What changed in this filing

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Item 1. Financial Statements

2020-10-29 compared with 2020-08-10 · 253 added, 188 removed, 810 unchanged (35% of the section changed)

4 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenue, net

2 unchanged sentences

Research and development

In-process research and development

Selling, general and administrative

1 unchanged sentence

Total costs and expenses

Operating income

Operating income (loss)

Interest income

1 unchanged sentence

Other income, net

Income before income taxes

Income (loss) before income taxes

Provision (benefit) for income taxes

7 unchanged sentences

(In thousands, except per share amounts)

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Inventories, net

Assets held for sale

Prepaid expenses and other current assets

11 unchanged sentences

Accrued compensation

Liabilities held for sale

Accrued expenses and other current liabilities

15 unchanged sentences

240,000 authorized shares;

89,189 and 88,735 issued at June 30, 2020 and December 31, 2019, respectively

89,191 and 88,735 issued at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Treasury stock, at cost;

4,915 shares and 2,865 shares at June 30, 2020 and December 31, 2019, respectively

4,915 shares and 2,865 shares at September 30, 2020 and December 31, 2019, respectively

Accumulated other comprehensive loss

6 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

1 unchanged sentence

Depreciation and amortization

Non-cash in-process research and development expense

Non-cash impairment charges

Deferred income tax benefit

Income tax expense (benefit)

Share-based compensation

17 unchanged sentences

Proceeds from sale of property and equipment

Cash (paid) provided for business acquisitions, net of cash acquired

Acquired in-process research and development

Net cash used in investing activities

9 unchanged sentences

Cash taxes paid in net equity settlement

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

(In thousands)

Six Months Ended June 30, 2020

(In thousands, except per share amounts)

Nine Months Ended September 30, 2020

Treasury Stock

17 unchanged sentences

Balance, June 30, 2020

Six Months Ended June 30, 2019

Other comprehensive income, net of tax

Issuance of common stock for vesting of share based awards, net of shares withheld for taxes

Share-based compensation

Balance, September 30, 2020

Nine Months Ended September 30, 2019

Treasury Stock

13 unchanged sentences

Balance, June 30, 2019

Other comprehensive loss, net of tax

Issuance of common stock for vesting of share based awards, net of shares withheld for taxes

Share-based compensation

Balance, September 30, 2019

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

3 unchanged sentences

The terms “we,” “our,” “us,” “Company” and “Integra” refer to Integra LifeSciences Holdings Corporation, a Delaware corporation, and its subsidiaries unless the context suggests otherwise.

In the opinion of management, the June 30, 2020 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, statement of changes in shareholder's equity, results of operations and cash flows of the Company.

In the opinion of management, the September 30, 2020 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, statement of changes in shareholder's equity, results of operations and cash flows of the Company.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

1 unchanged sentence

The December 31, 2019 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

Operating results for the three and six month period ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire year.

Operating results for the three and nine month period ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire year.

The preparation of consolidated financial statements is in conformity with generally accepted accounting principles in the United States ("GAAP") which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses.

7 unchanged sentences

From late March, the Company's customers diverted resources to treat COVID-19 patients and deferred or canceled elective or non-emergent surgical procedures, all of which impacted hospitals' abilities to meet their obligations, including to the Company.

During the second quarter of 2020, procedural volumes relevant to the Company’s products began to steadily increase and, in some geographic areas, began to approach normalized levels.

However, on-going uncertainty persists about the continuing sustainability of those procedural volumes as virus outbreaks, especially in certain regions in the United States, constrain healthcare networks.

Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is likely that it could cause a local and/or global economic recession.

Beginning in May 2020 and through the end of the third quarter of 2020, procedural volumes relevant to the Company’s products steadily increased and, in some geographic areas, began to approach normalized levels.

However, on-going uncertainty persists about the continuing sustainability of those procedural volumes as virus outbreaks constrain healthcare networks.

Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession.

Such economic disruption has had an adverse effect on the Company's business as customers curtailed and reduced capital and overall spending.

3 unchanged sentences

The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers.

The Company has already implemented contingency plans in first half of 2020 in order to address the operational impact of the COVID-19 pandemic and the continuity of operations.

The COVID-19 pandemic continues to cause a financial strain on healthcare systems which varies by location, and as a result we do not expect the same level of spending in the fourth quarter that we experienced last year.

Even after the COVID-19 pandemic and government responses thereto have subsided, residual economic and other effects may have an impact on the demand for post-pandemic surgery levels that are difficult to predict.

20 unchanged sentences

Early adoption is permitted.

The adoption is not expected to have a material impact on on the Company's consolidated financial statements and related disclosures.

The adoption is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

11 unchanged sentences

Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively.

The Company is currently assessing the impact of this standard on the financial condition and results of operations.

The Company is currently assessing the impact of this standard on its financial condition and results of operations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform , which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

14 unchanged sentences

There are no other recently issued accounting pronouncements that are expected to have any significant effect on the Company's financial position, results of operations or cash flows.

ASSETS AND LIABILITIES HELD FOR SALE

On September 29, 2020, the Company and certain of its subsidiaries entered into an agreement to sell its Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $ 240 million in cash.

The transaction includes the sale of the Company’s upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines.

In connection with the transaction, the Company will pay $ 41.5 million to the Consortium of Focused Orthopedists, LLC (“CFO”) pursuant to the terms of certain agreements between Integra and CFO relating to the development of shoulder arthroplasty products.

The transaction is expected to close at or around the end of 2020, subject to the satisfaction of customary conditions, including regulatory approvals and consultation with employee representative bodies.

The Company considered the assets and liabilities associated with the Extremity Orthopedics business to be accounted as held-for-sale as the six criteria under ASC 260 were met during the third quarter of 2020.

Upon designation of the assets and liabilities as held for sale, the Company recorded the assets at the lower of their carrying value or their estimated fair value, less estimated costs to sell.

Goodwill was allocated to the assets and liabilities held for sale using the relative fair value method of the Extremity Orthopedics business to the Company's Orthopedics and Tissue Technologies reporting unit.

The fair value of the business less costs to sell exceeded the related carrying value.

The Extremity Orthopedics business was treated as a single disposal group and presented separately in the condensed consolidated balance sheet as assets and liabilities held for sale as of September 30, 2020 .

These balances are presented as current assets and liabilities as they are expected to be sold within twelve months.

The major classes of assets and liabilities classified as a held for sale consisted of the following as of September 30, 2020 (amounts in thousands):

Prepaid and other current assets

Deferred tax assets

Intangible assets

Property, plant and equipment, net

Total assets held for sale

Other liabilities

Current portion of lease liability - operating leases

Accrued compensation

Deferred tax liabilities

Lease liability - operating leases

Total liabilities held for sale

BUSINESS DEVELOPMENT

4 unchanged sentences

Arkis was a privately-held company that marketed the CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Assets Acquired and Liabilities Assumed at Fair Value

3 unchanged sentences

Final Valuation as of

June 30, 2020

September 30, 2019

Weighted Average Life

22 unchanged sentences

Contingent Consideration

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The Company determines the acquisition date fair value of contingent consideration obligations based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving contingent obligations.

3 unchanged sentences

Changes in the fair value of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations.

Adverse changes in assumptions utilized in the contingent consideration fair value estimates could result in an increase in the contingent consideration obligation and a corresponding charge to operating results.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

As part of the acquisition, the Company is required to pay the former shareholders of Arkis up to $ 25.5 million based on the timing of certain development milestones of $ 10.0 million and commercial sales milestones of $ 15.5 million, respectively.

1 unchanged sentence

The Company estimated the fair value of the contingent consideration to be $ 13.1 million at the acquisition date.

The estimated fair value as of June 30, 2020 was $ 13.5 million.

This amount is included in other liabilities at June 30, 2020 in the consolidated balance sheets of the Company.

The estimated fair value as of September 30, 2020 was $ 14.2 million.

This amount is included in other liabilities at September 30, 2020 in the consolidated balance sheets of the Company.

Deferred Tax Liabilities

6 unchanged sentences

The acquisition of Rebound was primarily concentrated in one single identifiable asset and thus, for accounting purposes, the Company has concluded that the acquired assets do not meet the accounting definition of a business.

The initial payment was allocated primarily to Aurora, resulting in a $ 59.9 million in-process research and development expense.

The initial payment was allocated primarily to Aurora, resulting in a $ 59.9 million in-process research and development (IPR&D) expense.

The balance of approximately $ 7.2 million, which included $ 2.1 million of cash and cash equivalents and a net deferred tax asset of $ 4.2 million, was allocated to the remaining net assets acquired.

1 unchanged sentence

During the fourth quarter of 2019, the Company achieved the first developmental milestone which triggered a $ 5.0 million obligation to be paid to former shareholders of Rebound.

The Company recorded $ 5.0 million as in-process research and development expense in the consolidated statements of operations during the year ended December 31, 2019.

The Company recorded $ 5.0 million as IPR&D expense in the consolidated statements of operations during the year ended December 31, 2019.

The obligation was included in accrued expenses and other current liabilities at December 31, 2019 in the consolidated balance sheets.

8 unchanged sentences

During the quarter ended March 31, 2019, the total upfront payment of $ 1.7 million was expensed as a component of research and development expense and the future milestone and option payments will be recorded if the corresponding events become probable.

In connection with the sale of the Company's Extremity Orthopedic business, the Company will pay $ 41.5 million to CFO pursuant to the terms of certain agreements between Integra and CFO relating to the sale of shares of ISC which includes the development of shoulder arthroplasty products effectively terminating our licensing agreement with ISC.

See Note 2, Assets and Liabilities Held for Sale, for details of the transaction.

REVENUES FROM CONTRACTS WITH CUSTOMERS

2 unchanged sentences

Total revenue, net, includes product sales, product royalties and other revenues, such as fees received for services.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

For products shipped with FOB shipping point terms, the control of the product passes to the customer at the time of shipment.

1 unchanged sentence

Certain products that the Company produces for private label customers have no alternative use and the Company has a right of payment for performance to date.

Revenues from those products are recognized over the period that the Company manufactures these products, which is typically one to three months .

Revenues from those products are recognized over the period

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

that the Company manufactures these products, which is typically one to three months .

The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company's performance obligation of transferring control of goods being manufactured for private label customers.

9 unchanged sentences

Significant Judgments

Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company's strategic partners.

The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information, and expected sales trends.

12 unchanged sentences

A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability.

The following table summarizes the changes in the contract asset and liability balances for the six months ended June 30, 2020:

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The following table summarizes the changes in the contract asset and liability balances for the nine months ended September 30, 2020 :

Contract Asset

3 unchanged sentences

Contract asset, net of transferred to trade receivables on contracts during the period

Contract asset, June 30, 2020

Contract asset, September 30, 2020

Contract Liability

1 unchanged sentence

Recognition of revenue included in beginning of year contract liability

Transfers from long-term to short-term

Contract liability, net of revenue recognized on contracts during the period

Foreign currency translation

Contract liability, June 30, 2020

At June 30, 2020 , the short-term portion of the contract liability of $ 4.7 million and the long-term portion of $ 6.6 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet.

As of June 30, 2020 , the Company is expected to recognize approximately 42 % of unsatisfied (or partially unsatisfied) performance obligations as revenue through 2020, with the remaining balance to be recognized in 2021 and thereafter.

Contract liability, September 30, 2020

At September 30, 2020 , the short-term portion of the contract liability of $ 4.9 million and the long-term portion of $ 6.5 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet.

As of September 30, 2020 , the Company is expected to recognize approximately 43 % of unsatisfied (or partially unsatisfied) performance obligations as revenue through 2020, with the remaining balance to be recognized in 2021 and thereafter.

Shipping and Handling Fees

10 unchanged sentences

The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Disaggregated Revenue

The following table presents revenues disaggregated by the major sources of revenues for the three and six months ended June 30, 2020 and 2019 (amounts in thousands):

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

The following table presents revenues disaggregated by the major sources of revenues for the three and nine months ended September 30, 2020 and 2019 (amounts in thousands):

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019

Total Codman Specialty Surgical

4 unchanged sentences

Total revenue

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Prior period amounts were reclassified between categories within the Codman Specialty Surgical segment to conform to the current period presentation.

1 unchanged sentence

Inventories, net consisted of the following:

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Raw materials

Transfer to assets held for sale (See Note 2.

Assets Held for Sale )

Total inventories

GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six -month period ended June 30, 2020 were as follows:

Changes in the carrying amount of goodwill for the nine -month period ended September 30, 2020 were as follows:

Codman Specialty

3 unchanged sentences

Goodwill at December 31, 2019

Transfer to assets held for sale (See Note 2.

Assets Held for Sale )

Foreign currency translation

Goodwill at June 30, 2020

Goodwill at September 30, 2020

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The components of the Company’s identifiable intangible assets were as follows:

June 30, 2020

September 30, 2020

(Dollars in thousands)

5 unchanged sentences

All other (1)

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Transfer to assets held for sale (See Note 2.

Assets Held for Sale )

December 31, 2019

6 unchanged sentences

All other (1)

At June 30, 2020 and December 31, 2019 , all other included IPR&D of $ 1.0 million, which was indefinite-lived.

At September 30, 2020 and December 31, 2019 , all other included IPR&D of $ 1.0 million, which was indefinite-lived.

At September 30, 2020, this IPR&D asset was presented separately as "assets held for sale" in conjunction with the sale of the Extremity Orthopedics business which is expected to be sold within twelve months.

See Note 2, Assets and Liabilities Held for Sale , for details.

Goodwill and Intangible Assets with Indefinite Lives

The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the third quarter in accordance with ASC Topic 350.

Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount.

The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test.

The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill.

The Company may elect to bypass this qualitative evaluation for some or all of its reporting units and perform a quantitative test.

During the third quarter of 2020, the Company began with the qualitative evaluation, which was sufficient to find no impairment.

For intangible assets with indefinite lives, the Company elected to bypass the qualitative evaluation for its Codman tradename intangible asset and perform a quantitative test during the third quarter 2020.

In performing this test, the Company utilized a discount rate of 11.5 % .

The assumptions used in evaluating the Codman tradename for impairment are subject to change and are tracked against historical results by management.

Based on the results of the quantitative test, the Company recorded no impairment to the Codman tradename intangible asset.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

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

Sixth Amended and Restated Senior Credit Agreement

Amendment to the Sixth Amended and Restated Senior Credit Agreement

On February 3, 2020, the Company entered into the sixth amendment and restatement (the "February 2020 Amendment") of its Senior Credit Facility (the "Senior Credit Facility") with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent.

2 unchanged sentences

(i) a $ 877.5 million Term Loan facility, and (ii) a $ 1.3 billion revolving credit facility, which includes a $ 60 million sublimit for the issuance of standby letters of credit and a $ 60 million sublimit for swingline loans.

In connection with the February 2020 Amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:

On July 14, 2020, the Company entered into an amendment (the "July 2020 Amendment") to the February 2020 Amendment of the Senior Credit Facility to increase financial flexibility in light of the unprecedented impact and uncertainty of the COVID-19 pandemic on the global economy.

The July 2020 amendment does not increase the Company’s total indebtedness.

In connection with the July 14, 2020 amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:

Fiscal Quarter

Maximum Consolidated Total Leverage Ratio

First fiscal quarter ending after the Closing Date through June 30, 2022

Execution of July 2020 Amendment through June 30, 2021

September 30, 2021 through June 30, 2022

September 30, 2022 through June 30, 2023

September 30, 2023 and the last day of each fiscal quarter thereafter

5 unchanged sentences

the one-month Eurodollar Rate plus 1.00 %

The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness as of such date less cash that is not subject to any restriction on the use or investment thereof (b) consolidated EBITDA as defined by the February 2020 amendment, for the period of four consecutive fiscal quarters ending on such date).

The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness as of such date less cash that is not subject to any restriction on the use or investment thereof to (b) consolidated EBITDA as defined by the July 2020 amendment, for the period of four consecutive fiscal quarters ending on such date).

The Company will pay an annual commitment fee (ranging from 0.15 % to 0.30 % ), based on the Company's consolidated total leverage ratio, on the amount available for borrowing under the revolving credit facility.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The July 2020 amendment does not increase the Company’s total indebtedness.

The July 2020 Amendment (i) temporarily increases the Company’s maximum consolidated total leverage ratio from 5.0 to 5.5 for the four financial quarters beginning July 1, 2020 and ending June 30, 2021, and (ii) temporarily establishes the applicable rate of 2.25 % in the event that the Company has a consolidated total leverage ratio in the range of 5.0 to 5.5 between July 1, 2020 and June 30, 2021, while the applicable rates remain unchanged when the Company’s consolidated total leverage ratio is less than 5.0 .

The Senior Credit Facility is collateralized by substantially all of the assets of the Company’s U.S.

subsidiaries, excluding intangible assets.

The Senior Credit Facility is subject to various financial and negative covenants and at June 30, 2020 , the Company was in compliance with all such covenants.

The Senior Credit Facility is subject to various financial and negative covenants and at September 30, 2020 , the Company was in compliance with all such covenants.

In connection with the February 2020 Amendment, the Company capitalized $ 4.6 million of financing costs in connection with modification of the Senior Credit Facility and wrote off $ 1.2 million of previously capitalized financing costs during the first quarter of 2020.

At June 30, 2020 and December 31, 2019 , there was $ 150.0 million and $ 375.0 million outstanding, respectively, under the revolving credit component of the Senior Credit Facility at weighted average interest rates of 1.6 % and 3.2 % , respectively.

At June 30, 2020 and December 31, 2019 , there was $ 877.5 million outstanding, respectively, under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 1.6 % and 3.2 % , respectively.

At June 30, 2020 , $ 11.3 million of the Term Loan component of the Senior Credit Facility is classified as current on the consolidated balance sheet as the first mandatory repayment is due June 30, 2021.

The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at June 30, 2020 were $ 139.3 million and $ 820.0 million , respectively.

In connection with the July 2020 amendment, the Company expensed $ 3.3 million of incremental financing costs in connection with the modification of the Senior Credit Facility during the third quarter of 2020.

At September 30, 2020 and December 31, 2019 , there was $ 97.5 million and $ 375.0 million outstanding, respectively, under the revolving credit component of the Senior Credit Facility at weighted average interest rates of 1.5 % and 3.2 % , respectively.

At September 30, 2020 and December 31, 2019 , there was $ 877.5 million outstanding, respectively, under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 1.5 % and 3.2 % , respectively.

At September 30, 2020 , $ 22.5

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

million of the Term Loan component of the Senior Credit Facility is classified as current on the consolidated balance sheet as the first mandatory repayment is due June 30, 2021.

The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at September 30, 2020 were $ 94.6 million and $ 853.7 million , respectively.

These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company.

1 unchanged sentence

Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities.

Letters of credit outstanding as of June 30, 2020 and December 31, 2019 totaled $ 0.8 million .

There were no amounts drawn as of June 30, 2020 .

Letters of credit outstanding as of September 30, 2020 and December 31, 2019 totaled $ 1.6 million and $ 0.8 million .

There were no amounts drawn as of September 30, 2020 .

Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:

Quarter Ended June 30, 2020

Quarter Ended September 30, 2020

Principal Repayment

3 unchanged sentences

Convertible Senior Notes

On February 4, 2020, the Company issued $ 575.0 million aggregate principal amount of its of 0.5 % Convertible Senior Notes due 2025 (the "2025 Notes").

On February 4, 2020, the Company issued $ 575.0 million aggregate principal amount of its 0.5 % Convertible Senior Notes due 2025 (the "2025 Notes").

The 2025 Notes will mature on August 15, 2025 and bear interest at a rate of 0.5 % per annum payable semi-annually in arrears, unless earlier converted, repurchased or redeemed in accordance with the terms of the Notes.

2 unchanged sentences

In connection with this offering, the Company capitalized $ 13.2 million of financing fees.

At June 30, 2020 , the carrying amount of the liability component was $ 477.2 million, the remaining unamortized discount was $ 97.8 million, and the principal amount outstanding was $ 575.0 million.

The fair value of the 2025 Notes at June 30, 2020 was $ 522.7 million .

At September 30, 2020 , the carrying amount of the liability component was $ 481.5 million, the remaining unamortized discount was $ 93.5 million, and the principal amount outstanding was $ 575.0 million.

The fair value of the 2025 Notes at September 30, 2020 was $ 541.8 million .

The 2025 Notes are senior, unsecured obligations of the Company, and are convertible into cash and shares of its common stock based on initial conversion rate, subject to adjustment of 13.5739 shares per $1,000 principal amounts of the 2025 Notes (which represents an initial conversion price of $ 73.67 per share).

1 unchanged sentence

(1) if the closing price of the Company's common stock has been at least 130 % of the conversion price during the period;

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

the average trading price per $1000 principal amount of the 2025 Notes is less than or equal to 98 % of the average conversion value of the 2025 Notes during a period as defined in the indenture;

(2) if the average trading price per $1000 principal amount of the 2025 Notes is less than or equal to 98 % of the average conversion value of the 2025 Notes during a period as defined in the indenture;

(3) at any time on or after February 20, 2023;

or (4) if specified corporate transactions occur.

As of June 30, 2020 , none of these conditions existed with respect to the 2025 Notes and as a result the 2025 Notes are classified as long term.

As of September 30, 2020 , none of these conditions existed with respect to the 2025 Notes and as a result the 2025 Notes are classified as long term.

Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes at 100 % of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the Notes).

4 unchanged sentences

The call transactions involved purchasing call options from the hedge participants, and the warrant transactions involved selling call options to the hedge participants with a higher strike price than the purchased call options.

The initial strike price of the call transactions was $ 73.67 , subject to anti-dilution adjustments substantially similar to those in the 2025 Notes.

The initial strike price of the call transactions was $ 73.67 , subject to anti-dilution adjustments substantially similar to those in the 2025

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The initial strike price of the warrant transactions was $ 113.34 for the 2025 Notes, subject to customary anti-dilution adjustments.

During the six months ended June 30, 2020 , the Company recognized cash interest related to the contractual interest coupon of $ 1.2 million and amortization of the discount on the liability component of $ 6.8 million for a total interest charge of $ 8.0 million on the 2025 Notes.

During the nine months ended September 30, 2020 , the Company recognized cash interest related to the contractual interest coupon of $ 1.9 million and amortization of the discount on the liability component of $ 11.1 million for a total interest charge of $ 13.0 million on the 2025 Notes.

Securitization Facility

6 unchanged sentences

An occurrence of an event of default or a termination event under this Securitization Agreement may give rise to the right of its counterparty to terminate this facility.

As of June 30, 2020 , the Company was in compliance with the covenants and none of the termination events had occurred.

At June 30, 2020 and December 31, 2019 , the Company had $ 68.7 million and $ 104.5 million , respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 1.7 % and 2.8 % , respectively.

The fair value of the outstanding borrowing of the Securitization Facility at June 30, 2020 was $ 68.5 million .

As of September 30, 2020 , the Company was in compliance with the covenants and none of the termination events had occurred.

At September 30, 2020 and December 31, 2019 , the Company had $ 92.3 million and $ 104.5 million , respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 1.4 % and 2.8 % , respectively.

The fair value of the outstanding borrowing of the Securitization Facility at September 30, 2020 was $ 92.8 million .

DERIVATIVE INSTRUMENTS

4 unchanged sentences

These interest rate swaps apply a fixed interest rate on a portion of the Company's expected LIBOR-indexed floating-rate borrowings.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The Company held the following interest rate swaps as of June 30, 2020 and December 31, 2019 (dollar amounts in thousands):

June 30, 2020

The Company held the following interest rate swaps as of September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

September 30, 2020

December 31, 2019

June 30, 2020

September 30, 2020

December 31, 2019

58 unchanged sentences

If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the remaining amount of any gain or loss on the related cash flow hedge recorded in AOCL to interest expense at that time.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Foreign Currency Hedging

13 unchanged sentences

The objective of these cross-currency swaps is to reduce volatility of earnings and cash flows associated with changes in the foreign currency exchange rate.

Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

interest payments in Swiss Francs and receive interest in U.S.

Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make interest payments in Swiss Francs and receive interest in U.S.

Upon the maturity of these contracts, the Company will pay the principal amount of the loans in Swiss Francs and receive U.S.

dollars from the counterparties.

The Company held the following cross-currency rate swaps as of June 30, 2020 and December 31, 2019 (dollar amounts in thousands):

June 30, 2020

The Company held the following cross-currency rate swaps as of September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

September 30, 2020

December 31, 2019

12 unchanged sentences

Receive U.S.$

On October 2, 2020 in accordance with the termination date, the Company settled a cross-currency swap designated as a cash flow hedge of an intercompany loan with an aggregate notional amount of $ 33.3 million .

The cross- currency swaps are carried on the consolidated balance sheet at fair value, and changes in the fair values are recorded as unrealized gains or losses in AOCL.

For the three and six months ended June 30, 2020 , the Company recorded losses of $ 3.4 million and $ 5.1 million , respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the gains recognized on the intercompany loans.

For the three and six months ended June 30, 2019 , the Company recorded losses of $ 5.1 million and $ 1.8 million , respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the gains recognized on the intercompany loans.

For the three and six months ended June 30, 2020 , the Company recorded a loss of $ 2.3 million and a gain of $ 3.6 million in AOCL, respectively, related to change in fair value of the cross-currency swaps.

For the three and six months ended June 30, 2019 , the Company recorded a loss of $ 1.7 million and a gain for $ 5.8 million in AOCL, respectively, related to change in fair value of the cross-currency swaps.

For the three and six months ended June 30, 2020 , the Company recorded gains of $ 1.5 million and $ 3.0 million , respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

For the three and six months ended June 30, 2019 , the Company recorded gains of $ 1.7 million and $ 3.7 million , respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

The estimated gain that is expected to be reclassified to other income (expense), net from AOCL as of June 30, 2020 within the next twelve months is $ 5.0 million .

As of June 30, 2020 , the Company does not expect any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

For the three and nine months ended September 30, 2020 , the Company recorded losses of $ 6.9 million and $ 12.0 million , respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the gains recognized on the intercompany loans.

For the three and nine months ended September 30, 2019 , the Company recorded gains of $ 5.7 million and $ 3.9 million , respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the losses recognized on the intercompany loans.

For the three and nine months ended September 30, 2020 , the Company recorded a loss of $ 6.3 million and a gain of $ 2.7 million in AOCL, respectively, related to change in fair value of the cross-currency swaps.

For the three and nine months ended September 30, 2019 , the Company recorded gains of $ 9.7 million and $ 15.4 million in AOCL, respectively, related to change in fair value of the cross-currency swaps.

For the three and nine months ended September 30, 2020 , the Company recorded gains of $ 1.5 million and $ 4.5 million , respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

For the three and nine months ended September 30, 2019 , the Company recorded gains of $ 1.8 million and

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

$ 5.5 million , respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

The estimated gain that is expected to be reclassified to other income (expense), net from AOCL as of September 30, 2020 within the next twelve months is $ 3.0 million .

As of September 30, 2020 , the Company does not expect any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction will not occur.

Net Investment Hedges

2 unchanged sentences

On October 1, 2018, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries.

The Company held the following cross-currency rate swaps designated as net investment hedges as of June 30, 2020 and December 31, 2019 , respectively (dollar amounts in thousands):

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

June 30, 2020

The Company held the following cross-currency rate swaps designated as net investment hedges as of September 30, 2020 and December 31, 2019 , respectively (dollar amounts in thousands):

September 30, 2020

December 31, 2019

18 unchanged sentences

The cross-currency swaps were carried on the consolidated balance sheet at fair value and changes in the fair values were recorded as unrealized gains or losses in AOCL.

For the three and six months ended June 30, 2020 , the Company recorded loss of $ 2.5 million and a gain of $ 16.4 million in AOCL related to the change in fair value of the cross-currency swaps.

For the three and six months ended June 30, 2019 , the Company recorded a loss of $ 0.8 million and a gain of $ 9.4 million in AOCL related to the change in fair value of the cross-currency swaps.

For the three and six months ended June 30, 2020 , the Company recorded gains of $ 2.2 million and $ 4.4 million in interest income included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

For the three and six months ended June 30, 2019 , the Company recorded gains of $ 2.4 million and $ 4.7 million , respectively, in interest income included in the consolidation statements of operations related to the interest rate differential of the cross-currency swaps.

The estimated gain that is expected to be reclassified to interest income from AOCL as of June 30, 2020 within the next twelve months is $ 8.2 million .

For the three and nine months ended September 30, 2020 , the Company recorded loss of $ 11.3 million and a gain of $ 5.1 million in AOCL related to the change in fair value of the cross-currency swaps.

For the three and nine months ended September 30, 2019 , the Company recorded gains of $ 17.1 million and $ 26.6 million in AOCL related to the change in fair value of the cross-currency swaps.

For the three and nine months ended September 30, 2020 , the Company recorded gains of $ 2.2 million and $ 6.6 million in interest income included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.

For the three and nine months ended September 30, 2019 , the Company recorded gains of $ 2.5 million and $ 7.2 million , respectively, in interest income included in the consolidation statements of operations related to the interest rate differential of the cross-currency swaps.

The estimated gain that is expected to be reclassified to interest income from AOCL as of September 30, 2020 within the next twelve months is $ 7.7 million .

Counterparty Credit Risk

2 unchanged sentences

Furthermore, none of the Company’s derivative transactions are subject to collateral or other security arrangements, and none contain provisions that depend upon the Company’s credit ratings from any credit rating agency.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Fair Value of Derivative Instruments

2 unchanged sentences

The Company performs ongoing assessments of counterparty credit risk.

The following table summarizes the fair value for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 :

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The following table summarizes the fair value for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 :

Fair Value as of

Location on Balance Sheet (1) :

June 30, 2020

September 30, 2020

December 31, 2019

7 unchanged sentences

Cross-currency swap

Cash Flow Hedges

Interest rate swap

Cross-currency swap

Net Investment Hedges

16 unchanged sentences

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

The following presents the effect of derivative instruments designated as cash flow hedges on the accompanying condensed consolidated statement of operations during the three and six months ended June 30, 2020 and 2019 :

Balance in AOCL

6 unchanged sentences

(In thousands)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Cash Flow Hedges

6 unchanged sentences

Interest income

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Cash Flow Hedges

14 unchanged sentences

(In thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Cash Flow Hedges

6 unchanged sentences

Interest income

Six months ended June 30, 2019

Nine months ended September 30, 2019

Cash Flow Hedges

7 unchanged sentences

STOCK-BASED COMPENSATION

As of June 30, 2020 , the Company had stock options, restricted stock awards, performance stock units, contract stock awards and restricted stock unit awards outstanding under two plans, the 2001 Equity Incentive Plan (the “2001 Plan”) and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, the “Plans”).

As of September 30, 2020 , the Company had stock options, restricted stock awards, performance stock units, contract stock awards and restricted stock unit awards outstanding under two plans, the 2001 Equity Incentive Plan (the “2001 Plan”) and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, the “Plans”).

Stock options issued under the Plans become exercisable over specified periods, generally within four years from the date of grant for officers and employees, and within one year from date of grant for directors and generally expire eight years from the grant

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

date for employees, and from six to ten years for directors and certain executive officers.

The Company values stock option grants using the binomial distribution model.

2 unchanged sentences

Stock Options

As of June 30, 2020 , there were approximately $ 6.9 million of total unrecognized compensation costs related to unvested stock options.

As of September 30, 2020 , there were approximately $ 6.0 million of total unrecognized compensation costs related to unvested stock options.

These costs are expected to be recognized over a weighted-average period of approximately three years .

There were 348,587 stock options granted during the six months ended June 30, 2020 .

For the six months ended June 30, 2020 , the weighted average grant date fair value for stock options was $ 13.03 per option.

There were 348,587 stock options granted during the nine months ended September 30, 2020 .

For the nine months ended September 30, 2020 , the weighted average grant date fair value for stock options was $ 13.03 per option.

Awards of Restricted Stock and Performance Stock

2 unchanged sentences

The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period.

As of June 30, 2020 , there was approximately $ 32.9 million of total unrecognized compensation costs related to these unvested awards.

As of September 30, 2020 , there was approximately $ 27.5 million of total unrecognized compensation costs related to these unvested awards.

The Company expects to recognize these costs over a weighted-average period of approximately two years .

The Company granted 312,323 restricted stock awards and 180,875 performance stock awards during the six months ended June 30, 2020 .

For the six months ended June 30, 2020 , the weighted average grant date fair value for restricted stock awards and performance stock units was $ 44.04 and $ 43.39 per award, respectively.

The Company has no formal policy related to the repurchase of stock for the purpose of satisfying stock-based compensation obligations.

The Company granted 322,485 restricted stock awards and 180,875 performance stock awards during the nine months ended September 30, 2020 .

For the nine months ended September 30, 2020 , the weighted average grant date fair value for restricted stock awards and performance stock units was $ 44.08 and $ 43.39 per award, respectively.

The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which provides eligible employees with the opportunity to acquire shares of common stock at periodic intervals by means of accumulated payroll deductions.

2 unchanged sentences

The Company maintains defined benefit pension plans that cover certain employees in France, Japan, Germany and Switzerland.

Net periodic benefit costs for the Company’s defined benefit pension plans for the three and six months ended June 30, 2020 were $ 1.0 million and $ 1.9 million, respectively.

The components of the net periodic benefit costs other than the service cost component of $ 0.9 million and $ 1.9 million for the three and six months ended June 30, 2020 , respectively, are included in other income (expense), net in the consolidated statements of operations.

Net periodic benefit costs for the Company’s defined benefit pension plans for the three and six months ended June 30, 2019 was $ 0.5 million and $ 1.0 million, respectively.

The components of the net periodic benefit costs other than the service cost component of $ 0.7 million and $ 1.3 million for the three and six months ended June 30, 2019 , respectively, are included in other income (expense), net in the consolidated statements of operations.

The estimated fair values of plan assets were $ 31.9 million and $ 30.8 million as of June 30, 2020 and December 31, 2019 , respectively.

The net plan assets of the pension plans are invested in common trusts as of June 30, 2020 and December 31, 2019 .

Net periodic benefit costs for the Company’s defined benefit pension plans for the three and nine months ended September 30, 2020 were $ 1.0 million and $ 3.0 million, respectively.

The components of the net periodic benefit costs other than the service cost component of $ 1.0 million and $ 2.9 million for the three and nine months ended September 30, 2020 , respectively, are included in other income (expense), net in the consolidated statements of operations.

Net periodic benefit costs for the Company’s defined benefit pension plans for the three and nine months ended September 30, 2019 was $ 1.0 million and $ 2.1 million, respectively.

The components of the net periodic benefit costs other than the service cost component of $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2019 , respectively, are included in other income (expense), net in the consolidated statements of operations.

The estimated fair values of plan assets were $ 33.2 million and $ 30.8 million as of September 30, 2020 and December 31, 2019 , respectively.

The net plan assets of the pension plans are invested in common trusts as of September 30, 2020 and December 31, 2019 .

Common trusts are classified as Level 2 in the fair value hierarchy.

9 unchanged sentences

Assets of the Company's deferred compensation plan are included in Other current assets and recorded at fair value based on their quoted market prices.

The fair value of these assets at June 30, 2020 was $ 1.5 million.

The fair value of these assets at September 30, 2020 was $ 1.7 million.

Offsetting liabilities relating to the deferred compensation plan are included in Other liabilities.

3 unchanged sentences

The Company leases administrative, manufacturing, research and distribution facilities and vehicles through operating lease agreements.

The Company has no finance leases as of June 30, 2020 .

The Company has no finance leases as of September 30, 2020 .

Many of the Company's leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area or other maintenance costs).

4 unchanged sentences

As most of the Company's leases do not provide an implicit rate, the Company uses a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Total operating lease expense for the six months ended June 30, 2020 and June 30, 2019 , was $ 9.7 million and $ 9.0 million respectively, which includes $ 0.1 million , in related party operating lease expense.

Supplemental balance sheet information related to operating leases at June 30, 2020 were as follows:

June 30, 2020

Total operating lease expense for the nine months ended September 30, 2020 and September 30, 2019 , was $ 14.6 million and $ 14.2 million respectively, which includes $ 0.2 million , in related party operating lease expense.

Supplemental balance sheet information related to operating leases at September 30, 2020 were as follows:

September 30, 2020

(In thousands, except lease term and discount rate)

5 unchanged sentences

Leased vehicles

Supplemental cash flow information related to leases for the six months ended June 30, 2020 and six months ended June 30, 2019 were as follows:

June 30, 2020

June 30, 2019

Supplemental cash flow information related to leases for the nine months ended September 30, 2020 and September 30, 2019 were as follows:

September 30, 2020

September 30, 2019

(In thousands)

6 unchanged sentences

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

Future minimum lease payments under operating leases at June 30, 2020 were as follows:

Future minimum lease payments under operating leases at September 30, 2020 were as follows:

Related Parties

11 unchanged sentences

TREASURY STOCK

As of June 30, 2020 and December 31, 2019 , there were 4.9 million and 2.9 million shares of treasury stock outstanding with a cost of $ 235.2 million and $ 119.9 million, at a weighted average cost per share of $ 47.86 and $ 41.87 , respectively.

As of September 30, 2020 and December 31, 2019 , there were 4.9 million and 2.9 million shares of treasury stock outstanding with a cost of $ 235.2 million and $ 119.9 million, at a weighted average cost per share of $ 47.86 and $ 41.87 , respectively.

On December 11, 2018, the board of directors of the Company (the “Board”) authorized the Company to repurchase up to $ 225.0 million of the Company’s common stock.

1 unchanged sentence

The repurchase authorization expires in December 2020.

During the six months ended June 30, 2020 , the Company repurchased 1.9 million shares of Integra’s common stock as part of our existing share repurchase authorization.

During the nine months ended September 30, 2020 , the Company repurchased 2.1 million shares of Integra’s common stock as part of the existing share repurchase authorization.

The Company utilized $ 100.0 million of net proceeds from the offering of the Convertible Senior Notes to execute the share repurchase transactions.

6 unchanged sentences

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

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The following table provides a summary of the Company's effective tax rate:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Reported tax rate

The Company’s effective income tax rates for the three months ended June 30, 2020 and 2019 were 122.4 % and 18.3 % , respectively.

For the three months ended June 30, 2020 , the primary driver of the higher tax rate is lower income for the quarter in relation to the updated full year income projection, as impacted by the COVID-19 pandemic.

The Company's effective income tax rates for the six months ended June 30, 2020 and 2019 were 32.7 % and ( 2.1 )% , respectively.

For the six months ended June 30, 2020, the primary drivers of the higher tax rate were lower book income in lower-taxed jurisdictions and a $ 3.4 million valuation allowance on certain foreign deferred tax assets as the Company determined that it is no longer more likely than not that these foreign deferred tax assets would be realized due to the adverse impact of the COVID-19 pandemic in certain jurisdictions.

For the six months ended June 30, 2019, the primary driver of the lower tax rate was a tax benefit of $ 10.8 million ( $ 0.13 per share) related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 30, 2019.

The Company received a Switzerland federal tax benefit of $ 12.0 million CHF, which can be used over a seven-year period, ending in 2024.

As of June 30, 2020 , the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed indefinitely reinvested.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The Company’s effective income tax rates for the three months ended September 30, 2020 and 2019 were 22.1 % and ( 0.4 )% , respectively.

For the three months ended September 30, 2020 , the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $ 4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business, offset by a $ 3.2 million benefit from the reversal of the French valuation allowance.

For the three months ended September 30, 2019 , the rate was primarily driven by the impact of the Rebound transaction, which resulted in a $ 59.9 million IPR&D expense.

This amount was not deductible for tax purposes.

The Company's effective income tax rates for the nine months ended September 30, 2020 and September 30, 2019 were 24.6 % and ( 3.5 )% , respectively.

For the nine months ended September 30, 2020 , the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $ 4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business.

For the nine months ended September 30, 2019 , the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $ 59.9 million IPR&D expense.

This amount is not deductible for tax purposes.

This was offset by a tax benefit of $ 10.8 million related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 31, 2019.

The Company received a federal tax credit in Switzerland of 12 million CHF, which may be used over a seven year period, ending in 2024.

As of September 30, 2020 , the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed indefinitely reinvested.

Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed.

As such, the Company has determined the tax impact of repatriating these earnings would not be material as of June 30, 2020 .

As such, the Company has determined the tax impact of repatriating these earnings would not be material as of September 30, 2020 .

The Company does not anticipate the need to repatriate earnings from foreign subsidiaries as a result of the impact of the COVID-19 pandemic.

On March 27, 2020, the Coronavirus Aid Relief, and Economic Security Act (CARES Act) was signed into law.

The CARES Act includes certain income tax provisions for corporations and individuals, among other provisions.

The Company does not expect the CARES Act to have a significant impact on the tax provision for income.

The Company continues to monitor the issuance of new legislation, regulations, or case law that may impact federal, state, and international tax positions.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

The CARES Act included certain income tax provisions for corporations and individuals, among other provisions.

The Company does not expect the CARES Act provisions to have a significant impact on the Company's income taxes.

The Company continues to monitor the issuance of new legislation, regulations, and case law that may impact federal, state, and international tax positions.

NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except per share amounts)

11 unchanged sentences

Diluted net income (loss) per common share

Common stock of approximately 0.5 million and 0.1 million shares at June 30, 2020 , and 2019 , respectively that are issuable through exercise of dilutive securities were not included in the computation of diluted net income (loss) per share because their effect would have been anti-dilutive.

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

Common stock of approximately 0.3 million and 0.6 million shares at September 30, 2020 , and 2019 , respectively that are issuable through exercise of dilutive securities were not included in the computation of diluted net income (loss) per share because their effect would have been anti-dilutive.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

5 unchanged sentences

Comprehensive income (loss), net

Changes in accumulated other comprehensive loss by component between December 31, 2019 and June 30, 2020 are presented in the table below, net of tax:

Changes in accumulated other comprehensive loss by component between December 31, 2019 and September 30, 2020 are presented in the table below, net of tax:

Gains and Losses on Derivatives

6 unchanged sentences

Net current-period other comprehensive income (loss)

Balance at June 30, 2020

For the six months ended June 30, 2020 , the Company reclassified a loss of $ 1.6 million from accumulated other comprehensive loss to other income (expense), net and $ 0.2 million from interest income.

Balance at September 30, 2020

For the nine months ended September 30, 2020 , the Company reclassified a loss of $ 5.7 million and $ 2.9 million from accumulated other comprehensive loss to other income (expense), net and interest income, respectively.

SEGMENT AND GEOGRAPHIC INFORMATION

5 unchanged sentences

The operating results of the various reportable segments as presented are not comparable to one another because (i) certain operating segments are more dependent than others on corporate functions for unallocated general and administrative and/or operational manufacturing functions and (ii) the Company does not allocate certain manufacturing costs and general and administrative costs to the operating segment results.

Net sales and profit by each reportable segment for the three and six months ended June 30, 2020 and 2019 are as follows:

Net sales and profit by each reportable segment for the three and nine months ended September 30, 2020 and 2019 are as follows:

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

14 unchanged sentences

Total revenue by major geographic area consisted of the following:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

12 unchanged sentences

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.

Contingent Consideration

The Company determined the fair value of contingent consideration during the six -month period ended June 30, 2020 and June 30, 2019 to reflect the change in estimates, additions, payments, transfers and the time value of money during the period.

A reconciliation of the opening balances to the closing balances of these Level 3 measurements for the six months ended June 30, 2020 and June 30, 2019 is as follows (in thousands):

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

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

Six Months Ended June 30, 2020

Contingent Consideration

The Company determined the fair value of contingent consideration during the nine month period ended September 30, 2020 and September 30, 2019 to reflect the change in estimates, additions, payments, transfers and the time value of money during the period.

A reconciliation of the opening balances to the closing balances of these Level 3 measurements for the nine months ended September 30, 2020 and September 30, 2019 is as follows (in thousands):

Nine Months Ended September 30, 2020

Contingent Consideration Liability Related to Acquisition of Arkis (See Note 3)

5 unchanged sentences

Research and development

Balance as of June 30, 2020

Six Months Ended June 30, 2019

Balance as of September 30, 2020

Nine Months Ended September 30, 2019

Contingent Consideration Liability Related to Acquisition of Arkis (See Note 3)

Contingent Consideration

Liability Related to Acquisition of Derma Sciences

Location in Financial Statements

Balance as of January 1, 2019

Loss from change in fair value of contingent consideration liabilities

Balance as of June 30, 2019

Additions from acquisition of Arkis

Balance as of September 30, 2019

Derma Sciences

5 unchanged sentences

The potential maximum undiscounted payment amounts to $ 3.0 million .

The estimated fair value as of June 30, 2020 and June 30, 2019 was $ 0.2 million .

The estimated fair value as of September 30, 2020 and September 30, 2019 was $ 0.2 million .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements