) consolidated earnings before interest, taxes,
depreciation and amortization) at the time of the applicable
borrowing.
The Company also pays an annual commitment fee (ranging from
0.2% to 0.5%, based on the Companys consolidated total
leverage ratio) on the daily amount by which the revolving
credit facility exceeds the outstanding loans and letters of
credit under the credit facility.
The Senior Credit Facility also modified certain financial and
negative covenants. In particular, it:
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reduced the maximum consolidated total leverage ratio that the
Company is permitted to have from 4.50 to 1.00, to either
(i) 3.75 to 1.00 during any consecutive four fiscal quarter
period ending on or before March 31, 2012 or (ii) 3.5
to 1.00 during any period thereafter,
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eliminated the senior secured leverage ratio covenant,
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increased the amount of permitted unsecured debt,
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40
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provided the Company more ability to repurchase stock and make
restricted payments, and
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provided for capital expenditures in any fiscal year equal to
10% of the revenues during the prior fiscal year, subject to
carry over to the next following fiscal year.
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We plan to utilize the Senior 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 our
revolving credit 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.
Prior to amending the Senior Credit Facility in 2010, we
borrowed $75.0 million under the revolving credit facility
in connection with the maturity of our 2010 Notes (defined
above) and also repaid $15.0 million of outstanding
borrowings. Subsequent to the amendment, we borrowed an
additional $30.0 million in October 2010 to repay certain
intercompany loans and made the scheduled repayments under our
term loan. As a result, we have $248.1 million outstanding
under our Senior Credit Facility at December 31, 2010.
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. We did
not repurchase any shares of our common stock in 2008 or 2009
under either of these programs. Prior to October 2010, the
Company repurchased approximately 858,000 shares for
$31.3 million. On October 29, 2010, our Board of
Directors terminated the repurchase authorization it adopted in
October 2008 and authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed
$75.0 million through December 31, 2012. Shares may be
purchased either in the open market or in privately negotiated
transactions. 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. As of December 31, 2010, there
remained $75.0 million available for share repurchases
under this latest authorization.
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.
41
Contractual
Obligations and Commitments
As of December 31, 2010, 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
|
|
|
Years
|
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|
Years
|
|
|
5 Years
|
|
|
|
(In millions)
|
|
|
Convertible Securities(1)
|
|
$
|
165.0
|
|
|
$
|
|
|
|
$
|
165.0
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|
$
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|
|
$
|
|
|
Revolving Credit Facility(2)
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
148.1
|
|
|
|
8.4
|
|
|
|
27.2
|
|
|
|
112.5
|
|
|
|
|
|
Interest(3)
|
|
|
16.2
|
|
|
|
7.6
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
Employment Agreements(4)
|
|
|
3.6
|
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
38.4
|
|
|
|
8.2
|
|
|
|
14.2
|
|
|
|
9.3
|
|
|
|
6.7
|
|
Purchase Obligations
|
|
|
12.7
|
|
|
|
12.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
485.5
|
|
|
$
|
139.8
|
|
|
$
|
217.2
|
|
|
$
|
121.8
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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 4, Debt, of our consolidated
financial statements for additional information. |
|
(2) |
|
The Company may borrow and make payments against the credit
facility from time to time and considers all of the outstanding
amounts to be current based on its current intent and ability to
repay the borrowing within the next twelve-month period. |
|
(3) |
|
Interest is calculated on the convertible securities and term
loan based on current interest rates paid by the Company. As the
revolving credit facility can be repaid at any time, no interest
has been included in the calculation. |
|
(4) |
|
Amounts shown under Employment Agreements do not include
compensation resulting from a change in control. |
Excluded from the contractual obligations table is the liability
for uncertain tax benefits, including interest and penalties,
totaling $7.6 million. This liability for uncertain tax
benefits has been excluded because we cannot make a reliable
estimate of the period in which the uncertain tax benefits may
be realized.
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, valuation of intangible
assets and in-process research and development, amortization
periods for acquired intangible assets, 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, estimates of
projected cash flows and depreciation and amortization periods
for long-lived assets, computation of taxes, computation of
valuation allowances recorded against deferred tax assets
valuation of stock-based compensation, valuation of pension
assets and liabilities, valuation of derivative instruments and
loss contingencies. These estimates are based on historical
experience and on various other assumptions that are believed to
be reasonable under the current circumstances. Actual results
could differ from these estimates.
42
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 differ 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 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 record
further adjustments to the carrying value of inventory through a
charge to 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, identifiable intangible assets with
indefinite lives and in-process research and development
(acquired as part of a business combination after
January 1, 2009) 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,
43
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 and to
ensure their useful lives are appropriate whenever events or
changes indicate that the carrying value of the assets may not
be recoverable.
Derivatives
We develop, manufacture, and sell medical devices globally. Our
earnings and cash flows are exposed to market risk from changes
in interest rates and currency exchange rates. We address these
risks through a risk management program that includes the use of
derivative financial instruments, and operate the program
pursuant to documented corporate risk management policies. All
derivative financial instruments are recognized in the financial
statements at fair value in accordance with the authoritative
guidance. Under the guidance, for those instruments that are
designated and qualify as hedging instruments, the hedging
instrument must be designated as a fair value hedge, cash flow
hedge, or a hedge of a net investment in a foreign operation,
based on the exposure being hedged. The accounting for changes
in the fair value of a derivative instrument depends on whether
it has been designated and qualifies as part of a hedging
relationship and, further, on the type of hedging relationship.
Our derivative instruments do not subject our earnings or cash
flows to material risk, and gains and losses on these
derivatives generally offset losses and gains on the item being
hedged. We have not entered into derivative transactions for
speculative purposes and all of our derivatives are designated
as hedges.
All derivative instruments are recognized at their fair values
as either assets or liabilities on the balance sheet. We
determine the fair value of our derivative instruments, using
the framework prescribed by the authoritative guidance, by
considering the estimated amount we would receive to sell or
transfer these instruments at the reporting date and by taking
into account expected forward interest rates, currency exchange
rates, the creditworthiness of the counterparty for assets, and
our creditworthiness for liabilities. In certain instances, we
may utilize a discounted cash flow model to measure fair value.
Generally, we use inputs that include quoted prices for similar
assets or liabilities in active markets; other observable inputs
for the asset or liability; and inputs that are derived
principally from, or corroborated by, observable market data by
correlation or other means. As of December 31, 2010,
observable inputs are available for substantially the full term
of our derivative instruments.
Income
Taxes
Since we conduct operations on a global basis, our effective tax
rate has and will continue to depend upon the geographic
distribution of our pre-tax earnings among locations with
varying tax rates. Changes in the tax rates of the various
jurisdictions in which we operate affect our profits. In
addition, we maintain a reserve for uncertain tax benefits,
changes to which could impact our effective tax rate in the
period such changes are made.
We recognize a tax benefit from an uncertain tax position only
if it is more likely than not to be sustained upon examination
based on the technical merits of the position. The amount of the
accrual for which an exposure exists is measured by determining
the amount that has a greater than 50 percent likelihood of
being realized upon ultimate settlement of the position.
Components of the reserve are classified as either a current or
long-term liability in the consolidated balance sheet based on
when we expect each of the items to be settled. We record
interest and penalties accrued in relation to uncertain tax
benefits as a component of income tax expense.
We believe we have identified all reasonably identifiable
exposures and the reserve we have established for identifiable
exposures is appropriate under the circumstances; however, it is
possible that additional exposures exist and that exposures will
be settled at amounts different than the amounts reserved. It is
also possible that changes in facts and circumstances could
cause us to either materially increase or reduce the carrying
amount of our tax reserves.
Our 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 also the temporary
44
differences created by 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.
Our policy is to provide income taxes on earnings of certain
foreign subsidiaries only to the extent those earnings are
taxable or are expected to be remitted.
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.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to various market risks, including changes in
foreign currency exchange rates and interest rates that could
adversely affect our results of operations and financial
condition. To manage the volatility relating to these typical
business exposures, we may enter into various derivative
transactions when appropriate. We do not hold or issue
derivative instruments for trading or other speculative purposes.
Foreign
Currency Exchange and Other Rate Risks
We operate on a global basis and are exposed to the risk that
changes in foreign currency exchange rates could adversely
affect our financial condition, results of operations and cash
flows. We are primarily exposed to foreign currency exchange
rate risk with respect to transactions and net assets
denominated in euros, Swiss francs, British pounds, Canadian
dollars, and Australian dollars. We manage the foreign currency
exposure centrally, on a combined basis, which allows us to net
exposures and to take advantage of any natural offsets. To
mitigate the impact of currency fluctuations on transactions
denominated in nonfunctional currencies, from time to time we
enter into derivative financial instruments in the form of
foreign currency exchange forward contracts with major financial
institutions. Realized and unrealized gains and losses on these
contracts that qualify as cash flow hedges are temporarily
recorded in other comprehensive income, then recognized in other
income or expense when the hedged item affects net earnings.
From time to time, we enter into foreign currency forward
exchange contracts with terms of up to 12 months to manage
currency exposures for liabilities denominated in a currency
other than an entitys functional currency. As a result,
the impact of foreign currency gains/losses recognized in
earnings are partially offset by gains/losses on the related
foreign currency forward exchange contracts in the same
reporting period. There were no foreign currency forward
contracts outstanding at December 31, 2010.
We maintain written policies and procedures governing our risk
management activities. With respect to cash flow hedges, changes
in cash flows attributable to hedged transactions are generally
expected to be completely offset by changes in the fair value of
hedge instruments. Consequently, foreign currency exchange
contracts would not subject us to material risk due to exchange
rate movements, because gains and losses on these contracts
offset gains and losses on the assets, liabilities and
transactions being hedged.
The results of operations for the periods discussed herein have
not been materially affected by inflation.
45
Interest
Rate Risk
Cash and Cash Equivalents. We are exposed to
the risk of interest rate fluctuations on the interest income
earned on our cash and cash equivalents. A hypothetical
100 basis point movement in interest rates applicable to
our cash and cash equivalents outstanding at December 31,
2010 would increase interest income by approximately
$1.3 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 Credit Facility. Our interest rate risk
relates primarily to U.S. dollar LIBOR-indexed borrowings.
We have used an interest rate derivative instrument to manage
our earnings and cash flow exposure to changes in interest rates
by utilizing a forward-starting interest rate swap that will
begin to offset a portion of our interest payments in the first
quarter of 2011. This interest rate derivative instrument will
fix the interest rate on a portion of our expected LIBOR-indexed
floating-rate borrowings beginning on December 31, 2010.
The interest rate swap had a notional amount of
$148.1 million outstanding as of December 31, 2010. We
recognized no additional interest expense related to this
derivative during 2010. We recorded a $0.3 million
liability at December 31, 2010 to recognize the fair value
of our interest rate derivative instrument.
Based on our outstanding borrowings at December 31, 2010, a
one-percentage point change in interest rates would have
impacted interest expense on the unhedged portion of our debt by
$2.5 million on an annualized basis.
|
|
ITEM 8.
|
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 14, Selected
Quarterly Information Unaudited, to the
Consolidated Financial Statements.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
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, 2010. 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, 2010 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
46
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, 2010.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2010 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
herein.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that occurred during the quarter ended December 31, 2010
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
47
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 17, 2011, 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.
48
PART IV
|
|
ITEM 15.
|
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:
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
|
|
2. Financial Statement Schedules.
|
|
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
F-37
|
|
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.
|
|
|
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)
|
49
|
|
|
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)
|
4.3(f)
|
|
Amended and Restated Credit Agreement, dated as of August 10,
2010, among Integra LifeSciences Holdings Corporation, the
lenders party thereto, Bank of America, N.A., as Administrative
Agent, Swing Line Lender and L/C Issuer, JP Morgan Chase Bank,
as Syndication Agent, and HSBC Bank USA, NA, RBC Capital
Markets, Wells Fargo Bank, N.A., Fifth Third Bank, DNB NOR Bank
ASA and TD Bank, N.A., as Co-Documentation Agents (Incorporated
by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on August 10, 2010)
|
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)
|
50
|
|
|
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)
|
10.2(a)
|
|
First Amendment to Equipment Lease Agreement between Medicus
Corporation and the Company, dated as of June 29, 2010
(Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2010)
|
10.3
|
|
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)
|
|
Integra LifeSciences Holdings Corporation Second Amended and
Restated 2003 Equity Incentive Plan effective May 19, 2010
(Incorporated by reference to Exhibit 10 to the Companys
Current Report on Form 8-K filed May 21, 2010)*
|
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)*
|
51
|
|
|
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)*
|
10.15(e)
|
|
Amendment 2010-1, dated as of October 12, 2010, to the Amended
and Restated 2005 Employment Agreement between John B.
Henneman, III and the Company (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K
filed October 12, 2010)*
|
10.16(a)
|
|
Consulting Agreement, dated October 12, 2010, between Integra
LifeSciences Holdings Corporation and Inception
Surgical,(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on October 12,
2010)*
|
10.17
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 4, 2010*
|
10.17(a)
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 3, 2011*+
|
10.18
|
|
Employment Agreement, dated as of October 12, 2010, between
Peter J. Arduini and Integra LifeSciences Holdings Corporation
(Incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed October 12, 2010)*
|
10.19
|
|
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)
|
52
|
|
|
10.20(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)
|
10.20(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)
|
10.20(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)
|
10.20(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)
|
10.20(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)
|
10.21
|
|
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)*
|
10.22
|
|
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)*
|
10.23
|
|
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)*
|
10.24(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)*
|
10.24(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)*
|
10.25
|
|
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)*
|
10.26(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)*
|
10.26(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)*
|
10.26(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)*
|
10.27
|
|
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)*
|
10.28(a)
|
|
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(b)
|
|
New Form of Contract Stock/Restricted Units Agreement (for
Annual Equity Awards) for Stuart M. Essig*+
|
10.29
|
|
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)*
|
53
|
|
|
10.30
|
|
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)*
|
10.31
|
|
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)*
|
10.32
|
|
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)*
|
10.33
|
|
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)*
|
10.34
|
|
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)*
|
10.35(a)
|
|
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(b)
|
|
Compensation of Directors of the Company effective May 17, 2011
(Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on December 16, 2010)*
|
10.36(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)*
|
10.36(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*
|
10.36(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)*
|
10.37(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)*
|
10.37(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)*
|
10.37(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)*
|
10.37(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(e)
|
|
Form of Contract Stock/Restricted Units Agreement (for Signing
Grant) for Mr. Arduini (Incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on
October 12, 2010)*
|
10.37(f)
|
|
Form of Contract Stock/Restricted Units Agreement (for Annual
Equity Awards) for Mr. Arduini (Incorporated by reference to
Exhibit 10.5 to the Companys Current Report on Form 8-K
filed on October 12, 2010)*
|
10.37(g)
|
|
Form of Non-Qualified Stock Option Agreement for Mr. Arduini
(Incorporated by reference to Exhibit 10.6 to the Companys
Current Report on Form 8-K filed on October 12, 2010)*
|
10.37(h)
|
|
Form of Restricted Stock Agreement for Mr. Henneman
(Incorporated by reference to Exhibit 10.7 to the Companys
Current Report on Form 8-K filed on October 12, 2010)*
|
10.38
|
|
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)
|
10.39
|
|
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)*
|
10.40
|
|
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)*
|
54
|
|
|
10.41(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)*
|
10.41(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)*
|
10.42
|
|
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)
|
10.43
|
|
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)
|
10.44(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)*
|
10.44(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)*
|
10.44(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)*
|
10.45
|
|
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)*
|
10.46
|
|
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)
|
10.47
|
|
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)
|
10.48
|
|
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)
|
10.49
|
|
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)
|
10.50
|
|
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)
|
55
|
|
|
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+
|
101.INS
|
|
XBRL Instance Document+#
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document+#
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document+#
|
101.LAB
|
|
XBRL Taxonomy Extension Labels Linkbase Document+#
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document+#
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
+ |
|
Indicates this document is filed as an exhibit herewith. |
|
# |
|
The financial information of Integra LifeSciences Holdings
Corporation Annual Report on
Form 10-K
for the year ended December 31, 2010 filed on February 24,
2011 formatted in XBRL (Extensible Business Reporting Language):
(i) the Consolidated Statements of Operations,
(ii) the Consolidated Balance Sheets, (iii) the
Consolidated Statements of Cash Flows, (iv) the
Consolidated Statements of Changes in Stockholders Equity,
and (v) Notes to Consolidated Financial Statements, is
furnished electronically herewith as tagged blocks of text. |
The Companys Commission File Number for Reports on
Form 10-K,
Form 10-Q
and
Form 8-K
is 0-26224.
56
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
Chief Executive Officer
Date: February 23, 2011
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
|
|
Chief Executive Officer and Director (Principal Executive
Officer)
|
|
February 23, 2011
|
|
|
|
|
|
/s/ John
B. Henneman, III
John
B. Henneman, III
|
|
Executive Vice President, Finance and Administration, and Chief
Financial Officer (Principal Financial Officer)
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Jerry
E. Corbin
Jerry
E. Corbin
|
|
Vice President and Corporate Controller (Principal Accounting
Officer)
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Richard
E. Caruso, Ph.D.
Richard
E. Caruso, Ph.D.
|
|
Chairman of the Board
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Thomas
J. Baltimore, Jr.
Thomas
J. Baltimore, Jr.
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Keith
Bradley, Ph.D.
Keith
Bradley, Ph.D.
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Neal
Moszkowski
Neal
Moszkowski
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Raymond
G. Murphy
Raymond
G. Murphy
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Christian
Schade
Christian
Schade
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ James
M. Sullivan
James
M. Sullivan
|
|
Director
|
|
February 23, 2011
|
|
|
|
|
|
/s/ Anne
M. VanLent
Anne
M. VanLent
|
|
Director
|
|
February 23, 2011
|
57
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, 2010 and December 31, 2009, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2010 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, 2010,
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.
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 23, 2011
F-1
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenue, net
|
|
$
|
732,068
|
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues
|
|
|
268,188
|
|
|
|
244,918
|
|
|
|
252,826
|
|
Research and development
|
|
|
48,114
|
|
|
|
44,280
|
|
|
|
60,495
|
|
Selling, general and administrative
|
|
|
305,055
|
|
|
|
281,102
|
|
|
|
280,997
|
|
Intangible asset amortization
|
|
|
12,017
|
|
|
|
14,363
|
|
|
|
12,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
633,374
|
|
|
|
584,663
|
|
|
|
607,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
98,694
|
|
|
|
97,824
|
|
|
|
47,411
|
|
Interest income
|
|
|
225
|
|
|
|
631
|
|
|
|
2,114
|
|
Interest expense
|
|
|
(18,356
|
)
|
|
|
(23,227
|
)
|
|
|
(30,085
|
)
|
Other income (expense), net
|
|
|
1,551
|
|
|
|
(2,076
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
82,114
|
|
|
|
73,152
|
|
|
|
18,535
|
|
Provision for (benefit from) income taxes
|
|
|
16,445
|
|
|
|
22,197
|
|
|
|
(9,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,669
|
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
2.21
|
|
|
$
|
1.75
|
|
|
$
|
0.98
|
|
Diluted net income per common share
|
|
$
|
2.17
|
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
Weighted average common shares outstanding (See Note 11):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,548
|
|
|
|
29,038
|
|
|
|
27,781
|
|
Diluted
|
|
|
30,149
|
|
|
|
29,292
|
|
|
|
28,378
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-2
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
128,763
|
|
|
$
|
71,891
|
|
Trade accounts receivable, net of allowances of $7,322 and
$11,216
|
|
|
106,005
|
|
|
|
103,228
|
|
Inventories, net
|
|
|
146,928
|
|
|
|
140,240
|
|
Deferred tax assets
|
|
|
35,284
|
|
|
|
29,972
|
|
Prepaid expenses and other current assets
|
|
|
27,869
|
|
|
|
20,032
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
444,849
|
|
|
|
365,363
|
|
Property, plant, and equipment, net
|
|
|
99,456
|
|
|
|
83,526
|
|
Intangible assets, net
|
|
|
194,904
|
|
|
|
211,117
|
|
Goodwill
|
|
|
261,928
|
|
|
|
261,941
|
|
Deferred tax assets
|
|
|
7,894
|
|
|
|
15,841
|
|
Other assets
|
|
|
8,277
|
|
|
|
2,314
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,017,308
|
|
|
$
|
940,102
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
$
|
108,438
|
|
|
$
|
|
|
Convertible securities
|
|
|
|
|
|
|
76,760
|
|
Accounts payable, trade
|
|
|
27,783
|
|
|
|
24,598
|
|
Deferred revenue
|
|
|
4,444
|
|
|
|
4,077
|
|
Accrued compensation
|
|
|
27,562
|
|
|
|
23,227
|
|
Accrued expenses and other current liabilities
|
|
|
31,805
|
|
|
|
28,068
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
200,032
|
|
|
|
156,730
|
|
Long-term borrowings under senior credit facility
|
|
|
139,688
|
|
|
|
160,000
|
|
Long-term convertible securities
|
|
|
155,154
|
|
|
|
148,754
|
|
Deferred tax liabilities
|
|
|
10,645
|
|
|
|
9,319
|
|
Other liabilities
|
|
|
11,826
|
|
|
|
20,414
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
517,345
|
|
|
|
495,217
|
|
|
|
|
|
|
|
|
|
|
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;
35,745 and 34,958 issued
|
|
|
359
|
|
|
|
350
|
|
Additional paid-in capital
|
|
|
552,227
|
|
|
|
520,849
|
|
Treasury stock, at cost; 7,212 and 6,354 shares
|
|
|
(283,658
|
)
|
|
|
(252,380
|
)
|
Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(870
|
)
|
|
|
9,746
|
|
Pension liability adjustment, net of tax
|
|
|
(771
|
)
|
|
|
(860
|
)
|
Unrealized (loss) gain on derivatives, net of tax
|
|
|
(154
|
)
|
|
|
19
|
|
Retained earnings
|
|
|
232,830
|
|
|
|
167,161
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
499,963
|
|
|
|
444,885
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,017,308
|
|
|
$
|
940,102
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-3
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,669
|
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
39,172
|
|
|
|
39,688
|
|
|
|
30,717
|
|
In-process research and development
|
|
|
|
|
|
|
277
|
|
|
|
25,240
|
|
Deferred income tax provision (benefit)
|
|
|
4,128
|
|
|
|
548
|
|
|
|
(33,542
|
)
|
Share-based compensation
|
|
|
17,209
|
|
|
|
15,580
|
|
|
|
32,635
|
|
Amortization of debt issuance costs
|
|
|
1,490
|
|
|
|
2,400
|
|
|
|
2,431
|
|
Non-cash interest expense
|
|
|
7,125
|
|
|
|
9,899
|
|
|
|
12,471
|
|
Payment of accreted interest
|
|
|
(6,599
|
)
|
|
|
(5,391
|
)
|
|
|
|
|
Gain on convertible note repurchases
|
|
|
|
|
|
|
(480
|
)
|
|
|
|
|
Excess tax benefits from stock-based compensation arrangements
|
|
|
(3,580
|
)
|
|
|
(20
|
)
|
|
|
(1,590
|
)
|
Other, net
|
|
|
(3
|
)
|
|
|
|
|
|
|
18
|
|
Changes in assets and liabilities, net of business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,783
|
)
|
|
|
9,808
|
|
|
|
(4,710
|
)
|
Inventories
|
|
|
(7,374
|
)
|
|
|
9,405
|
|
|
|
10,823
|
|
Prepaid expenses and other current assets
|
|
|
(6,452
|
)
|
|
|
(4,314
|
)
|
|
|
3,974
|
|
Refundable income taxes
|
|
|
|
|
|
|
11,343
|
|
|
|
(18,821
|
)
|
Other non-current assets
|
|
|
(179
|
)
|
|
|
411
|
|
|
|
(102
|
)
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
6,736
|
|
|
|
4,550
|
|
|
|
(17,258
|
)
|
Deferred revenue
|
|
|
(457
|
)
|
|
|
(289
|
)
|
|
|
(372
|
)
|
Other liabilities
|
|
|
(7,531
|
)
|
|
|
(1,135
|
)
|
|
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
105,571
|
|
|
|
143,235
|
|
|
|
72,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in business acquisitions, net of cash acquired
|
|
|
(5,178
|
)
|
|
|
(60,783
|
)
|
|
|
(86,874
|
)
|
Purchases of property and equipment
|
|
|
(37,138
|
)
|
|
|
(25,238
|
)
|
|
|
(13,401
|
)
|
Purchases of intangible assets
|
|
|
|
|
|
|
(2,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(42,316
|
)
|
|
|
(88,352
|
)
|
|
|
(100,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under senior credit facility
|
|
|
105,000
|
|
|
|
|
|
|
|
260,000
|
|
Repayments under senior credit facility
|
|
|
(16,875
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
Repurchase of liability component of convertible notes
|
|
|
(71,351
|
)
|
|
|
(78,005
|
)
|
|
|
(119,558
|
)
|
Debt issuance costs
|
|
|
(6,796
|
)
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(31,278
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercised stock options
|
|
|
16,146
|
|
|
|
6,643
|
|
|
|
11,504
|
|
Excess tax benefits from stock-based compensation arrangements
|
|
|
3,580
|
|
|
|
20
|
|
|
|
1,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,574
|
)
|
|
|
(171,342
|
)
|
|
|
153,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(4,809
|
)
|
|
|
4,804
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
56,872
|
|
|
|
(111,655
|
)
|
|
|
126,207
|
|
Cash and cash equivalents at beginning of period
|
|
|
71,891
|
|
|
|
183,546
|
|
|
|
57,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
128,763
|
|
|
$
|
71,891
|
|
|
$
|
183,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,669
|
|
|
|
65,669
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,616
|
)
|
|
|
|
|
|
|
(10,616
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
Unrealized gain on derivatives, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock through employee benefit plans
|
|
|
787
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
10,609
|
|
|
|
|
|
|
|
|
|
|
|
10,618
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,769
|
|
|
|
|
|
|
|
|
|
|
|
20,769
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(858
|
)
|
|
|
(31,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
35,745
|
|
|
$
|
359
|
|
|
|
(7,212
|
)
|
|
$
|
(283,658
|
)
|
|
$
|
552,227
|
|
|
$
|
(1,795
|
)
|
|
$
|
232,830
|
|
|
$
|
499,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-5
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
Integra LifeSciences Holdings Corporation (the
Company) was incorporated in Delaware in 1989. The
Company, a world leader in medical devices, is dedicated to
limiting uncertainty for surgeons 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, valuation of intangible assets and in-process
research and development, amortization periods for acquired
intangible assets, discount rates and estimated projected cash
flows used to value and test impairments of long-lived assets
and goodwill, estimates of projected cash flows and depreciation
and amortization periods for long-lived assets, computation of
taxes, valuation allowances recorded against deferred tax
assets, the valuation of stock-based compensation, valuation of
pension assets and liabilities, valuation of derivative
instruments and loss contingencies. These estimates are based on
historical experience and on various other assumptions that are
believed to be reasonable under the current circumstances.
Actual results could differ from these estimates.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Finished goods
|
|
$
|
87,508
|
|
|
$
|
86,080
|
|
Work in process
|
|
|
31,536
|
|
|
|
26,852
|
|
Raw materials
|
|
|
27,884
|
|
|
|
27,308
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
146,928
|
|
|
$
|
140,240
|
|
|
|
|
|
|
|
|
|
|
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, the Company adjusts the 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, 2010 or 2009.
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,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Lives
|
|
|
|
(In thousands)
|
|
|
|
|
|
Land
|
|
$
|
2,726
|
|
|
$
|
2,803
|
|
|
|
|
|
Buildings and building improvements
|
|
|
6,964
|
|
|
|
6,709
|
|
|
|
5-40 years
|
|
Leasehold improvements
|
|
|
38,102
|
|
|
|
35,335
|
|
|
|
1-20 years
|
|
Machinery and equipment
|
|
|
96,692
|
|
|
|
81,572
|
|
|
|
2-15 years
|
|
Furniture, fixtures and information systems
|
|
|
45,406
|
|
|
|
42,526
|
|
|
|
1-15 years
|
|
Construction in progress
|
|
|
20,137
|
|
|
|
5,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
210,027
|
|
|
|
173,984
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(110,571
|
)
|
|
|
(90,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
99,456
|
|
|
$
|
83,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense associated with property, plant and
equipment was $21.3 million, $18.8 million and
$12.8 million for the years ended December 31, 2010,
2009 and 2008, 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 2010 and 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
261,941
|
|
|
$
|
212,094
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, beginning of year
|
|
|
261,941
|
|
|
|
212,094
|
|
Integra Spine acquisition, earnout payment and working capital
adjustment
|
|
|
3,400
|
|
|
|
49,796
|
|
Welch Allyn, Inc. acquisition
|
|
|
601
|
|
|
|
|
|
Minnesota Scientific acquisition and working capital adjustment
|
|
|
|
|
|
|
101
|
|
Canada Microsurgical earnout payment adjustments
|
|
|
|
|
|
|
645
|
|
Integra Neurosciences Pty Ltd. earnout payment and working
capital adjustments
|
|
|
1,016
|
|
|
|
130
|
|
Foreign currency translation and other
|
|
|
(5,030
|
)
|
|
|
(825
|
)
|
|
|
|
|
|
|
|
|
|
Goodwill, end of year
|
|
$
|
261,928
|
|
|
$
|
261,941
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets are initially recorded at fair
market value at the time of acquisition generally using an
income or cost approach. The Company capitalizes costs incurred
to renew or extend the term of recognized intangible assets and
amortizes those costs over their expected useful lives.
During the second quarter of 2010, the Company recorded a
$0.8 million impairment charge related to several brand
names. The impairment charge relates to managements
decision with respect to the Companys re-branding
F-8
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
strategy for several legacy brand names. The Company has
recorded the charge as a component of amortization expense.
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, 2010
|
|
|
December 31, 2009
|
|
|
|
Average
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Completed technology
|
|
|
12 years
|
|
|
$
|
69,261
|
|
|
$
|
(28,062
|
)
|
|
$
|
41,199
|
|
|
$
|
69,632
|
|
|
$
|
(22,526
|
)
|
|
$
|
47,106
|
|
Customer relationships
|
|
|
12 years
|
|
|
|
99,290
|
|
|
|
(45,505
|
)
|
|
|
53,785
|
|
|
|
97,922
|
|
|
|
(36,724
|
)
|
|
|
61,198
|
|
Trademarks/brand names
|
|
|
35 years
|
|
|
|
33,448
|
|
|
|
(8,467
|
)
|
|
|
24,981
|
|
|
|
35,741
|
|
|
|
(8,692
|
)
|
|
|
27,049
|
|
Trademarks/brand names
|
|
|
Indefinite
|
|
|
|
49,384
|
|
|
|
|
|
|
|
49,384
|
|
|
|
49,384
|
|
|
|
|
|
|
|
49,384
|
|
Supplier relationships
|
|
|
30 years
|
|
|
|
29,300
|
|
|
|
(4,525
|
)
|
|
|
24,775
|
|
|
|
29,300
|
|
|
|
(3,647
|
)
|
|
|
25,653
|
|
All other(1)
|
|
|
15 years
|
|
|
|
8,440
|
|
|
|
(7,660
|
)
|
|
|
780
|
|
|
|
8,197
|
|
|
|
(7,470
|
)
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
289,123
|
|
|
$
|
(94,219
|
)
|
|
$
|
194,904
|
|
|
$
|
290,176
|
|
|
$
|
(79,059
|
)
|
|
$
|
211,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All other includes $0.3 million of in-process research and
development at December 31, 2010, which is indefinite lived. |
Amortization expense for the years ended December 31, 2010,
2009 and 2008 was $17.9 million, $21.0 million and
$17.6 million, respectively. Annual amortization expense is
expected to approximate $16.9 million in 2011,
$16.6 million in 2012, $13.9 million in 2013,
$12.9 million in 2014 and $11.4 million in 2015.
Amortization of product technology-based intangible assets,
which totaled $5.9 million, $6.6 million and
$4.8 million for the years ended December 31, 2010,
2009 and 2008, 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
$0.7 million, $0.6 million and $1.1 million to
the Integra Foundation during the years ended December 31,
2010, 2009 and 2008, 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 develops, manufactures, and sells medical devices
globally and its earnings and cash flows are exposed to market
risk from changes in interest rates and currency exchange rates.
The Company addresses these risks through a risk management
program that includes the use of derivative financial
instruments, and operates the program pursuant to documented
corporate risk management policies. All derivative financial
instruments are recognized in the financial statements at fair
value in accordance with the authoritative guidance. Under the
guidance, for those instruments that are designated and qualify
as hedging instruments, the hedging instrument must be
designated as a fair value hedge, cash flow hedge, or a hedge of
a net investment in a foreign operation, based on the exposure
being hedged. The accounting for changes in the fair value of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, further, on
the type of hedging relationship. The Companys derivative
instruments do not subject its earnings or cash flows to
material risk, and gains and losses on these derivatives
generally offset losses and gains on the item being hedged. The
Company has not entered into derivative transactions for
speculative purposes and all of its derivatives are designated
as hedges.
All derivative instruments are recognized at their fair values
as either assets or liabilities on the balance sheet. The
Company determines the fair value of its derivative instruments,
using the framework prescribed by the authoritative guidance, by
considering the estimated amount the Company would receive to
sell or transfer these instruments at the reporting date and by
taking into account: expected forward interest rates, currency
exchange rates, the creditworthiness of the counterparty for
assets, and its creditworthiness for liabilities. In certain
instances, the Company utilizes a discounted cash flow model to
measure fair value. Generally, the Company uses inputs that
include quoted prices for similar assets or liabilities in
active markets; other observable inputs for the asset or
liability; and inputs derived principally from, or corroborated
by, observable market data by correlation or other means. The
Company has classified all of its derivative assets and
liabilities within Level 2 of the fair value hierarchy
because observable inputs are available for substantially the
full term of its derivative instruments. The Company classifies
hedges in the same category as the item being hedged for cash
flow presentation purposes.
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.
The Company recognizes a tax benefit from an uncertain tax
position only if it is more likely than not to be sustained upon
examination based on the technical merits of the position.
Reserves are established for positions that dont meet this
recognition threshold. The reserve is measured as the largest
amount of benefit determined on a cumulative probability basis
that the Company believes is more likely than not to be realized
upon ultimate settlement of the position. These reserves are
classified as either current or long-term liabilities in the
consolidated balance sheet of the Company based on when the
company expects each of the items to be settled. The Company
F-10
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
also records interest and penalties accrued in relation to
uncertain tax benefits as a component of income tax expense.
While the Company believes it has identified all reasonably
identifiable exposures and the reserve it has established for
identifiable exposures is appropriate under the circumstances,
it is possible that additional exposures exist and that
exposures may be settled at amounts different than the amounts
reserved. It is also possible that changes in facts and
circumstances could cause the Company to either materially
increase or reduce the carrying amount of its tax reserve.
The Companys historical policy has been to leave its
unremitted foreign earnings invested indefinitely outside the
United States, and it intends to continue this policy. As such,
taxes have not been provided on any of the remaining accumulated
foreign unremitted earnings. Where it has become apparent that
some or all of the undistributed earnings will be remitted in
the foreseeable future, tax consequences are considered.
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.
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
F-11
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $9.6 million,
$8.3 million and $7.7 million were recorded in
selling, general and administrative expense during the years
ended December 31, 2010, 2009 and 2008, 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,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
632
|
|
|
$
|
701
|
|
Net change
|
|
|
(84
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
548
|
|
|
$
|
632
|
|
|
|
|
|
|
|
|
|
|
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 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.
During 2010 the Company capitalized $0.3 million of
in-process research and development costs related to the Welch
Allyn, Inc. acquisition. In accordance with the business
combination rules at the time, 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, and $25.2 million related to the Integra
Spine acquisition in 2008. The 2009 and 2008 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
F-12
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 other than minimum statutory benefits 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 on the cease-use
date. 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 option 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,
restricted stock awards, performance stock awards and contract
stock 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.
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 during the years ended
December 31, 2010, 2009 and 2008 were $1.1 million,
$0.4 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
F-13
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
SUPPLEMENTAL
CASH FLOW INFORMATION
Cash paid for interest for the years ended December 31,
2010, 2009 and 2008 was $8.8 million, $11.3 million
and $17.3 million, respectively. Cash paid for income taxes
for the years ended December 31, 2010, 2009 and 2008 was
$23.4 million, $20.5 million and $41.2 million,
respectively. Property and equipment purchases included in
liabilities at December 31, 2010, 2009 and 2008 was
$1.1 million, $1.0 million and $0.6 million,
respectively.
During the year ended December 31, 2010, 282,086 stock
options were exercised, whereby in lieu of a cash payment for
the exercise price, an option holder tendered 73,546 shares
of Company stock that had a fair market value of approximately
$3.1 million. These tendered shares were then immediately
retired.
In connection with the amendment and restatement of the
Companys Senior Credit Facility during the year ended
December 31, 2010, $150.0 million of the
Companys revolving credit facility was converted into a
term loan.
BUSINESS
COMBINATIONS
Culley
Investments Pty.
Ltd.
In September 2010, the Company acquired certain assets as well
as the distribution rights for its extremity reconstruction
product lines in Australia from Culley Investments Pty. Ltd.
(Culley) for approximately $1.6 million
(1.7 million Australian dollars) in cash. The Company has
determined that this acquisition met the definition of a
business under the authoritative guidance. For eight years,
Culley has been the Companys distributor of these products
in Australia. The acquisition provides the Company with the
ability to sell orthopedic products directly to its Australian
customers.
The final purchase price has been allocated as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
878
|
|
|
|
|
|
Property, plant and equipment
|
|
|
319
|
|
|
|
|
|
Intangible assets Customer relationships
|
|
|
373
|
|
|
|
Wtd. Avg. Life 12 years
|
|
|
|
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welch
Allyn,
Inc.
In May 2010, the Company acquired certain assets and liabilities
of the surgical headlight business of Welch Allyn, Inc.
(Welch) for approximately $2.4 million in cash
and $0.2 million of working capital adjustments. The
Company determined that this acquisition met the definition of a
business under the authoritative guidance. The Company believes
that the assets acquired will further its goal of expanding its
reach into the surgical headlight market. The goodwill recorded
in connection with this acquisition was based on the benefits
the Company expects to generate from Welchs future cash
flows and is not deductible for tax purposes.
F-14
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The final purchase price has been allocated as follows (in
thousands):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
518
|
|
|
|
|
|
Inventory
|
|
|
138
|
|
|
|
|
|
Property, plant and equipment
|
|
|
280
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
Wtd. Avg. Life
|
|
Customer relationships
|
|
|
490
|
|
|
|
15 years
|
|
Technology
|
|
|
263
|
|
|
|
6 years
|
|
In-Process research and development
|
|
|
312
|
|
|
|
Indefinite
|
|
Goodwill
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
2,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, and an
additional $1.0 million (1.0 million Australian
dollars) was paid in December 2010. With this acquisition of the
Companys long-standing distributor, the Company has a
direct selling presence in Australia and New Zealand.
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 each of the two years after
closing. The Company paid approximately $52.0 million for
the first year revenue performance obligation in November 2009
and accrued an additional $3.4 million in September 2010
related to the disputed settlement amount (See Note 12,
Commitments and Contingencies). The Company believes
that there are no additional amounts due for the second
performance year. 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
F-15
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 has suspended the development of the
eDisc products and is considering other opportunities for the
technology. Of the 13 implant systems in development at the time
of acquisition, 12 were successfully launched and one was
discontinued. These changes in plans will not have a significant
impact on the Companys overall financial condition.
Pro
Forma Results
Due to a lack of readily available audited financial statements
and immateriality, the Company has not presented pro forma
results for 2010 or 2009 to include the impact of the Culley or
Welch operations.
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 (collectively the 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 December 1 and June 1 of each year.
The fair value of the 2012 Notes at December 31, 2010 was
approximately $169.4 million. The 2010 Notes were paid off
during June 2010 in accordance with their terms. 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 amended the warrant transactions to reduce the
number of warrants outstanding to reflect such number of
convertible securities outstanding.
The 2012 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 15.3935 shares per $1,000 principal amount of
notes for the 2012 Notes (which represents an initial conversion
price of approximately $64.96 per share). The Company will
satisfy any conversion of the 2012 Notes with cash up to the
principal amount of the 2012 Notes pursuant to the net share
settlement mechanism set forth in the indenture and, with
respect to any excess conversion value, with shares of the
Companys common stock. The 2012 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 2012 Notes is less than or equal to 97% of the
average conversion value of the 2012 Notes during a period
as defined in the indenture; (3) at any time on or after
December 15, 2011; or (4) if specified corporate
transactions occur. The issue price of the 2012 Notes was equal
to their face amount, which is also the amount holders are
entitled to receive at maturity if the 2012 Notes are not
converted. As of December 31,
F-16
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2010, none of these conditions existed with respect to the 2012
Notes. As a result, the 2012 Notes are classified as long term.
Holders of the 2012 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 2012 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 2012 Notes, under the terms of the private placement
agreement, are guaranteed fully by Integra LifeSciences
Corporation, a subsidiary of the Company. 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 remaining call transactions is
approximately $64.96 for the 2012 Notes, subject to
anti-dilution adjustments. The initial strike price of the
warrant transactions is (i) for the 2010 Notes,
approximately $77.96 per share of Common Stock, which expired at
various dates through January 2011, and (ii) for the
2012 Notes, approximately $90.95, in each case subject to
customary anti-dilution adjustments.
Amended
and Restated Senior Credit Agreement
On August 10, 2010, the Company entered into an amended and
restated credit agreement (the Senior Credit
Facility) with a syndicate of lending banks. The Senior
Credit Facility increased the size of the Companys prior
revolving credit facility from $300.0 million to
$450.0 million, provided for a $150.0 million term
loan component and allowed the Company to further increase the
size of either the term loan or the revolving credit facility,
or a combination thereof, by an aggregate of $150.0 million
with additional commitments. The Senior Credit Facility extended
the prior revolving credit facilitys maturity date from
December 21, 2011 to August 10, 2015 and increased the
applicable rates used for borrowings and the annual commitment
fee. The Senior Credit Facility is collateralized by
substantially all of the assets of the Companys
U.S. subsidiaries, excluding intangible assets.
Amounts borrowed under the Senior Credit Facility bear interest,
at the Companys option, at a rate equal to (i) the
Eurodollar Rate (as defined in the Senior Credit Facility) in
effect from time to time plus the applicable rate (ranging from
1.75% to 2.5%) or (ii) the highest of (x) the weighted
average overnight Federal funds rate, as published by the
Federal Reserve Bank of New York, plus 0.5%, (y) the prime
lending rate of Bank of America, N.A. or (z) the one-month
Eurodollar Rate plus 1.0%. The applicable fixed rates are based
on the Companys consolidated total leverage ratio (defined
as the ratio of (a) consolidated funded indebtedness less
cash in excess of $40.0 million that is not subject to any
restriction on the use or investment thereof to
(b) consolidated earnings before interest, taxes,
depreciation and amortization) at the time of the applicable
borrowing.
The Company also pays an annual commitment fee (ranging from
0.2% to 0.5%, based on the Companys consolidated total
leverage ratio) on the daily amount by which the revolving
credit facility exceeds the outstanding loans and letters of
credit under the credit facility.
F-17
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Senior Credit Facility also modified certain financial and
negative covenants. In particular, it:
|
|
|
|
|
reduced the maximum consolidated total leverage ratio that the
Company is permitted to have from 4.50 to 1.00, to either
(i) 3.75 to 1.00 during any consecutive four fiscal quarter
period ending on or before March 31, 2012 or (ii) 3.5
to 1.00 during any period thereafter,
|
|
|
|
eliminated the senior secured leverage ratio covenant,
|
|
|
|
increased the amount of permitted unsecured debt,
|
|
|
|
provided the Company more ability to repurchase stock and make
restricted payments, and
|
|
|
|
provided for capital expenditures in any fiscal year equal to
10% of the revenues during the prior fiscal year, subject to
carry over to the next following fiscal year.
|
On August 10, 2010, the Company also entered into an
interest rate swap effective December 31, 2010 with an
investment grade bank which converts a portion of the
Companys variable interest payments to fixed interest
payments (see Note 5, Derivative Instruments).
Prior to amending the Senior Credit Facility in 2010, the
Company borrowed $75.0 million under the revolving credit
facility in connection with the maturity of its 2010 Notes
(defined below) and also repaid $15.0 million of
outstanding borrowings. Subsequent to the amendment, the Company
borrowed an additional $30.0 million in October 2010 to
repay certain intercompany loans. During June 2009 and August
2009, the Company repaid $60.0 million and
$40.0 million, respectively, of its outstanding borrowings
under its prior credit facility.
At December 31, 2010 and 2009, there was
$100.0 million and $160.0 million outstanding,
respectively, under the revolving credit facility at a weighted
average interest rate of 2.5% and 0.98%, respectively. At
December 31, 2010, there was approximately
$350.0 million available for borrowing under this facility.
The fair value of outstanding borrowings under the revolving
credit facility at December 31, 2010 was approximately
$100.5 million. The Company considers the 2010 balance to
be current in nature based on its current intent and ability to
repay the borrowing during the next twelve-month period.
At December 31, 2010, there was $148.1 million
outstanding under the term loan at an interest rate of
2.6% of this amount, the Company considers
$8.4 million as short-term and $139.7 million as
long-term based on the terms of the loan agreement. Under the
term loan, principal payments to be made during the calendar
years are as follows: $8.4 million in 2011,
$12.2 million in 2012, $15.0 million in 2013,
$15.0 million in 2014 and $97.5 million in 2015. The
fair value of outstanding borrowings on the term loan at
December 31, 2010 was approximately $143.4 million.
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
F-18
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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 $0.3 million of exchange fees
to tendering holders of the existing notes plus expenses
totaling approximately $0.3 million 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.
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.
|
|
5.
|
DERIVATIVE
INSTRUMENTS
|
Foreign
Currency Hedging
The Companys designated foreign currency hedge contract
outstanding as of December 31, 2009 was a cash flow hedge
under the authoritative guidance intended to protect the
U.S. dollar value of certain forecasted foreign currency
denominated intercompany transactions. There were no foreign
currency hedge contracts outstanding as of December 31,
2010. The Company records the effective portion of any change in
the fair value of foreign currency cash flow hedges in
accumulated other comprehensive income (AOCI), net
of tax, until the hedged item impacts earnings. Once the related
hedged item effects earnings, the Company reclassifies the
effective portion of any related unrealized gain or loss on the
foreign currency cash flow hedge to earnings. If the hedged
forecasted transaction does not occur, or if it becomes probable
that it will not occur, the Company will reclassify the amount
of any gain or loss on the related cash flow hedge to earnings
at that time.
The success of the Companys hedging program depends, in
part, on forecasts of certain activity denominated in euros. The
Company may experience unanticipated currency exchange gains or
losses to the extent that there are differences between
forecasted and actual activity during periods of currency
volatility. In addition, changes in currency exchange rates
related to any unhedged transactions may impact its earnings and
cash flows.
F-19
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest
Rate Hedging
The Companys interest rate risk relates to
U.S. dollar denominated variable LIBOR interest rate
borrowings. The Company uses an interest rate swap derivative
instrument entered into on August 10, 2010 with an
effective date of December 31, 2010 to manage its earnings
and cash flow exposure to changes in interest rates by
converting a portion of its floating-rate debt into fixed-rate
debt beginning on December 31, 2010. This interest rate
swap expires on August 10, 2015.
The Company designates this derivative instrument as a cash flow
hedge. The Company records the effective portion of any change
in the fair value of a derivative instrument designated as a
cash flow hedge as unrealized gains or losses in AOCI, net of
tax, until the hedged item affects earning, at which point the
effective portion of any gain or loss will be reclassified to
earnings. If the hedged cash flow does not occur, or if it
becomes probable that it will not occur, the Company will
reclassify the amount of any gain or loss on the related cash
flow hedge to interest expense at that time.
The Company expects that approximately $2.1 million of
pre-tax losses recorded net in AOCI could be reclassified to
earnings within the next twelve months related to the interest
rate hedge.
Counterparty
Credit Risk
The Company manages its concentration of counterparty credit
risk on its derivative instruments by limiting acceptable
counterparties to a group of major financial institutions with
investment grade credit ratings, and by actively monitoring
their credit ratings and outstanding positions on an on-going
basis. Therefore, the Company considers the credit risk of the
counterparties to be low. Furthermore, none of the
Companys derivative transactions is subject to collateral
or other security arrangements, and none contains provisions
that are dependent on the Companys credit ratings from any
credit rating agency.
Fair
Value of Derivative Instruments
The following table summarizes the fair value, notional amounts
presented in U.S. dollars, and presentation in the
consolidated balance sheet for derivatives designated as hedging
instruments as of December 31, 2010 and December 31,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
|
|
|
Notional Amount as of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Location on Balance Sheet (1):
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap Accrued expenses and other
current liabilities(2)
|
|
$
|
270
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Currency hedge contracts Accrued expenses and other
current liabilities
|
|
|
|
|
|
|
418
|
|
|
$
|
|
|
|
$
|
11,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivative Liabilities
|
|
$
|
270
|
|
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company classifies derivative assets and liabilities as
current based on the cash flows expected to be incurred within
the following 12 months. |
|
(2) |
|
The total notional amount related to the interest rate swap is
$148.1 million. In the next twelve months this amount will
be reduced by $8.4 million. |
F-20
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following presents the effect of derivative instruments
designated as cash flow hedges on the accompanying consolidated
statements of operations during the years ended
December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
Amount of Gain
|
|
|
(Loss) Reclassified
|
|
|
|
|
|
(Loss) Recognized
|
|
|
from AOCI Into
|
|
|
Location in
|
|
|
in AOCI
|
|
|
Earnings
|
|
|
Statements of
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Operations
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Currency hedge contracts
|
|
$
|
2,756
|
|
|
$
|
2,782
|
|
|
Other income (expense)
|
Interest rate swap
|
|
|
(270
|
)
|
|
|
|
|
|
Interest (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,486
|
|
|
$
|
2,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Currency hedge contracts
|
|
$
|
(418
|
)
|
|
$
|
(444
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized no gains or losses due to ineffectiveness
for the years ended December 31, 2010 and 2009.
On October 30, 2007, 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, 2008. 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. On October 29, 2010, the
Companys Board of Directors terminated the repurchase
authorization it adopted in October 2008 and authorized the
Company to repurchase shares of the Companys common stock
for an aggregate purchase price not to exceed $75.0 million
through December 31, 2012. Shares may be purchased either
in the open market or in privately negotiated transactions. As
of December 31, 2010, there remained $75.0 million
available for share repurchases under this latest authorization.
The following table sets forth the Companys treasury stock
activity (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
|
$
|
|
# of Shares
|
|
$
|
|
# of Shares
|
|
Shares repurchased in the open market in connection with the
Board approved buyback program
|
|
$
|
31,278
|
|
|
|
858
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
STOCK
PURCHASE AND AWARD PLANS
|
Employee stock-based compensation expense recognized under the
authoritative guidance was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Selling, general and administrative
|
|
$
|
16,694
|
|
|
$
|
14,958
|
|
|
$
|
31,704
|
|
Research and development expense
|
|
|
426
|
|
|
|
492
|
|
|
|
674
|
|
Cost of product revenues
|
|
|
89
|
|
|
|
130
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense
|
|
|
17,209
|
|
|
|
15,580
|
|
|
|
32,635
|
|
Total tax benefit related to employee stock-based compensation
expense
|
|
|
7,006
|
|
|
|
6,253
|
|
|
|
13,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income
|
|
$
|
10,203
|
|
|
$
|
9,327
|
|
|
$
|
19,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
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 the 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:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
30%
|
|
29%
|
|
29%
|
Risk free interest rate
|
|
2.82%
|
|
2.0%
|
|
2.11% to 4.01%
|
Expected life of option from grant date
|
|
8 years
|
|
8 years
|
|
6.8 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, 2010, 1.1 million shares remain available
for purchase under the ESPP. During the years ended
December 31, 2010, 2009 and 2008, the Company issued
5,515 shares, 7,263 shares and 11,873 shares
under the ESPP for $0.2 million, $0.3 million and
$0.4 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, 2010, the Company had stock options,
restricted stock awards, and contract stock outstanding under
six plans, 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 the
1996 Plan, the 1998 Plan, the 1999 Plan or the 2000 Plan.
In July 2008 and May 2010, the stockholders of the Company
approved amendments to the 2003 Plan to increase by 750,000 and
1,750,000, respectively, 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 6,500,000 shares under the
2003 Plan. The 1993 Plan, 1996 Plan, 1998 Plan, and the
F-22
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1999 Plan permit the Company to grant both incentive and
non-qualified stock options to designated directors, officers,
employees and associates of the 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, 2009
|
|
|
2,408
|
|
|
$
|
33.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
59
|
|
|
|
41.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(884
|
)
|
|
|
26.27
|
|
|
|
|
|
|
|
|
|
Forfeited or Expired
|
|
|
(23
|
)
|
|
|
34.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
1,560
|
|
|
$
|
38.13
|
|
|
|
5.0
|
|
|
$
|
14,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2010
|
|
|
1,560
|
|
|
$
|
38.13
|
|
|
|
5.0
|
|
|
$
|
14,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
1,427
|
|
|
$
|
37.62
|
|
|
|
4.8
|
|
|
$
|
14,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised for the years ended
December 31, 2010, 2009 and 2008 was $14.4 million,
$1.0 million and $9.2 million, respectively. The
weighted average grant date fair value of options granted during
the years ended December 31, 2010, 2009 and 2008 was
$17.03, $8.12 and $18.08, respectively. Cash received from
option exercises was $16.1 million, $6.6 million and
$11.5 million, for the years ended December 31, 2010,
2009 and 2008, respectively.
As of December 31, 2010, there was approximately
$1.9 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
1.1 years.
F-23
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 for the
year ended December 31, 2010 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
|
Performance Stock and Contract Stock Awards
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Wtd. Avg
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
|
Unvested, December 31, 2009
|
|
|
|
|
|
|
482
|
|
|
$
|
32.29
|
|
|
|
294
|
|
|
$
|
36.15
|
|
Granted
|
|
|
|
|
|
|
192
|
|
|
|
42.42
|
|
|
|
152
|
|
|
|
46.47
|
|
Cancellations
|
|
|
|
|
|
|
(34
|
)
|
|
|
33.66
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
|
|
|
|
(227
|
)
|
|
|
35.73
|
|
|
|
(12
|
)
|
|
|
44.37
|
|
Vested but not released
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
|
|
37.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2010
|
|
|
|
|
|
|
413
|
|
|
$
|
34.98
|
|
|
|
277
|
|
|
$
|
40.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized $13.5 million, $10.5 million
and $25.5 million in expense related to such awards during
the years ended December 31, 2010, 2009 and 2008,
respectively. The total fair market value of shares vested in
2010, 2009 and 2008 was $11.5 million, $4.7 million
and $25.5 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, 2010, there was approximately
$17.2 million of total unrecognized compensation costs
related to unvested awards. These costs are expected to be
recognized over a weighted-average period of approximately
2.2 years.
In December 2000, the Company issued 1,250,000 Restricted Units
under the 2000 Plan as a fully vested equity based bonus to the
Companys Chief Executive Officer (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. In
January 2006, the Company released 750,000 shares of the
Companys common stock to the Executive pursuant to the
obligations with respect to these Restricted Units, and in March
2008, the Company released the remaining 500,000 shares. In
July 2004, the Company renewed the Executives employment
agreement and the Executive received fully vested 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,
or i) later under certain circumstances, ii) earlier
if he is terminated without cause, or iii) if he leaves his
position for good reason or upon a change of control or certain
tax related events. In August 2008, the Company and the
Executive renewed the Executives employment agreement
through December 31, 2011. In connection with the renewal
of the agreement, the Executive received fully vested Restricted
Units providing for the payment of 375,000 shares of
Integra common stock which shall be delivered to the Executive
within the
30-day
period immediately following the six month anniversary of his
separation of service from the Company. 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. The
Restricted Units granted in 2004 and 2008 were granted under the
2003 Plan and, as of December 31, 2010, the related shares
have not been issued. The Executive has demand registration
rights under the Restricted Unit grants.
At December 31, 2010, in addition to the Restricted Units
discussed above, there are approximately 300,000 additional
vested Restricted Units held by various employees for which the
related shares have not yet been issued. Included in this amount
are 34,868 shares issued in October 2010 in connection with the
Companys hiring of a new President and Chief Operating
Officer for which the Company expensed $1.5 million as
these shares were fully vested.
At December 31, 2010, there were 2,119,988 shares
available for grant under the Plans.
F-24
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
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, 2010 and 2009. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Non U.S.
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Plan
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
93
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
141
|
|
Interest cost
|
|
|
645
|
|
|
|
605
|
|
|
|
14
|
|
|
|
718
|
|
Expected return on plan assets
|
|
|
(515
|
)
|
|
|
(413
|
)
|
|
|
|
|
|
|
(493
|
)
|
Recognized net actuarial loss
|
|
|
86
|
|
|
|
307
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
309
|
|
|
$
|
620
|
|
|
$
|
14
|
|
|
$
|
919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following weighted average assumptions were used to develop
net periodic pension benefit cost and the actuarial present
value of projected pension benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Non U.S.
|
|
|
Non U.S.
|
|
|
Non U.S.
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Plans
|
|
|
Discount rate
|
|
|
5.4
|
%
|
|
|
5.9
|
%
|
|
|
6.6
|
%
|
Expected return on plan assets
|
|
|
5.2
|
%
|
|
|
5.4
|
%
|
|
|
5.2
|
%
|
Rate of compensation increase
|
|
|
3.4
|
%
|
|
|
3.7
|
%
|
|
|
3.1
|
%
|
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 2010 and
2009, 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
F-25
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010 and 2009 and a reconciliation of the
funded status at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Non-U.S.
|
|
|
Non-U.S.
|
|
|
|
Plans
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
11,550
|
|
|
$
|
9,616
|
|
Service cost
|
|
|
93
|
|
|
|
121
|
|
Interest cost
|
|
|
645
|
|
|
|
605
|
|
Participant contributions
|
|
|
17
|
|
|
|
22
|
|
Benefits paid
|
|
|
(464
|
)
|
|
|
(481
|
)
|
Actuarial loss (gain)
|
|
|
551
|
|
|
|
712
|
|
Effect of foreign currency exchange rates
|
|
|
(350
|
)
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
12,042
|
|
|
$
|
11,550
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
|
$
|
9,302
|
|
|
$
|
7,433
|
|
Actual return on plan assets
|
|
|
1,070
|
|
|
|
1,129
|
|
Employer contributions
|
|
|
1,157
|
|
|
|
409
|
|
Participant contributions
|
|
|
17
|
|
|
|
22
|
|
Benefits paid
|
|
|
(444
|
)
|
|
|
(454
|
)
|
Effect of foreign currency exchange rates
|
|
|
(268
|
)
|
|
|
763
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value, end of year
|
|
$
|
10,834
|
|
|
$
|
9,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Non-U.S.
|
|
|
Non-U.S.
|
|
|
|
Plans
|
|
|
Plans
|
|
|
|
(In thousands)
|
|
|
RECONCILIATION OF FUNDED STATUS
|
|
|
|
|
|
|
|
|
Funded status, projected benefit obligation in excess of plan
assets
|
|
$
|
(1,208
|
)
|
|
$
|
(2,248
|
)
|
Unrecognized net actuarial loss
|
|
|
1,061
|
|
|
|
1,190
|
|
Accumulated other comprehensive loss
|
|
|
(1,061
|
)
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized
|
|
$
|
(1,208
|
)
|
|
$
|
(2,248
|
)
|
|
|
|
|
|
|
|
|
|
The accrued benefit liability recorded at December 31, 2010
and 2009 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 $11.9 million and $11.5 million as
of December 31, 2010 and 2009, 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
F-26
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010 or
December 31, 2009.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Non-U.S.
|
|
|
Non-U.S.
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Equity securities
|
|
|
19
|
%
|
|
|
18
|
%
|
Corporate bonds
|
|
|
33
|
%
|
|
|
34
|
%
|
Government bonds
|
|
|
46
|
%
|
|
|
47
|
%
|
Cash
|
|
|
2
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The fair value of the Companys pension plan assets at
December 31, 2010 and 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010:
|
|
|
|
|
|
|
|
|
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
|
|
$
|
254
|
|
|
$
|
254
|
|
|
$
|
|
|
|
$
|
|
|
Baillie Gifford-Managed Pension Fund(a)
|
|
Equity securities
|
|
|
2,012
|
|
|
|
|
|
|
|
2,012
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
134
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
Cash
|
|
|
46
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
Baillie Gifford-Investment Grade Long Bond Fund(b)
|
|
Corporate bonds
|
|
|
3,439
|
|
|
|
|
|
|
|
3,439
|
|
|
|
|
|
Legal & General-Over 15 Year Index Linked
Gilts Index(c)
|
|
Index-linked
government bonds
|
|
|
4,949
|
|
|
|
|
|
|
|
4,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
10,834
|
|
|
$
|
300
|
|
|
$
|
10,534
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 gifts
and is designated 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). The prices also
include income receivable and expenses payable, where applicable.
Based on year-end exchange rates, the Company anticipates
contributing approximately $0.7 million to its defined
benefit plans in 2011. Also based on year-end exchange rates,
the Company expects to pay the following estimated future
benefit payments in the years indicated (in thousands):
|
|
|
|
|
2011
|
|
$
|
435
|
|
2012
|
|
|
478
|
|
2013
|
|
|
516
|
|
2014
|
|
|
548
|
|
2015
|
|
|
581
|
|
2016-2020
|
|
|
3,361
|
|
Included in Accumulated Other Comprehensive Income is
$1.1 million of unrecognized net actuarial loss, a portion
of which is expected to be recognized as a component of net
periodic benefit cost in 2011.
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 $2.0 million, $1.7 million and
$1.4 million for the years ended December 31, 2010,
2009 and 2008, respectively.
F-28
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
LEASES
AND RELATED PARTY LEASES
|
The Company leases administrative, manufacturing, research and
distribution facilities and various manufacturing, office and
transportation equipment through operating lease agreements.
Future minimum lease payments under operating leases at
December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
Third
|
|
|
|
|
|
|
Parties
|
|
|
Parties
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
942
|
|
|
$
|
7,260
|
|
|
$
|
8,202
|
|
2012
|
|
|
945
|
|
|
|
6,560
|
|
|
|
7,505
|
|
2013
|
|
|
918
|
|
|
|
5,798
|
|
|
|
6,716
|
|
2014
|
|
|
918
|
|
|
|
4,998
|
|
|
|
5,916
|
|
2015
|
|
|
866
|
|
|
|
2,473
|
|
|
|
3,339
|
|
Thereafter
|
|
|
2,343
|
|
|
|
4,372
|
|
|
|
6,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
6,932
|
|
|
$
|
31,461
|
|
|
$
|
38,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rental expense for the years ended December 31, 2010,
2009 and 2008 and was $8.2 million, $8.1 million and
$5.9 million, respectively, and included $0.8 million,
$0.9 million and $0.5 million in related party rental
expense, respectively.
Related
Party Leases
The Company leases certain production equipment from a
corporation whose sole stockholder is a general partnership, of
which the Companys Chairman is a partner and the
President. The term of the lease is through March 31, 2022,
and the Company has an option to renew through March 31,
2032. Under the terms of the lease agreement, the Company pays
$0.1 million per year to the related party lessor. The
Company also leases its manufacturing facility in Plainsboro,
New Jersey, from a general partnership that is 50% owned by a
corporation whose shareholders are trusts, whose beneficiaries
include family members of the Companys Chairman. The term
of the current lease agreement is through October 31, 2017
at an annual rate of approximately $0.3 million per year.
The current lease 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
$0.3 million per year.
Income (loss) before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States operations
|
|
$
|
40,028
|
|
|
$
|
42,113
|
|
|
$
|
(1,016
|
)
|
Foreign operations
|
|
|
42,086
|
|
|
|
31,039
|
|
|
|
19,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,114
|
|
|
$
|
73,152
|
|
|
$
|
18,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the U.S. Federal statutory rate to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
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
|
%
|
|
|
2.6
|
%
|
|
|
3.2
|
%
|
Foreign operations
|
|
|
(10.3
|
)%
|
|
|
(9.9
|
)%
|
|
|
(19.3
|
)%
|
Incentive stock option expense
|
|
|
(0.3
|
)%
|
|
|
(0.2
|
)%
|
|
|
0.7
|
%
|
Change in valuation allowances
|
|
|
1.7
|
%
|
|
|
4.4
|
%
|
|
|
(4.8
|
)%
|
Uncertain tax positions
|
|
|
(4.6
|
)%
|
|
|
|
%
|
|
|
|
%
|
German tax restructuring
|
|
|
|
|
|
|
|
%
|
|
|
(53.5
|
)%
|
Other
|
|
|
(4.1
|
)%
|
|
|
(1.6
|
)%
|
|
|
(10.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
20.0
|
%
|
|
|
30.3
|
%
|
|
|
(49.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2010, the Company recorded the full
year income tax benefit related to the passing of the Tax
Relief, Unemployment Insurance Reauthorization and Job Creation
Act of 2010. 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, 2010, the Company had net operating loss
carryforwards of $9.4 million for federal income tax
purposes, $135.6 million for foreign income tax purposes
and $35.1 million for state income tax purposes to offset
future taxable income. The federal net operating loss
carryforwards expire through 2027, $46.0 million of the
foreign net operating loss carryforwards expire through 2018
with the remaining $89.6 million having an indefinite carry
forward period. The state net operating loss carryforwards
expire through 2029.
At December 31, 2010 and 2009, 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 certain undistributed earnings
of
non-U.S. subsidiaries
because such earnings are expected to be permanently reinvested.
Undistributed earnings of such foreign subsidiaries totaled
$140.2 million, $101.4 million and $72.7 million
at December 31, 2010, 2009 and 2008, respectively.
F-30
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for (benefit from) income taxes consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,686
|
|
|
$
|
9,106
|
|
|
$
|
13,793
|
|
State
|
|
|
1,136
|
|
|
|
4,021
|
|
|
|
4,808
|
|
Foreign
|
|
|
8,495
|
|
|
|
8,522
|
|
|
|
5,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
12,317
|
|
|
|
21,649
|
|
|
|
24,350
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,522
|
|
|
|
1,281
|
|
|
|
(19,253
|
)
|
State
|
|
|
835
|
|
|
|
(672
|
)
|
|
|
(2,790
|
)
|
Foreign
|
|
|
771
|
|
|
|
(61
|
)
|
|
|
(11,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
4,128
|
|
|
|
548
|
|
|
|
(33,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
16,445
|
|
|
$
|
22,197
|
|
|
$
|
(9,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax effects of significant temporary differences that
give rise to deferred tax assets and liabilities, shown before
jurisdictional netting, are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Doubtful accounts
|
|
$
|
2,033
|
|
|
$
|
3,404
|
|
Inventory reserves
|
|
|
25,131
|
|
|
|
18,542
|
|
Tax credits
|
|
|
1,469
|
|
|
|
1,731
|
|
Accrued vacation
|
|
|
2,082
|
|
|
|
1,762
|
|
Accrued bonus
|
|
|
3,126
|
|
|
|
2,190
|
|
Other
|
|
|
5,088
|
|
|
|
2,263
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
38,929
|
|
|
|
29,892
|
|
Less valuation allowance
|
|
|
(852
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets after valuation allowance
|
|
|
38,077
|
|
|
|
29,389
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,872
|
)
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
Total current deferred tax liabilities
|
|
|
(3,872
|
)
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
34,205
|
|
|
$
|
28,897
|
|
|
|
|
|
|
|
|
|
|
F-31
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Benefits and compensation
|
|
$
|
9,616
|
|
|
$
|
9,790
|
|
Stock compensation
|
|
|
19,770
|
|
|
|
19,650
|
|
Deferred revenue
|
|
|
389
|
|
|
|
805
|
|
Net operating loss carryforwards
|
|
|
35,223
|
|
|
|
38,056
|
|
Financing costs
|
|
|
4,493
|
|
|
|
8,517
|
|
Federal & state tax credits
|
|
|
1,705
|
|
|
|
2,133
|
|
Other
|
|
|
2,801
|
|
|
|
5,143
|
|
|
|
|
|
|
|
|
|
|
Total non-current deferred tax assets
|
|
|
73,997
|
|
|
|
84,094
|
|
Less valuation allowance
|
|
|
(35,782
|
)
|
|
|
(35,628
|
)
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets after valuation allowance
|
|
|
38,215
|
|
|
|
48,466
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Intangible & fixed assets
|
|
|
(31,751
|
)
|
|
|
(28,319
|
)
|
Deferred gain
|
|
|
(449
|
)
|
|
|
(351
|
)
|
Non-cash interest amortization
|
|
|
(4,713
|
)
|
|
|
(8,502
|
)
|
Other
|
|
|
(4,053
|
)
|
|
|
(4,786
|
)
|
|
|
|
|
|
|
|
|
|
Total non current deferred tax liabilities
|
|
|
(40,966
|
)
|
|
|
(41,958
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets/(liabilities)
|
|
|
(2,751
|
)
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets/(liabilities)
|
|
$
|
31,454
|
|
|
$
|
35,405
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance of $36.6 million, $36.1 million
and $36.0 million is recorded against the Companys
gross deferred tax assets of $112.9 million,
$114.0 million and $114.4 million recorded at
December 31, 2010, 2009 and 2008, 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
$0.5 million in 2010 and increased by $0.1 million in
2009. The movement for both years was mainly the result of
future realizability of net operating losses.
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.
F-32
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 uncertain
tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
10,909
|
|
|
$
|
9,033
|
|
|
$
|
8,833
|
|
Additions for tax positions of prior years
|
|
|
1,685
|
|
|
|
3,785
|
|
|
|
948
|
|
Settlements
|
|
|
(5,264
|
)
|
|
|
|
|
|
|
|
|
Lapse of statute
|
|
|
(1,800
|
)
|
|
|
(1,909
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
5,530
|
|
|
$
|
10,909
|
|
|
$
|
9,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance of approximately $5.5 million at
December 31, 2010 relates to uncertain tax positions that,
if recognized, would affect the annual effective tax rate.
Included in the balance of uncertain tax positions at
December 31, 2010 is $3.2 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, 2010, as a result of expiring
statutes of limitations.
The Company recognizes interest and penalties relating to
uncertain tax positions in income tax expense. During the year
ended December 31, 2010, the Company recognized a net
benefit of approximately $0.9 million in interest and
penalties which was reflected in the income statement. 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 consolidated
statement of operations and $0.2 million was a balance
sheet adjustment. The Company had approximately
$2.1 million, $3.0 million and $2.5 million of
interest and penalties accrued at December 31, 2010, 2009
and 2008, respectively.
At December 31, 2009 the Federal income tax returns for the
years 2005 through 2007 were under review by the Internal
Revenue Service (the IRS) and the Company had
accrued $8.5 million for uncertain tax positions at that
time. During 2010, the scope of this review was expanded to
include the 2008 tax year as well. During 2010, the Company
settled the review for the years 2005 to 2007 with the IRS which
resulted in $4.0 million in taxes being reclassified from
long-term liabilities to current taxes payable and deferred
taxes, and $4.5 million being recorded in the consolidated
statement of operations as an income tax benefit. This
settlement is currently in Joint Committee with the IRS which is
an administrative procedure that is customary with settlements
of this size. These amounts include interest and penalties
related to the settlement and tax benefit.
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 IRS through fiscal year 2004 and as
noted above, 2005 through 2007 are currently being reviewed by
Joint Committee. All significant state and local matters have
been concluded through fiscal 2004. All significant foreign
matters have been settled through fiscal 2003.
In January 2009 the Company adopted the authoritative guidance
related to determining whether instruments issued in share-based
payment transactions are participating securities. Certain of
the Companys unvested restricted share units contain
rights to receive nonforfeitable dividends, and thus, are
participating securities requiring the two-class method of
computing earnings per share. The participating securities had
an insignificant impact on the calculation of earnings per share
(impacts the rounding by $0.01 or less per share); therefore,
the Company does not present the full calculation below.
F-33
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands,
|
|
|
|
except per share amounts)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,669
|
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
Weighted average common shares outstanding
|
|
|
29,548
|
|
|
|
29,038
|
|
|
|
27,781
|
|
Basic net income per common share
|
|
$
|
2.21
|
|
|
$
|
1.75
|
|
|
$
|
0.98
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,669
|
|
|
$
|
50,955
|
|
|
$
|
27,727
|
|
Weighted average common shares outstanding Basic
|
|
|
29,548
|
|
|
|
29,038
|
|
|
|
27,781
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
601
|
|
|
|
254
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for diluted earnings per share
|
|
|
30,149
|
|
|
|
29,292
|
|
|
|
28,378
|
|
Diluted net income per common share
|
|
$
|
2.17
|
|
|
$
|
1.74
|
|
|
$
|
0.96
|
|
Common stock of approximately 691,000 shares,
2,097,000 shares and 530,000 shares at
December 31, 2010, 2009 and 2008, 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 approximately 1,400,000 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.
|
|
12.
|
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 are
described below.
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 related to the first performance year that
ended September 30, 2009. The notice alleged that the
Company owed an additional $6.7 million. In January 2011,
the Company received a notice from the sellers
representative that the alleged amount owed had been reduced to
$5.7 million. The Company is currently discussing this
matter with the sellers representative in an attempt to
resolve the dispute in accordance with the provisions contained
in the asset purchase agreement governing the transaction. The
Company has accrued $3.4 million at December 31, 2010
for the settlement in this matter. The Company believes that
there are no additional amounts due under the asset purchase
agreement for the second performance year that ended
September 30, 2010.
The Company has various product liability claims pending against
it for which it currently has accruals totaling
$2.1 million recorded in the financial statements. All
matters are covered by the Companys insurance policies and
it has recorded a corresponding receivable. Therefore, there is
no impact on the Companys consolidated statements of
operations.
F-34
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
13.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Orthopedics
|
|
$
|
290,050
|
|
|
$
|
262,170
|
|
|
$
|
217,953
|
|
Neurosurgery
|
|
|
275,046
|
|
|
|
256,544
|
|
|
|
256,869
|
|
Instruments
|
|
|
166,972
|
|
|
|
163,773
|
|
|
|
179,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net
|
|
$
|
732,068
|
|
|
$
|
682,487
|
|
|
$
|
654,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company attributes revenue to geographic areas based on the
location of the customer. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
561,240
|
|
|
$
|
89,381
|
|
|
$
|
40,584
|
|
|
$
|
40,863
|
|
|
$
|
732,068
|
|
2009
|
|
|
519,203
|
|
|
|
93,414
|
|
|
|
32,788
|
|
|
|
37,082
|
|
|
|
682,487
|
|
2008
|
|
|
494,459
|
|
|
|
98,848
|
|
|
|
28,509
|
|
|
|
32,788
|
|
|
|
654,604
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
81,496
|
|
|
$
|
25,885
|
|
|
$
|
352
|
|
|
$
|
|
|
|
$
|
107,733
|
|
December 31, 2009
|
|
|
61,527
|
|
|
|
24,202
|
|
|
|
111
|
|
|
|
|
|
|
|
85,840
|
|
F-35
INTEGRA
LIFESCIENCES HOLDINGS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
SELECTED
QUARTERLY INFORMATION UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Total revenue, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
172,698
|
|
|
$
|
178,595
|
|
|
$
|
186,641
|
|
|
$
|
194,134
|
|
|
|
|
|
2009
|
|
|
160,950
|
|
|
|
165,725
|
|
|
|
172,286
|
|
|
|
183,526
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
109,474
|
|
|
$
|
114,131
|
|
|
$
|
117,447
|
|
|
$
|
122,828
|
|
|
|
|
|
2009
|
|
|
102,802
|
|
|
|
105,921
|
|
|
|
109,265
|
|
|
|
119,581
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
15,222
|
|
|
$
|
15,157
|
|
|
$
|
16,483
|
|
|
$
|
18,807
|
|
|
|
|
|
2009
|
|
|
9,567
|
|
|
|
11,225
|
|
|
|
14,432
|
|
|
|
15,731
|
|
|
|
|
|
Basic net income (loss) per common share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
0.51
|
|
|
$
|
0.51
|
|
|
$
|
0.56
|
|
|
$
|
0.64
|
|
|
|
|
|
2009
|
|
|
0.33
|
|
|
|
0.38
|
|
|
|
0.49
|
|
|
|
0.54
|
|
|
|
|
|
Diluted net income (loss) per common share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.55
|
|
|
$
|
0.63
|
|
|
|
|
|
2009
|
|
|
0.32
|
|
|
|
0.38
|
|
|
|
0.49
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
(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. |
F-36
SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns and allowances
|
|
$
|
11,216
|
|
|
$
|
(2,167
|
)
|
|
$
|
|
|
|
$
|
(1,727
|
)
|
|
$
|
7,322
|
|
Deferred tax asset valuation allowance
|
|
|
36,131
|
|
|
|
431
|
|
|
|
1,160
|
|
|
|
(1,088
|
)
|
|
|
36,634
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales returns and allowances
|
|
$
|
10,052
|
|
|
$
|
2,645
|
|
|
$
|
|
|
|
$
|
(1,481
|
)
|
|
$
|
11,216
|
|
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
|
|
Deferred tax asset valuation allowance
|
|
|
40,925
|
|
|
|
|
|
|
|
(2,436
|
)
|
|
|
(2,521
|
)
|
|
|
35,968
|
|
|
|
|
(1) |
|
In 2010, $1.2 million of deferred tax liability was
reclassified to the valuation allowance with no impact to the
consolidated statement of operations. In 2009, the balance was
reduced by $3.3 million, 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. In 2008, $2.0 million was
charged to additional paid-in capital. |
F-37
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
|
.3(f)
|
|
Amended and Restated Credit Agreement, dated as of
August 10, 2010, among Integra LifeSciences Holdings
Corporation, the lenders party thereto, Bank of America, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer, JP
Morgan Chase Bank, as Syndication Agent, and HSBC Bank USA, NA,
RBC Capital Markets, Wells Fargo Bank, N.A., Fifth Third Bank,
DNB NOR Bank ASA and TD Bank, N.A., as Co-Documentation Agents
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on August 10, 2010)
|
|
|
|
|
|
|
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
|
.2(a)
|
|
First Amendment to Equipment Lease Agreement between Medicus
Corporation and the Company, dated as of June 29, 2010
(Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010)
|
|
10
|
.3
|
|
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)
|
|
Integra LifeSciences Holdings Corporation Seconded Amended and
Restated 2003 Equity Incentive Plan (Incorporated by reference
to Exhibit 10 to the Companys Current Report on
Form 8-K
filed May 21, 2010)*
|
|
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
|
.15(e)
|
|
Amendment
2010-1,
dated as of October 12, 2010, to the Amended and Restated
2005 Employment Agreement between John B. Henneman, III and
the Company (Incorporated by reference to Exhibit 10.3 to
the Companys Current Report on
Form 8-K
filed October 12, 2010)*
|
|
10
|
.16(a)
|
|
Consulting Agreement, dated October 12, 2010, between
Integra LifeSciences Holdings Corporation and Inception Surgical
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on October 12, 2010)*
|
|
10
|
.17
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 4, 2010*
|
|
10
|
.17(a)
|
|
Severance Agreement between Judith OGrady and the Company
dated as of January 3, 2011*+
|
|
10
|
.18
|
|
Employment Agreement, dated as of October 12, 2010 between
Peter J. Arduini and Integra LifeSciences Holdings Corporation
(Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed October 12, 2010)*
|
|
10
|
.19
|
|
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
|
.20(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
|
.20(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
|
.20(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
|
.20(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
|
.20(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
|
.21
|
|
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
|
.22
|
|
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
|
.23
|
|
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
|
.24(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
|
.24(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
|
.25
|
|
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
|
.26(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
|
.26(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
|
.26(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
|
.27
|
|
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
|
.28(a)
|
|
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(b)
|
|
New Form of Contract Stock/Restricted Unites Agreement (for
Annual Equity Awards) for Stuart M. Essig*+
|
|
10
|
.29
|
|
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
|
.30
|
|
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
|
.31
|
|
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
|
.32
|
|
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
|
.33
|
|
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
|
.34
|
|
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
|
.35(a)
|
|
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(b)
|
|
Compensation of Directors of the Company effective May 17,
2011 (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on December 16, 2010)*
|
|
10
|
.36(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
|
.36(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
|
.36(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
|
.37(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
|
.37(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
|
.37(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
|
.37(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(e)
|
|
Form of Contract Stock/Restricted Units Agreement (for Signing
Grant) for Mr. Arduini (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K
filed on October 12, 2010)*
|
|
10
|
.37(f)
|
|
Form of Contract Stock/Restricted Units Agreement (for Annual
Equity Awards) for Mr. Arduini (Incorporated by reference
to Exhibit 10.5 to the Companys Current Report on
Form 8-K
filed on October 12, 2010)*
|
|
10
|
.37(g)
|
|
Form of Non-Qualified Stock Option Agreement for
Mr. Arduini (Incorporated by reference to Exhibit 10.6
to the Companys Current Report on
Form 8-K
filed on October 12, 2010)*
|
|
10
|
.37(h)
|
|
Form of Restricted Stock Agreement for Mr. Henneman
(Incorporated by reference to Exhibit 10.7 to the
Companys Current Report on
Form 8-K
filed on October 12, 2010)*
|
|
10
|
.38
|
|
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
|
.39
|
|
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
|
.40
|
|
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
|
.41(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
|
.41(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
|
.42
|
|
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
|
.43
|
|
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
|
.44(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
|
.44(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
|
.44(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
|
.45
|
|
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
|
.46
|
|
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
|
.47
|
|
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
|
.48
|
|
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
|
.49
|
|
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
|
.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+
|
|
101
|
.INS
|
|
XBRL Instance Document+#
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document+#
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document+#
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Labels Linkbase Document+#
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document+#
|
|
|
|
|
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
+ |
|
Indicates this document is filed as an exhibit herewith. |
|
# |
|
The financial information of Integra LifeSciences Holdings
Corporation Annual Report on
Form 10-K
for the year ended December 31, 2010 filed on February 24,
2011 formatted in XBRL (Extensible Business Reporting Language):
(i) the Consolidated Statements of Operations,
(ii) the Consolidated Balance Sheets, (iii) the
Consolidated Statements of Cash Flows, (iv) the
Consolidated Statements of Changes in Stockholders Equity,
and (v) Notes to Consolidated Financial Statements, is
furnished electronically herewith as tagged blocks of text. |
The Companys Commission File Number for Reports on
Form 10-K,
Form 10-Q
and
Form 8-K
is 0-26224.