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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-21 · 288 added, 293 removed, 279 unchanged (68% of the section changed)

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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.”

The comparison of fiscal 2019 to 2018 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 31, 2019—“Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” filed on February 21, 2020.

We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).

These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters.

These forward-looking statements include, but are not limited to, statements related to the Company's expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations.

statements should, therefore, be considered in light of various important factors, including, but not limited to, the following:

The Company's ability to obtain accurate procedure volume in the midst of the COVID-19 pandemic;

the risk that the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures;

curtailed or delayed capital spending by the Company's customers;

disruption to the Company's supply chain;

closures of our facilities;

delays in gathering clinical evidence;

diversion of management and other resources to respond to the COVID-19 outbreak;

the impact of global and regional economic and credit market conditions on healthcare spending;

the risk that the COVID-19 virus or its variants disrupt local economies and causes economies in our key markets to enter prolonged recessions.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the heading “Risk Factors.”

Integra, headquartered in Princeton, New Jersey, is a world leader in medical technology.

The Company was founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue.

Since then, Integra has developed numerous product lines from this technology for applications ranging from burn and deep tissue wounds, to the repair of dura mater in the brain, and repair of nerves and tendons.

The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products, advanced wound care, collagen matrix products for hernia and plastic & reconstructive surgery, and orthopedic hardware, through a combination of several global acquisitions and development of products internally to further meet the needs of its customers and impact patient care.

We manufacture and sell our products in two reportable business segments:

The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products, advanced wound care, and orthopedic hardware through a combination of several global acquisitions and development of products internally to further meet the needs of its customers and impact patient care.

Integra now manufactures and sells our products in two reportable business segments:

Codman Specialty Surgical and Orthopedics and Tissue Technologies.

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This segment includes products and solutions for dural access and repair, precision tools and instruments, advanced energy, cerebral spinal fluid ("CSF") management and neuro monitoring including market leading product portfolios used in neurosurgery operation suites and critical care units.

Our Orthopedics and Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, surgical reconstruction, and small bone fixation and joint replacement hardware products for both upper extremities and lower extremities.

This business also includes private label sales of a broad set of our regenerative and wound care medical technologies.

We have key manufacturing and research facilities located in California, New Jersey, Ohio, Massachusetts, Tennessee, Texas, Canada, France, Germany, Ireland, Switzerland, and Puerto Rico.

We also source most of our handheld surgical instruments, specialty metal and pyrocarbon implants, and dural sealant products through specialized third-party vendors.

Codman Specialty Surgical products are sold through a combination of directly employed sales representatives, distributors and wholesalers, depending on the customer call point.

Orthopedics and Tissue Technologies products are sold through directly employed sales representatives, distributors focused on their respective surgical specialties, and strategic partners.

This business also includes private label sales of a broad set of our regenerative and wound care medicine technologies.

Orthopedics and Tissue Technologies products are sold through directly employed sales representatives and distributors focused on their respective surgical specialties, and strategic partners.

In January 2021, we completed the sale of our Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $240 million in cash.

This transaction enables us to increase our investments in our business which will strengthen our existing leadership positions in both areas, fund pipeline opportunities to drive future growth and expand our addressable markets.

See Note 18, Subsequent Events , for details.

We have key manufacturing and research facilities located in California, Massachusetts, New Jersey, Ohio, Tennessee, Canada, France, Germany, Ireland, Puerto Rico a nd Switzerland.

We also source most of our handheld surgical instruments, specialty metal and pyrocarbon implants, and dural sealant products through specialized third-party vendors.

Integra is committed to delivering high quality products that positively impact the lives of millions of patients and their families.

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Strategic Acquisitions .

An important part of our strategy is pursuing strategic transactions and licensing agreements that increase relevant scale in the clinical areas in which Integra competes.

In 2019, we closed out of 45 transition service agreements, covering 90 countries, marking the successful completion of the integration of the Codman Neurosurgery acquisition, the most significant acquisition in the Company’s history.

This acquisition expanded our portfolio of neurosurgery products and established us as the world leader in neurosurgery.

It has also enabled us to bring our entire product portfolio to a global market.

In 2019, we acquired Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation, both of which align with Company’s strategy to acquire and develop innovative technologies that address unmet needs.

An important part of the Company's strategy is pursuing strategic transactions and licensing agreements that increase relevant scale in the clinical areas in which Integra competes.

In December 2020, Integra entered into a merger agreement to acquire ACell, Inc., an innovative regenerative medicine company.

This acquisition, which closed on January 20, 2021, expands our product offering of regenerative technology and is complementary to Integra’s existing tissue technologies portfolio.

The acquisition also supports our long-term growth and profitability strategy with a financial profile similar to Integra’s tissue products.

In 2020, we continued to invest in our two most recent acquisitions from 2019, Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation, both of which are developing innovative technologies for neurosurgery.

Portfolio Optimization and New Product Introductions .

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Our product development efforts span across our key global franchises focused on potential for significant returns on investment.

In 2019, we launched ten new products across our key product franchises.

In February 2020, we launched the AmnioExcel® Plus Placental Allograft Membrane, the next generation wound care offering to support soft tissue repair.

Throughout 2020, we continue to reap the benefits of many of our ten new products launches from 2019.

In addition to new product development, we are funding studies to gather clinical evidence to support launches, ensure market access and improve reimbursement for existing products.

In 2019, we discontinued certain low-growth, low margin products.

We continue to identify ways of optimizing our portfolio including identifying low-growth, low-margin products and product franchises for discontinuation.

In January 2021, we completed the sale of our Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $240 million in cash.

This transaction enables us to increase our investments in our core Neurosurgery and Tissue Technology businesses which will strengthen our existing leadership positions in both areas, fund pipeline opportunities to drive future growth and expand our addressable markets.

See Note 3, Assets and Liabilities Held for Sale , for details.

Commercial Channel Investments .

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We now have a strong international sales channel that will deliver our current portfolio as well as position us for expansion.

In addition, we continue to build upon our leadership brands across our product franchises to enable us to engage hospital systems through enterprise-wide contracts.

In addition, we continue to build upon our leadership brands across our product franchises to enable us to engage customers through enterprise-wide contracts.

Customer Experience .

We aspire to be ranked as a best-in-class provider and are committed to strengthen our relationships with all customers.

We strive to consistently deliver outstanding customer service and continue to invest in technologies, systems

and processes to improve the way our customers do business with us.

We strive to consistently deliver outstanding customer service and continue to invest in technologies, systems and processes to improve the way our customers do business with us.

Additionally, we expect to build on the success of our professional education programs to drive continued customer familiarity with our growing portfolio of medical technologies globally.

Equity Offering

In May 2018, the Company commenced and closed on a public offering of common stock.

The Company issued 6.0 million shares of common stock and received total proceeds, net of underwriting fees and offering expenses of approximately $349.6 million.

The net proceeds from the offering were used to reduce outstanding borrowings under the revolving credit portion of the Company's Senior Credit Facility.

Clinical and Product Development Activities

We continue to invest in collecting clinical evidence to support our existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions.

Within the Codman Speciality Surgical segment, we launched our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas™ Plus Programmable Valve along with additional shunt configurations.

We launched DuraGen® in Japan.

DuraGen is the first and only non-autologous collagen xenograft approved for use as a dural substitute in Japan.

We are focused on the development of core clinical applications in our our electromechanical technologies portfolio.

Also during 2019, we updated our CUSA Clarity platform to incorporate new ultrasonic tips and integrated electrosurgical capabilities.We continue to work with several instrument partners to bring new surgical instrument patterns to the market.

We continue to invest in collecting clinical evidence to support the Company's existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions.

In each area, we continue to benefit from products launched over the past two years.

Within our Codman Specialty Surgical segment, the Company received FDA clearance in July 2020 to treat malignant and benign tumors, but not limited to meningiomas and gliomas, for its CUSA® Clarity Ultrasonic Surgical Aspirator System, the first and only ultrasonic tissue ablation system with this specific indication.

The FDA clearance is based on a wealth of peer-reviewed clinical publications and 40 years of surgical cases involving resection of brain and spinal tumors.

Additionally, the Company continued to reap the benefits of our product launches from the prior year from the Codman Specialty Surgical segment, including our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas™ Plus Programmable Valve along with additional shunt configurations.

In Japan, we are experiencing strong growth as a result of the successful launch of DuraGen® last year, which is the first and only collagen xenograft approved for use as a dural substitute in the country.

We are focused on the development of core clinical applications in our

electromechanical technologies portfolio.

Also, we updated our CUSA Clarity platform to incorporate a new ultrasonic handpiece, surgical tips and integrated electrosurgical capabilities.

We continue to work with several instrument partners to bring new surgical instrument platforms to the market.

This enables us to add new instruments with minimal expense and invest in ongoing development, such as our next generation of LED technology with our DUO LED Surgical Headlight System.

Within our Orthopedic and Tissue Technolgies segment, we launched the Panta® II TTC Arthrodesis Nail System in the U.S.

The Panta II system is our new fusion nail used in ankle fixation.

Throughout the year, we also continued to advance the early-stage technology platforms we acquired in 2019.

Through the Arkis Biosciences acquisition, we added a platform technology, CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

The CerebroFlo EVD Catheter has demonstrated an average of 99% less thrombus accumulation onto its surface, in vitro, compared to a market leading EVD catheter.

We also acquired a company, Rebound Therapeutics, that specialized in single-use medical devices that enable minimally invasive access with enhanced lighting and visualization to the neurosurgery suite.

Importantly, these new platforms provide us with the opportunity to expand into new, faster growth therapeutic areas, such as intracerebral hemorrhage and minimally invasive neurosurgery.

Within our Orthopedics and Tissue Technologies segment, in February 2020, we launched AmnioExcel® Plus Placental Allograft Membrane, a human placental tissue product for treatment of wounds.

We also launched a small post baseplate in our reverse shoulder system that accommodates smaller patients.

We initiated the limited market release of enhancements to our Salto Talaris® Total Ankle System.

We continue to work on advanced shoulder products and are developing a pyrocarbon shoulder hemiarthroplasty product to add to our orthopedic reconstruction portfolio.

FDA Untitled Letter

On June 22, 2015, the FDA issued an Untitled Letter (the "Untitled Letter") alleging that BioD LLC's ("BioD") morselized amniotic membrane tissue based products do not meet the criteria for regulation as HCT/Ps solely under Section 361 of the Public Health Services Act ("Section 361") and that, as a result, BioD would need a biologics license to lawfully market those morselized products.

Since the issuance of the Untitled Letter, BioD and more recently the Company have been in discussions with the FDA to communicate their disagreement with the FDA’s assertion that certain products are more than minimally manipulated.

The FDA has not changed its position that certain of the BioD acquired products are not eligible for marketing solely under Section 361.

In November 2017, the FDA issued the final guidance document related to human tissue titled, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products:

Minimal Manipulation and Homologous Use” (the “HCT/P Final Guidance”).

The HCT/P Final Guidance maintains the FDA’s position that products such as the Company’s morselized amniotic membrane tissue-based products do not meet the criteria for regulation solely as HCT/Ps.

In addition, the FDA articulated a risk-based approach to enforcement and, while some uses for amniotic membrane tissue-based products would have as much as thirty-six months of enforcement discretion, other high risk uses could be subject to immediate enforcement action.

The Company does not believe the uses for its amniotic membrane tissue-based products fall into the high-risk category.

As of February 21, 2020 the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic tissue-based products.

Nonetheless, we can make no assurances that the FDA will continue to exercise its enforcement discretion with respect to the Company’s morselized amniotic membrane tissue-based products, and any potential action of the FDA could have a financial impact regarding the sales of such products.

The Company has been considering and continues to consider regulatory approval pathways for its morselized amniotic membrane tissue-based products.

Revenues from BioD morselized amniotic material-based products for the year ended December 31, 2019 were less than 1.0% of consolidated revenues.

In addition, we initiated the limited market release of enhancements to our Salto Talaris® Total Ankle System.

In May 2020, the Company announced positive clinical and economic data on Integra® Bilayer Wound Matrix ("IBWM") in complex lower extremity reconstruction based on two retrospective studies recently published in Plastic and Reconstructive Surgery, the official journal of the American Society of Plastic Surgeons.

As surgeons looks for ways to efficiently and effectively repair and close wounds during these challenging times, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.

COVID-19 Pandemic

During this global crisis, the Company's focus remains on supporting patients, providing customers with life-saving products, and protecting the well-being of our employees.

The rapid and evolving spread of the virus has resulted in an unprecedented challenge to the global healthcare industry, as medical resources were reallocated to fight COVID-19.

During the first half of 2020, in response to the pandemic, we acted swiftly by implementing protocols to ensure continuity of our manufacturing and distribution sites around the world and to provide for the safety of our employees.

We continued to invest in our key research, development and clinical programs but also implemented cost-savings measures, which included the following:

• Reduced executive management compensation through July 2020 and director compensation;

• Reduced cash compensation for all other employees through reduced commissions, reduction in hours through July 2020 and/or furloughs;

• Hiring freeze, elimination of overtime, reduction in certain employee benefit costs, cessation of third-party services and temporary contractor relationships;

• Significant reduction in capital expenditures and discretionary spending including travel, events and marketing programs.

As the recovery began to take hold, we saw the benefit of our balanced pandemic response.

In the second half of 2020, while continuing to methodically manage expenses, the Company restored employee wages, hired key positions and allocated additional funds toward growth and productivity projects.

We remain confident that the underlying markets in which the Company competes remain attractive over the long term.

We also remain focused on managing the business for the long-term, including preserving full time jobs needed to support the rebound in surgical procedure volumes.

The Company's adaptability and resiliency in the face of this unprecedented crisis is made possible in part by prior investments in technology infrastructure and operations, as well as our talented and committed global workforce.

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

Any such economic recession could have a material adverse effect on the Company's long-term business as hospitals curtail and reduce capital as well as overall spending.

The COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on travel and access to our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could further significantly impact our sales and our ability to ship our products and supply our customers.

Any of these events could negatively impact the number of surgical and medical intervention procedures performed and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Information pertaining to additional risk factors as it relates to the COVID-19 pandemic can be found in Item 1A.

Risk Factors.

We manufacture and distribute products derived from human tissue for which FDA has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps.

An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient.

Refer to Item 1.

Business and Item 1A.

Risk Factors for further details around these FDA regulations and their potential effect on the Company's portfolio of morselized amniotic material-based products as well as the impact on consolidated revenues.

On March 7, 2019, TEI Biosciences, Inc.

a subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the United States Food and Drug Administration (the “FDA”).

a subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the FDA.

The warning letter relates to quality systems issues at our manufacturing facility located in Boston, Massachusetts.

The letter resulted from an inspection held at that facility in October and November 2018 and did not identify any new observations that were not already provided in the Form 483 that followed the inspection.

The Company has provided detailed responses to the FDA as to its corrective actions on a monthly basis and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so.

The Company submitted its initial response to the FDA Warning Letter on March 28, 2019 and provides regular progress reports to the FDA as to its corrective actions and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so.

The warning letter does not restrict the Company’s ability to manufacture or ship products or require the recall of any products.

Nor does it restrict our ability to seek FDA 510(k) clearance of products.

The letter states that requests

for Certificates to Foreign Governments will not be granted until the violations have been corrected.

The letter states that requests for Certificates to Foreign Governments would not be granted.

However, due to our progress reports, the FDA agreed to resume issuing Certificates to Foreign Governments to TEI due to substantial progress and the length of time it takes to resolve the Warning Letter.

Additionally, premarket approval applications for Class III devices to which the Quality System regulation violations are reasonably related will not be approved until the violations have been corrected.

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The Company does not expect to incur material incremental expense for remediation activities.

The company submitted its initial response to the FDA Warning Letter on March 28, 2019 and provides regular progress reports to the FDA.

We cannot, however, give any assurances that the FDA will be satisfied with our response to the letter or as to the expected date of the resolution of the matters included in the letter.

We cannot, however, give any assurances that the FDA will be satisfied with our response to the Warning Letter or as to the expected date of the resolution of the matters included in the letter.

Until the issues cited in the letter are resolved to the FDA’s satisfaction, the FDA may initiate additional regulatory action without further notice.

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ACQUISITIONS & DIVESTITURES

Our growth strategy includes the acquisition of businesses, assets or products lines to increase the breadth of our offerings and reach of our product portfolios and drive relevant scale to our customers.

As a result of several recent acquisitions, our financial results for the year ended December 31, 2019 may not be directly comparable to those of the corresponding prior-year periods.

See Note 4 - Acquisitions and Pro Forma Results, to our consolidated financial statements for a further discussion.

On January 4, 2021, upon the terms and conditions set forth in the Divestiture agreement (see Note 3, Assets and Liabilities Held for Sale), the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited.

The Company received an aggregate purchase price of $240.0 million from Smith and Nephew and concurrently paid $41.5 million to CFO effectively terminating our licensing agreement (see Note 5, Acquisitions) .

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

Our growth strategy includes the acquisition of businesses, assets or products lines to increase the breadth of our offerings and the reach of our product portfolios and drive relevant scale to our customers.

As a result of several acquisitions throughout 2019, our financial results for the year ended December 31, 2020 may not be directly comparable to those of the corresponding prior-year periods.

See Note 5 - Acquisitions and Note 18- Subsequent Events, to our consolidated financial statements for a further discussion.

On January 20, 2021, the Company acquired ACell Inc.

for an acquisition purchase price of $300 million.

Under the terms of the definitive merger agreement, the Company paid the consideration for the merger as an upfront cash payment subject to a customary post-closing adjustment for certain working capital.

The Company is also required to pay the former shareholders of ACell Inc.

up to $100 million based upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.

Arkis BioSciences Inc.

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("Arkis") for an acquisition purchase price of $30.6 million (the "Arkis Acquisition") plus contingent consideration of up to $25.5 million, that may be payable based on the successful completion of certain development and commercial milestones.

The contingent consideration had an acquisition date fair value of $13.1 million.

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 December 31, 2020 was $15.1 million.

This amount is included in other liabilities at December 31, 2019 in the consolidated balance sheets of the Company.

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 clotting.

The Company recorded $3.4 million in accrued expenses and other current liabilities and $11.7 million in other liabilities at December 31, 2020 in the consolidated balance sheets of the Company.

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 clotting.

Rebound Therapeutics Corporation

On September 9, 2019, the Company acquired Rebound Therapeutics Corporation (“Rebound”), developers of a single-use medical device known as the AURORA Surgiscope® System ("Aurora") which enables minimally invasive access, using optics and illumination, for visualization, diagnostic and therapeutic use in neurosurgery (the “Rebound transaction”).

The transaction was accounted for as an asset acquisition as the Company concluded that it acquired primarily one asset.

On September 9, 2019, the Company acquired Rebound Therapeutics Corporation (“Rebound”), developers of a single-use medical device known as the Aurora which enables minimally invasive access, using optics and illumination, for visualization, diagnostic and therapeutic use in neurosurgery (the “Rebound transaction”).

Under the terms of the Rebound transaction, the Company made an upfront payment of $67.1 million and committed to pay up to $35.0 million of contingent development milestones upon achievement of certain regulatory milestones.

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

The Company recorded the $5.0 million as an additional in-process research and development expense which was included in accrued liabilities at December 31, 2019.

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

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

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

The deferred tax asset primarily resulted from a federal net operating loss carryforward.

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

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

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

The milestone was paid during the first quarter of 2020.

During the fourth quarter of 2020, the Company achieved another developmental milestone which triggered a $20.0 million obligation to be paid to the former shareholders of Rebound.

The milestone was paid during the fourth quarter of 2020.

Integrated Shoulder Collaboration, Inc.

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A patent related to short stem and stemless shoulder systems was issued to ISC during the first quarter of 2019.

ISC is eligible to receive royalties on sales of the short stem and stemless shoulder system upon commercialization.

The Company has the option to acquire ISC at a date four years subsequent to the first commercial sale, which becomes mandatory upon the achievement of a certain sales thresholds of the short stem and stemless shoulder system, for an amount not to exceed $80.0 million.

ISC is eligible to receive royalties on sales of the short stem and stemless shoulder system.

The Company has the option to acquire ISC at a date four years subsequent to the first commercial sale, which becomes mandatory upon the achievement of a certain sales threshold of the short stem and stemless shoulder system, for an amount not to exceed $80.0 million.

The transaction was accounted for as an asset acquisition as the Company concluded that it acquired primarily one asset.

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.

Johnson & Johnson's Codman Neurosurgery Business

On May 11, 2017, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with DePuy Synthes, Inc., a Delaware corporation (“DePuy Synthes”), a wholly-owned subsidiary of Johnson & Johnson, pursuant to which the Company agreed to acquire certain assets, and assume certain liabilities, of Johnson & Johnson’s Codman neurosurgery business (the “Codman

Acquisition”).

The assets and liabilities subject to the Codman Acquisition relate to the research, development, manufacturing, marketing, distribution and sale of certain products used in connection with neurosurgery procedures.

On October 2, 2017, based upon the terms and subject to the conditions set forth in the Purchase Agreement, the Codman Acquisition was completed.

Under the terms of the Purchase Agreement, the Company paid an aggregate purchase price of $1.014 billion, subject to adjustments set forth in the Purchase Agreement relating to the book value of inventory transferred to us at the closing of the Codman Acquisition, the book value of certain inventory retained by DePuy Synthes that will be transferred to the Company in the future along with certain prepaid taxes.

Derma Sciences

On February 24, 2017, the Company executed the Agreement and Plan of Merger (the "Merger Agreement") under which the Company acquired all the outstanding shares of Derma Sciences, Inc., a Delaware corporation ("Derma Sciences") for an aggregate purchase price of approximately $210.8 million including payment of certain of Derma Sciences' closing expenses and settlement of stock-based compensation plans of $4.8 million and $4.3 million, respectively.

The purchase price consisted of a cash payment to the former shareholders of Derma Sciences of approximately $201.7 million upon the closing of the transaction.

Derma Sciences is a tissue regeneration company focused on advanced wound and burn care that offers products to help manage chronic and hard-to-heal wounds, especially those resulting from diabetes and poor vascular functioning.

On September 8, 2017, the Company and certain of its subsidiaries entered into an asset purchase agreement (the “Divestiture Agreement”) with Natus Medical Incorporated (“Natus”), pursuant to which the Company agreed to divest its Camino Intracranial Pressure monitoring and the U.S.

rights to the fixed pressure shunts businesses together with certain of the neurosurgery assets that were acquired as part of the Codman Acquisition (the “Divestiture”).

The Divestiture Agreement was entered in connection with the review of the Codman Acquisition by the Federal Trade Commission and the antitrust authority of Spain.

The Divestiture was conditioned upon completion of the Codman Acquisition.

On October 6, 2017, upon the terms and subject to the conditions set forth in the Divestiture Agreement (see Note 4 - Acquisitions and Pro Forma Results ), the Divestiture was completed and Natus paid an aggregate purchase price of $46.4 million.

Revenues related to the Divestiture included in the Company's financial results for the period ended December 31, 2017 was $27.0 million.

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 divestiture of the Extremity Orthopedics business, the Company paid $41.5 million to the Consortium of Focused Orthopedists, LLC (“CFO”) concurrently pursuant to the terms of certain agreements between Integra and CFO relating to the development of shoulder arthroplasty products effectively terminating our licensing agreement with ISC.

OPTIMIZATION AND INTEGRATION ACTIVITIES

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Executive Summary

Revenues from 2019 to 2017 increased $329.3 million , generating $200.2 million of additional gross margin over that time period resulting primarily from the businesses that we acquired and organic growth.

Costs and expenses increased in 2019 compared to 2018 primarily due to in-process research and development expenses within acquisition and integration-related charges as a result of the Rebound transaction.

Costs and expenses increased sequentially in 2018 compared to 2018 as new employees, especially in selling, general and administrative functions, joined the Company as a result of acquisitions.

The benefit from income taxes in 2017 was primarily driven by a re-measurement of our deferred taxes resulting from a reduction of the federal statutory rate from 35% to 21% from the 2017 Tax Act and a decrease in income before income taxes in 2017 resulting from acquisition and integration costs related to the Derma Sciences and the Codman Neurosurgery acquisitions.

Our net income in 2019 was $50.2 million , or $0.58 per diluted share, as compared to $60.8 million , or $0.72 per diluted share in 2018 , and $64.7 million , or $0.82 per diluted share, in 2017 .

Net income for the year ended December 31, 2020 was $133.9 million, or $1.57 per diluted share, compared to $50.2 million, or $0.58 per diluted share for the year ended December 31, 2019.

The increase in net income for the year ended December 31, 2020 as compared to December 31, 2019 was primarily driven by two main components.

The first was due to a net tax benefit in 2020 due to the impact of the intra-entity transfer of certain intellectual property which resulted in the recognition of a deferred tax benefit in the amount of $59.2 million.

The second component of the increase in net income in 2020 compared to 2019 resulted from a $64.9 million IPR&D expense attributed to the Rebound transaction which occurred during the third quarter of 2019.

Excluding these components, net income for the year ended December 31, 2020 declined by $40.4 million compared to the prior year 2019.

This decrease was attributable to the impact of the COVID-19 pandemic which resulted in lower revenues, and was partially offset by a decrease in the level of operating expenses due to cost-savings measures implemented by the Company during 2020.

The Company demonstrated recovery in both of our reporting segments in the second half of 2020 as compared to the first half of 2020.

The revenue results

in the second half of 2020 along with expense management by the Company contributed to overall profitability and strong operating cash flows during a year in which the Company was severely affected by a global crisis.

For the year ended December 31, 2020, total revenues were $1,371.9 million, representing a decline of 9.6% from prior year revenues due to COVID-19 related surgical procedure delays and capital spending deferrals.

Given the variability throughout 2020, we have presented our results below including Revenue for the first and second half of 2020 as compared to the first and second half of 2019.

First Half Second Half

(amounts in thousands)

2020 2019 2020 2019

Codman Special Surgical $ 401,218 $ 483,826 $ 493,613 $ 512,380

Orthopedics and Tissue Technologies $ 211,771 $ 259,509 $ 265,266 $ 261,842

Total Revenue $ 612,989 $ 743,335 $ 758,879 $ 774,222

During the first half of 2020, total revenues declined $130.3 million, representing a decline of 18%, compared to the first half of 2019 and reflected the impact of the COVID-19 pandemic on the Company from mid-March 2020 through June 30, 2020.

The Company experienced the largest impact of COVID-19 during the second quarter of 2020 when revenues declined 32.6% compared to the same period in 2019.

As a result of the speed and severity of the spread of COVID-19, the Company saw rapid and significant decline in surgical and medical intervention procedures as healthcare providers deferred non-urgent medical procedures in order to address the increasing demands caused by the COVID-19 pandemic.

Despite the revenue decline experienced, the Company does not believe its underlying markets in neurosurgery and regenerative medicine have fundamentally changed, rather the revenue declines were driven by COVID-19 procedural delays.

During the second half of 2020, total revenues declined $15.3 million, representing a decline of 2% compared to the second half of 2019.

In the second half of 2020, we experienced strong sequential revenue improvements across all franchises, representing an increase of 24% compared to the first of half of 2020.

The Company's performance varied across regions and product lines based on the severity of the pandemic but in general, the Company saw broad based recovery across its portfolio when compared to the first half of 2020, as surgical procedures recovered and shelter in place restrictions were lifted.

In the Codman Specialty Surgical ("CSS") segment, revenues for the second half of 2020 increased 23.0% as compared to the first half of 2020.

Both the Neurosurgery and Instruments portfolio showed significant sequential improvement compared to the first half of 2020.

During the second half of 2020, CSS revenues declined 3.7% as compared to the second half of 2019.

Sales in our neuro monitoring products increased high single digits and CSF management products increased mid single digits in the second half of 2020 compared to the second half of 2019.

Despite showing low double digits sequential improvement as compared to the first half of 2020, sales in capital equipment products, declined low double digits in the second half of 2020 compared to the same period in the prior year as hospitals and healthcare institutions continued to allocate capital budgets to manage the increase in costs associated with the COVID pandemic.

The Company continues to have a strong pipeline of new capital opportunities and believes the reallocation of capital budgets is only temporary.

Sales from our Instruments portfolio decreased low double digits excluding discontinued products as compared to the second half of 2019, due to a decrease experienced in surgical procedures as a result of COVID-19.

In the Orthopedics and Tissue Technologies ("OTT") segment, revenues for the second half of 2020 increased 25.3% as compared to the first half of 2020.

Sales in our Wound Reconstruction, Extremity Orthopedics and Private Label portfolios all showed sequential improvement in revenues as compared to the first half of 2020.

During the second half of 2020, OTT revenues increased 1.3% as compared to the second half of 2019.

Sales in our Private label portfolio increased high-single digits over the prior year.

Sales of our Wound Reconstruction and Extremity Orthopedics portfolio remained flat as compared to the second half of 2019 led by growth in sales of Integra skin, nerve and Primatrix products.

We continue to closely monitor local, regional, and global COVID-19 surges as well as new variants of the virus for an impact on procedures during Q1 2021 and beyond.

The reallocation of hospital resources to treat COVID-19 may continue to cause a financial strain on healthcare systems and reduce procedural volumes.

Additionally, the Company does not expect all markets and product lines to improve at the same rate based on the level of recurrence of COVID-19 and its associated impact on the pace of procedure recovery and economic normalization.

Special Charges

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(In thousands)

Acquisition and integration-related charges

Acquisition, divestiture and integration-related charges (2)

$ 32,906 $ 124,665

Convertible debt non-cash interest expense 15,415 —

Structural optimization charges 15,363 17,582

Discontinued product lines charges

EU medical device regulation 9,372 6,221

Discontinued product lines charges 6,342 9,168

Expenses related to debt refinancing 6,168 —

COVID-19 pandemic related charges (1)

Impairment charges — 5,764

Litigation matters — 96

Total 89,048 163,496

(1) Charges relate to business interruptions and costs associated with the COVID-19 pandemic which impacted the Company's operations globally, partially offset by Coronavirus government relief programs.

(2) The Company included $64.9 million of IPR&D expense within acquisition, divestiture and integration-related charges as a result of the Rebound transaction in the prior year.

The items reported above are reflected in the consolidated statements of operations as follows:

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Cost of goods sold (1)

$ 34,557 $ 25,266

Research and development 3,163 2,786

In-process research and development

IPR&D expense

Selling, general and administrative 29,745 67,265

Intangible asset amortization (2)

Interest expense 21,583 —

Other (income) expense — (2,501)

Total $ 89,048 $ 163,496

(1) Amortization and impairment charges related to technology based intangible assets is included in cost of goods sold.

(2) Impairment charges related to non-technology based intangible assets such as customer relationships are included in Intangible asset amortization.

We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, integration and restructuring activities, and for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude.

We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, divestiture, integration and restructuring activities, and for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude.

We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future.

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Years Ended December 31,

Segment Net Sales

(In thousands)

Segment Net Sales (In thousands)

Codman Specialty Surgical $ 894,831 $ 996,206

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Gross margin as a percentage of total revenues 62.0 % 62.8 %

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018 .

For the year ended December 31, 2019 , total revenues increased by $45.1 million , or 3.1% , to $1,517.6 million from $1,472.4 million during the prior year.

Domestic revenues increased $31.5 million , or 3.0% , to $1,077.4 million and were 71.0% of total revenues for the year ended December 31, 2019 .

International revenues increased to $440.2 million , compared to $426.5 million during 2018 .

The net increase of $45.1 million was a result of growth in both segments of $68.4 million offset by a $12.5 million unfavorable impact of foreign exchanges, which mainly impacts the Codman Specialty Surgical segment, and a $10.8 million unfavorable impact due to discontinued and divested products.

Codman Specialty Surgical revenues were $996.2 million , an increase of 3.3% from the prior-year period.

Growth in Codman Specialty Surgical revenues were driven by sales of our dural repair, CUSA ® capital and related disposables, and programmable valve products.

Precision Tools and Instruments revenues increased low-single digits compared to the prior period due to increased volume in the business.

Orthopedics and Tissue Technologies revenues were $521.4 million , an increase of 2.5% from the prior-year period.

In our Wound Reconstruction and Care portfolio used in inpatient and outpatient procedures, sales of our core tissue products including PriMatrix and SurgiMend increased in the mid-teens.

Our private label business sales increased by low-single digits over the prior period due to increased volume in the business.

Extremity Orthopedic sales were flat when compared to the same period last year.

For the year ended December 31, 2020, total revenues decreased by $145.7 million, or 9.6%, to $1,371.9 million from $1,517.6 million during the prior year.

Domestic revenues decreased by $105.4 million, or 9.8%, to $972.0 million and were 70.9% of total revenues for the year ended December 31, 2020.

International revenues decreased by $40.3 million or 9.2% to $399.9 million, compared to $440.2 million during 2019.

The net decrease of $145.7 million was a result of decline in both segments due to disruption from the COVID-19 pandemic, $22.7 million due to discontinued and divested products, and $4.7 million due to favorable impact of foreign exchange.

Codman Specialty Surgical revenues were $894.8 million, a decrease of 10.2% from the prior year primarily due to disruption caused by the COVID-19 pandemic and impact of discontinued products.

Orthopedics and Tissue Technologies revenues were $477.0 million, a decrease of 8.5% from the prior year primarily due to disruption caused by the COVID-19 pandemic.

With our global reach, we generate revenues in multiple foreign currencies.

Accordingly, we will experience currency exchange risk with respect to those foreign currency denominated revenues.

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017 .

For the year ended December 31, 2018, total revenues increased by $284.2 million, or 23.9%, to $1,472.4 million from $1,188.2 million during the prior year.

Domestic revenues increased $151.6 million, or 17.0%, to $1,045.9 million and were 71.0% of total revenues for the year ended December 31, 2018.

International revenues increased to $426.6 million, compared to $293.9 million during 2017.

The increase compared to the prior year primarily resulted from the full-year sales impact of products acquired as part of the Codman Neurosurgery acquisition, which resulted in incremental revenue of $235.6 million, a $3.8 million favorable impact of foreign exchange as well as growth in both segments of $71.8 million, which includes twelve months of Derma Sciences revenue in 2018, offset by $27.0 million of revenue from divested products in 2017.

Codman Specialty Surgical revenues were $963.9 million, an increase of 33.8% from the prior-year period.

The increase primarily resulted from incremental revenues from Codman Neurosurgery of $235.6 million.

Growth in our legacy Neurosurgery portfolio was primarily driven by our CUSA® capital and disposables portfolio and dural repair.

Revenues for Precision Tools and Instruments increased by low-single digits over the prior period due to increased volume in the business.

Orthopedics and Tissue Technologies revenues were $508.5 million, an increase of 8.7% from the prior-year period.

In our Wound Reconstruction portfolio used in inpatient and outpatient procedures, sales of Integra skin products, including PriMatrix and amniotic tissue products, increased mid-double digits.

Revenues for Private Label increased by mid-single digits over the prior period due to increased volume in the business.

In our Extremity Orthopedics business, sales declined low-single digits driven by a decline in our lower fixation portfolio offset by growth in our shoulder and ankle portfolios.

Gross margin as a percentage of revenues was 62.8% in 2019 , 61.2% in 2018 , and 63.3% in 2017 .

The increase in gross margin percentage from 2018 to 2019 resulted primarily from reduction in Codman Neurosurgery acquisition and integration costs.

The decrease in gross margin percentage of total revenue from 2017 to 2018 resulted primarily from dilution related to full-year product sales from the Codman Neurosurgery acquisition at lower margins than the Company's historical average.

Additionally, there were higher net costs associated with the full year amortization of technology-based intangible assets capitalized in connection with the Codman Neurosurgery acquisition.

Gross margin as a percentage of revenues was 62.0% in 2020 and 62.8% in 2019.

The decrease in gross margin percentage from 2019 to 2020 was primarily due to the disruption caused by the COVID-19 pandemic, an increase related to the manufacturing transition of certain CSS products to our Mansfield, MA facility, partially offset by favorable product mix.

Operating Expenses

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Research and development 5.6 % 5.2 %

In-process research and development

IPR&D expense

Selling, general and administrative 43.3 % 45.3 %

Intangible asset amortization 2.0 % 1.8 %

Operating expenses, which consist of research and development, in-process research and development, selling, general and administrative, and amortization, increased $69.2 million or 8.8% to $859.1 million in 2019 , compared to $789.9 million in the prior year.

Total operating expenses 50.9 % 56.6 %

Total operating expenses, which consist of research and development, IPR&D, selling, general and administrative, and amortization expenses, decreased by $159.5 million or 18.6% to $699.7 million in 2020, compared to $859.1 million in the prior year.

Operating costs were managed lower in 2020 due to on-going cost reduction efforts to offset the impact of lower revenues driven by the COVID-19 pandemic.

These cost reduction actions included temporary reduced compensation and work hours, hiring freezes, reduction in certain employee benefit costs, cessation of third party services and contractors, and reductions in discretionary spending, including travel, events and marketing programs for a period of time.

Research and Development

Research and development expenses totaled $79.6 million in 2019 , compared to $78.0 million in 2018 and $63.5 million in 2017 .

The increase in research and development expenses in 2018 compared to 2017 primarily resulted from the full-year impact of the acquisitions of Derma Sciences and Codman Neurosurgery and additional spending on new product development and clinical studies.

Research and development expenses for the year ended December 31, 2020 largely remained flat year over year with only a slight decrease of $2.2 million compared to the prior year.

The Company continues to invest in R&D programs with spending in-line with prior year levels despite the challenges from the COVID-19 pandemic.

In-Process Research and Development

The increase to our in-process research and development expenses in 2019, totaling $64.9 million compared to $0.0 million in 2018 and 2017, was primarily attributed to expenses related to acquisition of Rebound.

See Note 4, Acquisitions and Pro Forma Results , of our consolidated financial statements for more information.

IPR&D expense for the year ended December 31, 2020 decreased $64.9 million from the same period last year as a result of IPR&D expense attributed to the Rebound transaction which occurred during the third quarter of 2019.

Selling, General and Administrative

Selling, general and administrative expenses in 2019 decreased by $3.1 million or 0.5% to $687.6 million , compared to $690.7 million in 2018.

General and administrative costs decreased by $20.7 million compared to the prior year, primarily resulting from a decrease in costs related to structural optimization and acquisition and integration-related charges.

Offsetting this decrease was an increase of $17.6 million in selling and marketing expense primarily attributable to channel expansion.

Selling, general and administrative expenses for the year ended December 31, 2018 increased by $66.7 million or 10.7% to $690.7 million , compared to $624.1 million in 2017 .

Selling and marketing expenses increased by $72.3 million, primarily resulting from the full-year impact of the Derma Sciences and Codman Neurosurgery acquisitions, higher headcount in our sales force compared

to the prior year, higher commission costs resulting from increases in revenue and channel expansion.

General and administrative costs decreased by $5.6 million, primarily resulting from one-time costs for the year ended December 31, 2017 related to acquiring and integrating the Derma Sciences and Codman Neurosurgery businesses in the year of acquisition.

Selling, general and administrative expenses for the year ended December 31, 2020 decreased by $93.1 million as compared to the prior year resulting from less acquisition, divestiture and integration related charges, lower commissions and selling costs resulting from lower revenue during the year and overall cost reduction actions resulting from cost-savings measures taken by the Company as a result of the impact of the COVID-19 pandemic.

Intangible Asset Amortization

Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) in 2020 was $27.8 million compared to $27.0 million in 2019.

The increase is primarily attributed to an impairment charge of $5.8 million related to a customer relationship intangible asset.

In 2018 , amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) was $21.2 million, compared to $20.4 million in 2017.

The increase primarily resulted from the full-year amortization of intangible assets capitalized as part of our Derma Sciences acquisition.

We may discontinue certain products in the future as we continue to assess the profitability of our product lines.

As our profitability assessment evolves, we may make further decisions about our trade names and incur additional impairment charges or accelerated amortization.

We expect total annual amortization expense (including amounts reported in cost of product revenues, but excluding any possible future amortization associated with acquired in-process research and development ("IPR&D")) to be approximately $ 74.6 million in 2020 , $ 64.1 million in 2021 , $ 60.6 million in 2022 , $ 59.7 million in 2023 , $ 58.9 million in 2024 and $ 547.7 million thereafter.

completed on January 20, 2021) to be approximately $63.8 million in 2021, $61.4 million in 2022, $60.7 million in 2023, $60.2 million in 2024, $60.2 million in 2025 and $512.3 million thereafter.

Non-Operating Income and Expenses

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Interest Income

Interest income increased in 2019 as compared to 2018 primarily due to the full-year impact of interest rate differential on cross-currency swaps designated as net investment hedges.

Interest income increased in 2018 as compared to 2017 primarily due to the interest rate differential on cross-currency swaps designated as net investment hedges.

These cross-currency swaps were consummated during the fourth quarter of 2018.

Interest income for the year ended December 31, 2020 decreased by $1.5 million as compared to the same period last year primarily due to the termination of cross-currency swaps designated as net investment hedges in Q4 2019.

Interest Expense

Interest expense was $54.0 million , $64.7 million and $35.0 million in 2019 , 2018 and 2017 , respectively.

Interest expense decreased in 2019 as compared to 2018 primarily resulting from a decrease in our weighted average interest rate and a decrease in the outstanding balance of our Senior Credit Facility compared to the same period in 2018.

Interest expense increased in 2018 as compared to 2017 primarily resulting from an increase in our weighted average interest rate and the full-year impact of increased borrowings under our Senior Credit Facility to fund the acquisitions of Derma Sciences and Codman Neurosurgery in 2017.

As of December 31, 2019, 2018 and 2017, our weighted average interest rate was 3.2%, 3.9% and 3.6%, respectively

Our reported interest expense for 2019, 2018 and 2017 included $5.4 million , $6.3 million and $2.7 million , respectively, of amortization of debt issuance costs.

Interest expense for the year ended December 31, 2020 increased by $17.6 million as compared to the same period last year primarily due to an increase in non-cash interest expense due to the issuance of the Convertible Senior Notes and expenses associated with our Amended and Restated Senior Credit Agreement.

Other Income, Net

Other income, net increased in 2019 by $1.2 million as compared to 2018 primarily driven from a $3 million gain from a legal settlement.

Other income, net increased in 2018 by $6.9 million as compared to 2017 primarily due to the full-year impact of the interest rate differential on cross-currency swaps designated as cash flow hedges.

These cross-currency swaps were consummated during the fourth quarter of 2017.

Our effective income tax rate was 16.5% , (5.9)% and (468.7)% of income before income taxes in 2019 , 2018 and 2017 , respectively.

Other income, net for the year ended December 31, 2020 decreased by $5.1 million as compared to the same period last year primarily due to the unfavorable impact of foreign exchange and a $3.0 million gain from a legal settlement received during the prior year.

Our effective inco me tax rate was (43.2)% and 16.5% of income before income taxes in 2020 and 2019, respectively.

See Note 13, Income Taxes , in our consolidated financial statements for a reconciliation of the United States federal statutory rate to our effective tax rate.

In 2019, the Company's higher worldwide effective tax rate, as compared to 2018, is primarily driven by the impact of the Rebound transaction, resulting in a $64.9 million non-deductible in–process research and development (IPR&D) expense, which had a $13.6 million tax effect on the U.S.

federal rate.

In 2018, the Company's higher worldwide effective tax rate, as compared to 2017, was primarily attributable to a 2017 tax benefit of $43.4 million as a result of the re-measurement of deferred taxes using a reduced federal tax rate.

The 2017 Tax Act included numerous changes to existing U.S.

tax laws that have and will continue to impact the Company.

The most notable change was a reduction in the federal statutory tax rate from 35% to 21%.

In 2017, the lower effective tax rate was primarily driven by a tax benefit of $43.4 million as a result of the re-measurement of deferred taxes using this reduced federal tax rate.

Our effective tax rate could vary from year to year depending on, among other factors, tax law changes, the geographic and business mix and 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.

In December 2020, the Company completed an intra-entity transfer of certain intellectual property rights to one of its subsidiaries in Switzerland.

While the transfer did not result in a taxable gain;

the Company’s Swiss subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property rights.

The Company determined the fair value using a discounted cash flow mo del based on expectations of revenue growth rates, royalty rates, discount rates, and useful lives of the intellectual property.

The Company recorded a $59.2 million deferred tax benefit in Switzerland related to the amortizable tax basis in the transferred intellectual property.

Our effective tax rate could vary from year to year depending on, among other factors, tax law changes, the geographic and business mix and 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 estimate our worldwide effective income tax rate for 2021 to be approximately 20.0%.

At December 31, 2020 , the Company had $9.9 million of valuation allowance against the remaining $173.3 million of gross deferred tax assets recorded at December 31, 2020.

Our deferred tax asset valuation allowance increased by $2.9 million in 2019 and decreased by $1.0 million in 2018.

Our deferred tax asset valuation allowance remained substantially unchanged in 2020 and increased by $2.9 million in 2019 .

This valuation allowance relates to deferred tax assets for which the Company does not believe it has satisfied the more likely than not threshold for realization.

The increase in valuation allowance in 2019 primarily resulted from certain assets from the Rebound and Arkis acquisitions.

The decrease in valuation allowance in 2018 primarily resulted from the realization of certain deferred tax assets related to the acquisition of Derma Sciences and the impact of current year activity.

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, 2019 , we had net operating loss carryforwards of $130.1 million for federal income tax purposes, $37.5 million for foreign income tax purposes and $42.8 million for state income tax purposes to offset future taxable income.The federal net operating loss carryforwards increased during 2019 from the acquisition of Arkis and Rebound, offset by usage of federal net operating losses during 2019.

At December 31, 2020 , we had net operating loss carryforwards of $90.2 million for federal income tax purposes, $36.7 million for foreign income tax purposes and $41.6 million for state income tax purposes to offset future taxable income.

The federal net operating loss carryforwards decreased during 2020 due to the use of net operating losses.

Of the total federal net operating loss carryforwards, $78.4 million expire through 2037 and $11.8 million have an indefinite carryforward period.

Regarding the foreign net operating loss carryforwards, $1.3 million expire through 2024, $0.9 million expire through 2025, and the remaining $35.3 million have an indefinite carryforward period.

The state net operating loss carryforwards expire through 2036.

The 2017 Tax Act imposed a one-time repatriation tax on accumulated foreign subsidiaries’ untaxed foreign earnings (“Toll Tax”).

As of December 31, 2017, we recorded income tax expense of approximately $5.5 million as an estimate of the Toll Tax on certain foreign earnings.

The calculation of the Toll Tax allows for the ability to offset positive foreign earnings with existing foreign deficits and use of foreign tax credits.

We finalized our 2017 tax return filings and recorded a benefit of $1.0 million as an adjustment to the Toll Tax liability during 2018;

resulting in a total Toll Tax liability of $4.5 million.

The Company asserts that it has the ability and intent to indefinitely reinvest the undistributed earnings from its foreign operations unless there is a tax-free manner under which to remit the earnings.

Regarding the foreign net operating loss carryforwards, $0.3 million expire through 2025, and the remaining $36.4 million have an indefinite carryforward period.

The state net operating loss carryforwards expire in 2036.

As of December 31, 2020 , the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested.

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As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 2020 .

The 2017 Tax Act subjects the Company to GILTI tax on certain income earned by foreign subsidiaries.

The Company can make an accounting policy election to either recognize deferred taxes related to GILTI or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.

The Company has elected to account for the GILTI tax in the year the tax is incurred.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS

We attribute revenues to geographic areas based on the location of the customer.

The Company attributes revenues to geographic areas based on the location of the customer.

Total revenue by major geographic area consisted of the following:

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United States $ 971,975 $ 1,077,379

Europe 172,689 197,468

Asia Pacific 157,174 157,391

Rest of World 70,030 85,319

Total Revenues $ 1,371,868 $ 1,517,557

We generate significant revenues outside the U.S., a portion of which are U.S.

dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S.

The Company generates significant revenues outside the U.S., a portion of which are U.S.

dollar-denominated transactions conducted with customers that generate revenue in currencies other than the U.S.

As a result, currency fluctuations between the U.S.

dollar and the currencies in which those customers do business could have an impact on the demand for our products in foreign countries.

dollar and the currencies in which those customers do business could have an impact on the demand for the Company's products in foreign countries.

Local economic conditions, regulatory compliance or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the U.S.

Domestic revenues increased to $1,077.4 million, or 71.0% of total revenues, for the year ended December 31, 2019, from $1,045.9 million, or 71.0% of total revenues.

Growth in domestic revenues was driven by our dural repair, programmable valves, and our core tissue products.

European sales decreased by $3.9 million for the year ended December 31, 2019 compared to the same period last year, resulting primarily from unfavorable impacts of foreign exchange partially offset by an increase in sales of our programmable valve and core tissue products.

Sales to customers in Asia Pacific and the Rest of the World for the year ended December 31, 2019 increased by $17.5 million, primarily driven by increases in our dural repair products and CUSA ® capital and related disposables partially offset by unfavorable impacts of foreign exchange.

In 2018 , domestic revenues increased to $1,045.9 million or 71% of total revenues, for the year ended December 31, 2018, from $894.2 million, or 75% of total revenues.

The increase was primarily driven by the full-year sales impact of the acquisitions of Codman Neurosurgery and Derma Sciences.

In addition, growth in domestic revenues were driven by sales of our CUSA ® capital and related disposables, core tissue products and private label products.

European sales increased $51.2 million for the year ended December 31, 2018 compared to the prior year, resulting primarily from increase in sales in our Codman Specialty Surgical portfolio as well as regenerative technologies.

Both areas included contributions from the Codman Neurosurgery and Derma Sciences acquisitions.

Sales to customers in Asia Pacific and Rest of World increased by $81.4 million in December 31, 2018 as compared to the prior year, primarily driven by the Derma Sciences and Codman Neurosurgery acquisitions.

Domestic revenues decreased by $105.4 million for the year ended December 31, 2020 compared to the same period last year.

European sales decreased by $24.8 million for the year ended December 31, 2020 compared to the same period last year.

Sales to customers in Asia Pacific decreased by only $0.2 million for the year ended December 31, 2020 compared to the same period last year driven by accelerated recovery in both the Japan and China markets in relation to otherwise negative COVID-19 impacts.

The Rest of the World for the year ended December 31, 2020 decreased by $15.3 million compared to the same period last year.

The decrease in revenues globally was primarily due to adverse effects of the COVID-19 pandemic across all franchises.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

At December 31, 2020 and December 31, 2019, working capital was $836.2 million and $526.9 million, respectively.

Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.

Cash and Marketable Securities

We had cash and cash equivalents totaling $198.9 million and $138.8 million at December 31, 2019 and 2018 , respectively.

At December 31, 2019 , our non-U.S.

subsidiaries held approximately $143.7 million of cash and cash equivalents that are available for use by all of our operations around the world.

The Company had cash and cash equivalents totaling approximately $470.2 million and $198.9 million at December 31, 2020 and 2019, respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At December 31, 2020,

subsidiaries held approximately $234.0 million of cash and cash equivalents that are available for use outside the U.S.

The Company asserts that it has the ability and intends to indefinitely reinvest the undistributed earnings from its foreign operations unless there is no material tax cost to remit the earnings into the U.S.

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

Year Ended December 31,

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Cash Flows Provided by Operating Activities

We generated operating cash flows of $231.4 million , $199.7 million and $114.5 million for years ended December 31, 2019 , 2018 and 2017 , respectively.

Operating cash flows in 2019 increased compared to the same period in 2018.

Net income after non-cash adjustments increased by approximately $48.0 million compared to the same period in 2018.

The changes in assets and liabilities, net of business acquisitions, decreased cash flows from operating activities by $14.5 million in the year ended December 31, 2019 compared to an increase of $1.7 million for the same period in 2018.

The decrease in 2019 was primarily driven by increased investment in inventories related to new product launches and legal entity manufacturing changes associated with the Codman Neurosurgery acquisition integration.

In addition, decreases were also driven by growth in accounts receivable in foreign jurisdictions which have longer payment terms on average than domestic receivables.

Operating cash flows in 2018 increased compared to the same period in 2017.

Net income after non-cash adjustments increased by approximately $82.1 million compared to the same period in 2017.

Net income after non-cash adjustments increased primarily due to the full-year operating impact of the Derma and Codman acquisitions consummated during 2017 and organic growth of the Company during 2018.

Changes in working capital in 2018 increased cash flows by approximately $0.3 million.

Among the changes in working capital, accounts receivable used $17.0 million of cash, inventory provided $8.3 million of cash, prepaid expenses and other current assets provided $3.9 million of cash, accounts payable, accrued expenses and other current liabilities provided $3.6 million of cash and deferred revenue provided $1.5 million of cash.

Operating cash flows in 2017 decreased compared to the same period in 2016.

Net income after non-cash adjustments decreased by $11.8 million primarily due to costs and expenses associated with the Derma and Codman acquisitions.

Changes in working capital in 2017 decreased cash flows by approximately $24.2 million.

Among the changes in working capital, accounts receivable used $89.7 million of cash, inventory provided $0.1 million of cash, prepaid expenses and other current assets used $33.8 million of cash, and accounts payable, accrued expenses and other current liabilities provided $95.3 million of cash.

Operating cash flows for the year ended December 31, 2020 decreased compared to the same period in 2019.

Net income after non-cash adjustments increased by approximately $0.8 million to $245.1 million from $245.9 million.

The changes in assets and liabilities, net of business acquisitions, decreased cash flows from operating activities by $41.3 million in the year ended December 31, 2020 compared to a decrease of $14.5 million for the same period in 2019.

The decrease in 2020 is attributable to an increase in inventory to improve safety stock of select products.

In addition, decreases were also dri ven by reduced payables offset by decreases in accounts receivable due to lower revenues and continued collection efforts.

Cash Flows Used in Investing Activities

During the year ended December 31, 2020, we paid $38.9 million for capital expenditures, most of which were directed to our facilities located in Mansfield, MA;

and Princeton, NJ and $25.0 million associated with achieving developmental milestones paid to the former shareholders of Rebound.

During the year ended December 31, 2019, we paid $69.5 million for capital expenditures, most of which were directed to our new Mansfield, Massachusetts facility, Princeton, New Jersey facility and commercial expansion.

Further we paid $95.5 million for the Arkis and Rebound transactions, net of cash acquired.

During the year ended December 31, 2018, we paid $77.7 million for capital expenditures, most of which were directed to the expansion of our new Mansfield, Massachusetts facility and commercial expansion.

We received $26.7 million from the Codman Neurosurgery acquisition for a working capital adjustment.

During the year ended December 31, 2017, we paid an aggregate of $1.2 billion for the acquisitions of Codman Neurosurgery and Derma Sciences.

The payment for Derma Sciences included a $210.5 million payment of the purchase price plus a $26.6 million payment for the BioD Product Payment in May 2017 (see Note 4, Acquisitions and Pro Forma Results ).

We received $17.0 million from the sale of short-term investments acquired from Derma Sciences.

We also received $46.4 million from the Divestiture to Natus in October 2017.

We paid $43.5 million in cash for capital expenditures, most of which was directed towards the expansion of our manufacturing facilities and commercial expansion.

Cash Flows Provided by (Used in) Financing Activities

Our principal sources of cash from financing activities for the year ended December 31, 2020 were $515.3 million in proceeds from the issuance of Convertible Senior Notes including the call and warrant transactions and $171.5 million borrowing under our Senior Credit Facility and Securitization Facility.

These were offset by repayments of $441.0 million on the revolving portion of our Senior Credit Facility and Securitization Facility, $24.3 million in debt issuance costs related to the Amended and Restated Senior Credit Agreement and the issuance of Convertible Senior Notes and $100.0 million in purchases of treasury stock.

Our principal sources of cash from financing activities for the year ended December 31, 2019 were $236.9 million in borrowings under our Senior Credit Facility and Securitization Facility.

These were offset by repayments of $246.1 million on borrowings under our Senior Credit Facility and Securitization Facility.

Our principal sources of cash from financing activities in the year ended December 31, 2018 were $349.6 from the issuance of common stock and $171.2 million in borrowings under our Senior Credit Facility and Securitization Facility.

These were offset by repayments of $660.0 million on the revolving portion of our Senior Credit Facility, payments of $15.9 million for inventory that was included in the initial purchase accounting for Codman Neurosurgery and $22.3 million of payments relating to contingent consideration.

Our principal sources of cash from financing activities in the year ended December 31, 2017 were $700.0 million under the Term Loan component of our Senior Credit Facility, and $607.0 million of borrowings under the revolver component of our Senior Credit Facility offset by $117.0 million in repayments under our Senior Credit Facility, and $19.0 million in debt issuance costs related to our Senior Credit Facility.

Working Capital

At December 31, 2019 and December 31, 2018 , working capital was $526.9 million and $512.5 million , respectively.

Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.

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 credit agreement with a syndicate of lending banks.

The sixth amended and restated credit agreement makes an aggregate principal amount of up to approximately $2.2 billion available to the Company through the following facilities:

(i) a $877.5 million term loan facility (decreased from $900 million ), 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.

The sixth amendment and restatement extends the credit facility’s maturity date from May 3, 2023 to February 3, 2025.

The first mandatory repayment under the term loan portion of the sixth amended and restated credit agreement is due June 30, 2021.

In connection with the February 2020 Amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants was modified to the following:

Fiscal Quarter

Maximum Consolidated Total Leverage Ratio

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

September 30, 2022 through June 30, 2023

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

Fifth Amended and Restated Senior Credit Agreement

On May 3, 2018, the Company entered into the fifth amendment and restatement (the "May 2018 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.

Refer to Note 5, Debt for further information on the terms of the Senior Credit Facility.

We plan to utilize the Senior Credit Facility for working capital, capital expenditures, acquisitions, debt repayments and other general corporate purposes.

At December 31, 2019 and 2018 , there was $375.0 million and $345.0 million outstanding, respectively, under the revolving portion of the Senior Credit Facility at a weighted average interest rate of 3.2% and 4.0% , respectively.

At December 31, 2019 and 2018 , there was $877.5 million and $900.0 million outstanding under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 3.2% and 3.9% , respectively.

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 December 31, 2019 the Company was in compliance with all such covenants.

The Company capitalized $4.2 million and $19.1 million of incremental financing costs in 2018 and 2017, respectively, in connection with modifications of the Senior Credit Facility.

Upcoming Debt Maturities

The Company has classified $45.0 million as a current liability based on the terms of the May 2018 Amendment in the Company's consolidated balance sheet to reflect payments due within a year.

Securitization Facility

During the fourth quarter of 2018, the Company entered into an accounts receivable Securitization Facility under which accounts receivable of certain domestic subsidiaries are sold on a non-recourse basis to a special purpose entity (“SPE”), which is a bankruptcy-remote, consolidated subsidiary of the Company.

Accordingly, the assets of the SPE are not available to satisfy the obligations of the Company or any of its subsidiaries.

From time to time, the SPE may finance such accounts receivable with a revolving loan facility secured by a pledge of such accounts receivable.

The amount of outstanding borrowings on the revolving loan facility at any one time is limited to $150.0 million .

The Securitization Facility agreement is for an initial three -year term and may be extended.

The agreement governing the Securitization Facility contains certain covenants and termination events.

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

As of December 31, 2019 , the Company was in compliance with the covenants and none of the termination events had occurred.

As of December 31, 2019 and 2018, the Company had $104.5 million and $121.2 million of outstanding borrowings under its Securitization Facility, respectively.

The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit facility and Term Loan component at December 31, 2019 were approximately $381.1 million and $889.9 million , respectively.

The fair value of the outstanding borrowing of the Securitization Facility at December 31, 2019 was approximately $105.8 million .

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

These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy.

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

Letters of credit outstanding as of December 31, 2019 and 2018 totaled $0.8 million and $0.6 million, respectively.

There were no amounts drawn as of December 31, 2019 .

Amended and Restated Senior Credit Agreement, Convertible Senior Notes, Securitization and Related Hedging Activities

See Note 6, Debt to the current period’s consolidated financial statements for a discussion of our Amended and Restated Senior Credit Agreement, Convertible Senior Notes and Securitization Facility and Note 7, Derivative Instruments for a discussion of our hedging activities.

We are forecasting that for the next twelve months, sales and earnings will be sufficient to remain in compliance with our financial covenants under the terms of the February 2020 Amendment and July 2020 Amendment to the Senior Credit Facility.

The Company entered into the July 2020 amendment to increase financial flexibility in light of the unprecedented impact and uncertainty of the COVID-19 pandemic on the global economy.

Share Repurchase Plan

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The repurchase authorization expires in December 2022.

Purchases may be affected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing.

This stock repurchase authorization replaces the previous $150 million stock repurchase authorization which was approved by the Board in 2016.

The Company has not repurchased any shares of common stock under these authorizations through the year ended December 31, 2019 .

On February 4, 2020, the Company offered and sold in a private placement $575.0 million of 0.5% convertible notes due in 2025.

The Company intended to use $100.0 million of the net proceeds from the offering to repurchase shares of the Company's stock.

This included up to approximately $7.6 million from certain purchasers of the convertible notes in conjunction with the closing of the offering.

Additionally, the Company intends to use $92.4 million of the proceeds will be used to repurchase shares through an accelerated share repurchase transaction ("ASR").

Total shares repurchased through February 21, 2020 were 1,438,615.

This stock repurchase authorization replaces the previous $225 million stock repurchase authorization, of which $125 million remained authorized at the time of its replacement, and which was otherwise set to expire on December 31, 2020.

During the year ended December 31, 2020, the Company repurchased 2.1 million shares of Integra’s common stock as a part of our previous share repurchase authorization.

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

This included $7.6 million from certain purchasers of the convertible notes in conjunction with the closing of the offering.

On February 5, 2020, the Company entered into a $92.4 million accelerated share repurchase ("ASR") to complete the remaining $100.0 million of share repurchases.

The Company received 1.3 million shares through the ASR, which represented approximately 80% of the expected total shares.

Upon settlement of the ASR in June 2020, the Company received an additional 0.6 million shares, which was determined using the volume weighted average price of the Company's common stock during the term of the ASR.

Dividend Policy

We have not paid any cash dividends on our common stock since our formation.

The Company has not paid any cash dividends on our common stock since our formation.

Our Senior Credit Facility limits the amount of dividends that we may pay.

Any future determinations to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board of Directors.

Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board.

Capital Resources

We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the foreseeable future.

Our future capital requirements will depend on many factors, including the growth of our business, the timing and introduction of new products and investments, strategic plans and acquisitions, among others.

Additional sources of liquidity available to us include short term borrowings and the issuance of long term debt and equity securities.

Further, as part of our actions to manage the impacts of the COVID-19 pandemic on our business, the Company significantly reduced capital expenditures in 2020 by approximately $30.6 million as compared to the prior year.

Off-Balance Sheet Arrangements

We do not have any off–balance sheet financing arrangements during the year-ended December 31, 2020 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Contractual Obligations and Commitments

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Payments Due by Calendar Year

Total 2021 2022-2023 2024-2025 Thereafter

(In millions)

Senior Credit Facility - Revolver (1)

Senior Credit Facility - Term Loan

Interest on Term loan (2)

Revolving Credit Facility (1) $ 97.5 $ — $ — $ — $ 97.5

Term Loan $ 877.5 $ 33.8 $ 45.0 $ 129.4 $ 669.4

Securitization Facility (1) $ 112.5 $ 112.5 $ — $ — $ —

Convertible Securities(4) $ 575.0 $ — $ — $ — $ 575.0

Interest (2) $ 48.5 $ 13.1 $ 12.4 $ 22.1 $ 1.0

Employment Agreements (3) $ 1.0 $ 1.0 $ — $ —

Operating Leases $ 138.8 $ 13.8 $ 14.3 $ 21.9 $ 88.9

Purchase Obligations $ 6.0 $ 2.7 $ 2.1 $ 1.2 $ —

Under the May 2018 Amendment, the Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.

Others $ 4.2 $ 1.1 $ 0.4 $ 1.6 $ 1.1

Total $ 1,861.1 $ 178.0 $ 74.2 $ 176.1 $ 1,432.8

(1) The Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.

(2) Interest is calculated on the term loan portion of the Senior Credit Facility based on current interest rates paid by the Company.

As the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.

During 2018, the Company entered into an operating lease with a term of 18 years for a new corporate headquarters in Princeton, NJ which commenced during the second quarter of 2019.

The Company recorded a ROU asset and lease liability of $35.6 million.

The gross payments over the lease term of approximately $67.0 million are included in the table above.

The Company has excluded its contingent consideration obligation related to a prior and current year acquisitions from the contractual obligations table above;

(3) Amounts shown under Employment Agreements do not include compensation resulting from a change in control.

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

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

See Note 6, Debt , for the details on the 2025 Notes.

The Company has excluded its contingent consideration obligation related to prior and current year acquisitions from the contractual obligations table above;

this liability had a total estimated fair value of $15.4 million at December 31, 2020.

This liability has been excluded because the amount to be paid and the potential payment date is not fixed.

The Company has excluded its option to acquire Integrated Shoulder Collaboration Inc., which becomes mandatory upon achievement of a certain sales threshold, for an amount not to exceed $80.0 million.

This liability has been excluded because the amount to be paid and the potential payment date is not fixed.

In connection with the sale of the Company's Extremity Orthopedic business, the Company will pay $41.5 million to 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.

As a result, the Company has excluded its former option to acquire Integrated Shoulder Collaboration Inc., which becomes mandatory upon achievement of a certain sales threshold, for an amount not to exceed $80.0 million, as the option is no longer available to the Company following the transaction with CFO.

See Note 3, Assets and Liabilities Held for Sale and Note 18, Subsequent Events , for further details of the transaction.

The Company has excluded its future pension contribution obligations from the table above.

This has been excluded because the future amounts to be paid and the potential payment dates are not fixed.

Excluded from the contractual obligations table is the liability for uncertain tax benefits, including interest and penalties, totaling $0.8 million.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the year ended December 31, 2019 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

The Company has excluded the liability for uncertain tax benefits from the contractual obligations table above, including interest and penalties, totaling $0.9 million at December 31, 2020.

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.

Our discussion and analysis of financial conditions 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 including 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 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, valuation of the equity component of convertible debt instruments, valuation of debt instruments and loss contingencies.

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, in-process research and development ("IPR&D"), valuation of intangible assets including amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of the equity component of convertible debt instruments, valuation of contingent liabilities, the fair value of debt instruments and loss contingencies.

These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances.

Actual results could differ from these estimates.

The COVID-19 pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, inventory valuations, fair value measurements, goodwill and long-lived asset impairments, the effectiveness of the Company’s hedging instruments, deferred tax valuation allowances, and allowances for doubtful accounts receivable.

We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation of our consolidated financial statements and require the more difficult subjective and complex judgments:

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We evaluate the collectability of accounts receivable based on a combination of factors.

The Company recognizes a provision for doubtful accounts that reflects the Company’s estimate of expected credit losses for trade accounts receivable.

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.

For all other customers, the Company evaluates measurement of all expected credit losses for trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

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.

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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.

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.

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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.

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 a long-term liability in the consolidated balance sheets.

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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 the temporary 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 record valuation allowances when it is more likely than not that some portion or all of the deferred tax assets will not 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.

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As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 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.

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 are subject to claims and lawsuits in the ordinary course of our business, including claims by employees or former employees, and claims 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.

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Pension Benefits

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

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

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.

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Rate of compensation increase 2.14 % 2.25 %

Interest crediting rate for cash balance plans 1.0 % 0.9 %

A change of plus (minus) 25 basis points on expected rate of return on plan assets, with other assumptions held constant, would have an estimated $0.1 million favorable (unfavorable) impact on pension plan costs.

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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-K

Item 7. Management’s Discussion and Analysis