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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-23 · 257 added, 271 removed, 296 unchanged (64% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our financial statements and the related notes appearing elsewhere in this report.

The following discussion and analysis provides information management believes to be relevant to understanding our financial condition and results of operations.

For a full understanding of financial condition and results of operations, it should be read together with the selected consolidated financial data and our financial statements with the related notes appearing elsewhere in this report.

The discussion focuses on our financial results for the year ended December 31, 2021 and 2020.

The comparison of fiscal 2020 to 2019 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 31, 2020—“Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” filed on February 23, 2021.

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”).

We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended 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;

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

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;

delayed capital spending by the Company's customers;

disruption and/or higher costs to the Company’s supply chain;

staffing shortages in hospitals;

labor impacts in our facilities;

delays in gathering clinical evidence;

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

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

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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, as well as nerves and tendons.

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.

Our Codman Specialty Surgical products comprise of specialty surgical implants and instrumentation for a broad range of specialties.

This segment includes products and solutions for dural access and repair, 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.

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

Our Orthopedics and Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, and surgical reconstruction.

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

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.

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

Integra manufactures and sells medical technologies and products in two reportable business segments:

Codman Specialty Surgical ("CSS") and Tissue Technologies ("TT").

The CSS segment, which represents two-thirds of our total revenue, consists of market-leading technologies and instrumentation used for a wide range of specialties, such as neurosurgery, neurocritical care and otolaryngology.

We are the world leader in neurosurgery and one of the top three providers in instruments used in precision, specialty, and general surgical procedures.

Our TT segment generates about one-third of our overall revenue and focuses on three main areas:

complex wound surgery, surgical reconstruction, and peripheral nerve repair.

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

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

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

We focus on four key pillars of our strategy:

1) building an execution-focused culture, 2) achieving relevant scale, 3) improving agility and innovation, and 4) leading in customer experience.

1) enabling an execution-focused culture, 2) optimizing relevant scale, 3) advancing innovation and agility, and 4) leading in customer experience.

We believe that by sharpening our focus on these areas through improved planning and communication, optimization of our infrastructure, and strategically aligned tuck-in acquisitions, we can build scale, increase competitiveness and achieve our long-term goals.

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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.

During 2021, the Company acquired ACell Inc.

("ACell"), an innovative regenerative medicine company specializing in the manufacturing of porcine urinary bladder extracellular matrices.

This acquisition not only expanded the Company’s product offering of regenerative technologies, but it also supported the Company’s long-term growth and profitability strategy as this product line has a financial profile similar to Integra’s other regenerative tissue products.

All critical components of ACell have been integrated into the Company’s TT segment.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for additional details.

In 2021, we continued to advance the development of pioneering neurosurgical technologies from our 2019 acquisitions, Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation.

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 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.

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.

In addition to acquisitions and organic reinvestment, we continually look to optimize our portfolio towards higher growth and higher margin businesses.

As such, we may opportunistically divest businesses or discontinue products where we see limited runway for future value creation in line with our aspirations due in part to changes in the market, business fundamentals or the regulatory environment.

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

This transaction enables us to increase our investments in our core neurosurgery and tissue technologies businesses and fund pipeline opportunities to expand our addressable markets to strengthen our existing leadership positions in these segments and drive future growth.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Commercial Channel Investments .

With acquisitions, new product introductions and a broader portfolio of products, investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs.

Internationally, we have increased our commercial resources significantly in many markets and are making investments to support our sales organization and maximize our commercial opportunities.

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 customers through enterprise-wide contracts.

Investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs.

To support our commercial efforts in Tissue Technologies, we expanded our two-tier specialist model to increase our presence in focused segments by creating a virtual selling organization to help serve the evolving needs of our customers.

In addition, we continue to build upon our leadership brands across our product franchises in both CSS and TT to engage customers through enterprise-wide contracts with leading hospitals, integrated delivery networks and global purchasing organizations in the United States.

Internationally, we have increased our commercial resources significantly in key emerging markets and are making investments to support our sales organization and maximize our commercial opportunities.

These investments in our international sales channel position us well for expansion and long-term growth.

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.

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.

We continue to invest in technologies, systems and processes to enhance the customer experience.

Additionally, we launched digital tools and programs, resources and virtual product training to drive continued customer familiarity with our growing portfolio of medical technologies globally.

Clinical and Product Development Activities

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

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

In each area, we continue to benefit from products launched over the past several years, including our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas Plus Programmable Valve along with additional shunt configurations.

In Japan, we are experiencing strong growth as a result of the successful launch of DuraGen in mid-2019, which is the first and only collagen xenograft approved for use as a dural substitute in the country.

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

Also, we continue to update our CUSA Clarity platform by incorporating 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.

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.

In the third quarter of 2021, our CereLink ICP Monitor System was launched in the U.S.

CereLink provides enhanced accuracy, usability and advanced data presentation that provides clinicians with uncompromised, advanced continuous ICP monitoring that until now, has not been available when treating patients with traumatic brain injuries.

We continued to advance the early-stage technology platforms we acquired in 2019.

Through the acquisition of Arkis Biosciences, 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.

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.

In 2019, we also acquired Rebound Therapeutics, a Company that specialized in a single-use medical device, known as Aurora Surgiscope, which is the only tubular retractor system designed for cranial surgery with an integrated access channel, camera and lighting.

In the third quarter of 2021, we conducted a limited clinical launch of the Aurora Surgiscope for use in minimally invasive neurosurgery as well as initiated a registry called MIRROR to collect data on early surgical intervention using this same technology platform for the treatment of ICH.

Within our TT segment, during 2020, we 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 look for ways to efficiently and effectively repair and close wounds, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.

In 2021, we completed one of the largest diabetic foot ulcers ("DFU"), randomized controlled trials of the PriMatrix ® Dermal Repair Scaffold for the management of DFU.

This multi-center study enrolled more than 225 patients with chronic DFU's over the course of 12-week treatments and 4-week follow-up phases.

The results of this study, which was published in the Journal of Wound Care, demonstrated that PriMatrix plus standard of care ("SOC") consisting of sharp debridement, infection elimination, use of dressings and offloading was significantly more likely to achieve complete wound closure compared with SOC alone, with a median number of one application of the product.

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.

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

The global COVID-19 pandemic, together with the preventative and precautionary measures taken by businesses, communities and governments, has resulted in an unprecedented challenge to the global healthcare industry.

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.

The COVID-19 pandemic continues to have widespread and unpredictable impacts and the Company has continued to manage the risks in this uncertain environment.

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

We also remain focused on managing the business for the long-term.

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.

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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.

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, disruption and/or higher costs to the Company’s supply chain, staffing shortages in hospitals and labor constraints in our facilities, could further 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.

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 ("HCT/Ps").

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

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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 FDA.

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

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

The warning letter related to quality systems issues at TEI's manufacturing facility located in Boston, Massachusetts.

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

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

On October 28, 2021 FDA initiated an inspection of the facility and at the conclusion of the inspection issued a Form 483 on November 12, 2021 (the "2021 Form 483").

The Company provided an initial response to the inspectional observations and will continue to provide responses to FDA.

The Warning Letter and the 2021 Form 483 do not restrict the Company’s ability to manufacture or ship products or require the recall of any products, nor do they restrict our ability to seek FDA 510(k) clearance of products.

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

However, due to our monthly progress reports, the FDA agreed to issue Certificates to Foreign Governments for the products manufactured at TEI due to substantial progress and the length of time it takes to resolve the Warning Letter.

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

The TEI Boston facility manufactures extracellular bovine matrix (EBM) products.

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

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

The TEI Boston facility manufactures extracellular bovine matrix products.

We cannot 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

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) .

On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business to Smith & Nephew.

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.

The Company received an aggregate purchase price of $240.0 million from Smith & Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO"), effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products.

The Company recognized a gain of $41.8 million in connection with the sale that is presented in "Gain from the sale of business" in the consolidated statement of operations for the year ended December, 31, 2021.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Ou r 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 from 2019 through 2021, our financial results for the year ended December 31, 2021 may not be directly comparable to those of the corresponding prior-year perio ds.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) 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.

for an acquisition purchase price of $306.9 million plus contingent consideration obligations of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.

ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Arkis BioSciences Inc.

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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.

The Company estimated fair value of the contingent consideration as of December 31, 2021 to be $15.1 million.

The Company recorded $3.7 million in accrued expenses and other current liabilities and $11.4 million in other liabilities at December 31, 2021 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.

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.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Rebound Therapeutics Corporation

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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.

On January 4, 2019, the Company entered into a licensing agreement with Integrated Shoulder Collaboration, Inc ("ISC").

Under the terms of the agreement, the Company paid ISC $1.7 million for the exclusive, worldwide license to commercialize its short stem and stemless shoulder system.

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

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

The Company has the option to acquire ISC at a date four years subsequent to the first commercial sale, which becomes mandatory upon the achievement of a certain sales 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.

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.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

OPTIMIZATION AND INTEGRATION ACTIVITIES

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Net income for the year ended December 31, 2021 was $169.1 million, or $1.98 per diluted share, compared to $133.9 million, or $1.57 per diluted share for the year ended December 31, 2020.

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.

The increase in net income for the year ended December 31, 2021 , was primarily driven by higher revenues across most franchises driven by continued recovery in surgical procedure volumes from prior year COVID-19 pandemic levels.

This was partially offset by higher operating expenses as costs continued to normalize after 2020 cost reduction actions.

Within non-operating income and expense, the Company benefited from lower interest expense, higher other income and a gain of $41.8 million as a result of the sale of its Extremity Orthopedics business to Smith & Nephew.

The Company also had 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.

Special Charges

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Years Ended December 31,

(In thousands)

Dollars in thousands 2021 2020

Acquisition, divestiture and integration-related charges (1)

$ (11,712) $ 32,906

Convertible debt non-cash interest expense 15,415 —

Structural optimization charges 20,385 15,363

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COVID-19 pandemic related charges (2)

Impairment charges — 5,764

Litigation matters — 96

Convertible debt non-cash interest expense — 15,415

Total 33,425 89,048

(1) The Company completed its sale of its Extremity Orthopedics business and recognized a gain of $41.8 million for the year ended December 31, 2021 which was partially offset by other acquisition, divestiture and integration-related charges.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

(2) 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:

Years Ended December 31,

(In thousands)

Dollars in thousands 2021 2020

Cost of goods sold $ 32,334 $ 34,557

$ 34,557 $ 25,266

Research and development 17,487 3,163

IPR&D expense

Selling, general and administrative 31,013 29,745

Intangible asset amortization (2)

Interest expense (1)

Gain from the sale of business (41,798) —

Other (income) expense (5,611) —

Total 33,425 89,048

(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.

(1) Upon adoption of ASU No.

2020-06, the Company will no longer incur non-cash interest expense for the amortization of debt discount.

See Note 1, Ba sis of Presentation of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), for details.

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

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Years Ended December 31,

Segment Net Sales (In thousands)

Dollars in thousands 2021 2020

Segment Net Sales

Codman Specialty Surgical $ 1,025,232 $ 894,831

Orthopedics and Tissue Technologies 477,037 521,351

Tissue Technologies 517,216 477,037

Total revenues 1,542,448 1,371,868

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Gross margin as a percentage of total revenues 61.2 % 62.0 %

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.

For the year ended December 31, 2021, total revenues increased by $170.6 million, or 12.4%, to $1,542.4 million from $1,371.9 million during the prior year.

Domestic revenues increased by $117.6 million, or 12.1%, to $1,089.5 million and were 70.6% of total revenues for the year ended December 31, 2021.

International revenues increased by $53.0 million or 13.3% to $452.9 million, compared to $399.9 million during 2020.

The increase in revenues was primarily driven by recovery experienced from the COVID-19 pandemic across most franchises compared to the prior year.

Foreign exchange fluctuations had a favorable impact of $9.8 million on revenues for the year.

In the CSS segment, revenues were $1,025.2 million which was an increase of $130.4 million, or 14.6% as compared to the prior-year period as a result of the continued recovery experienced from the COVID-19 pandemic, and the launch of our new CereLink ™ ICP monitoring system in the third quarter in U.S.

and European markets.

The Company saw growth within our Neurosurgery portfolio increasing low double digits primarily due to sales in neuromonitoring, advanced energy and dural access and repair.

Sales in our instruments portfolio increased low double digits as compared to the same period in the prior year driven by order recovery.

In the TT segment, revenues were $517.2 million, which was an increase of $40.2 million, or 8.4% as compared to the prior-year period.

Within TT, our Extremity Orthopedics business was divested on January 4, 2021 and the acquisition of ACell was completed on January 20, 2021.

Sales in our Wound Reconstruction business, excluding the impact of the divestiture and acquisition, increased low double digits.

Sales in our Private Label business increased low double digits as a result of continued recovery experienced from the COVID-19 pandemic.

As we look forward to 2022 and beyond, we continue to closely monitor local, regional, and global COVID-19 surges as well as recent variants of the virus for an impact on procedures.

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

Gross margin was $944.6 million for the year ended December 31, 2021, an increase of $93.6 million from $851.0 million for the same period last year.

Gross margin as a percentage of revenues was 61.2% in 2021 and 62.0% in 2020.

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.

The decrease in gross margin percentage was due to increased amortization associated with technology-based intangible assets and inventory step-up amortization in connection with the acquisition of ACell.

Operating Expenses

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Research and development 6.0 % 5.6 %

IPR&D expense

Selling, general and administrative 41.3 % 43.3 %

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Total operating expenses 48.4 % 50.9 %

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.

Total operating expenses, which consist of research and development, selling, general and administrative, and intangible asset amortization expenses, increased by $47.7 million or 6.8% to $747.4 million in 2021, compared to $699.7 million in the prior year.

The increase in operating expenses compared to the prior year reflects costs associated with higher employee related costs, increased research and development as well as increased outside spending as revenue recovered.

We also benefited from reduced operating expenses from the sale of the Extremity Orthopedics business and cost synergies as a result of the acquisition of ACell.

The Company continues to manage and prioritize its operating costs to increase organic investments that will drive long-term growth including the support of new product development and introductions, clinical studies, geographic expansion and targeted U.S.

sales channel expansion.

Research and Development

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

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.

Research and development expenses for the year ended December 31, 2021 increased by $15.7 million as compared to the prior year.

This increase in spending resulted from additional spending on new product development, clinical studies and spending related to European Union Medical Device Regulation compliance activities.

Selling, General and Administrative

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.

Selling, general and administrative expenses for the year ended December 31, 2021 increased by $42.9 million as compared to the prior year driven primarily due to higher employee related costs, higher incentive and stock-based compensation, as well as increased outside spending as revenue recovered.

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.

Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) in 2021 was $16.9 million compared to $27.8 million in 2020 primarily due to a reduction in amortization expense associated with intangible assets sold in conjunction with the sale of the Extremity Orthopedics business during the current year as well as accelerated amortization expense associated with an intangible asset which was recorded in the prior year.

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 IPR&D and recent acquisition of ACell Inc.

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.

We expect total annual amortization expense to be approximately $79.1 million in 2022, $78.4 million in 2023, $77.7 million in 2024, $77.7 million in 2025, $77.6 million in 2026 and $585.8 million thereafter.

Non-Operating Income and Expenses

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Years Ended December 31,

(In thousands)

Dollars in thousands 2021 2020

Interest income $ 6,737 $ 9,297

Interest expense (50,395) (71,581)

Gain from sale of business 41,798 —

Other income, net 19,307 4,434

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Interest Income

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 income for the year ended December 31, 2021 decreased by $2.6 million as compared to the same period last year primarily due to the settlement of cross-currency swaps designated as net investment hedges during Q4 2020.

Interest Expense

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.

Interest expense for the year ended December 31, 2021 decreased by $21.2 million as compared to the same period last year primarily due to the elimination of the non-cash interest expense as the result of the adoption ASU 2020-06 and the expenses associated with Amended and Restated Senior Credit Agreement which occurred in the prior period.

See Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details in relation to the adoption of ASU 2020-06.

Gain from the sale of business

On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business and recognized a gain of $41.8 million in the first quarter of the current year.

Other Income, Net

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.

Other income, net for the year ended December 31, 2021 increased by $14.9 million primarily due to income associated with the transition services agreement with Smith & Nephew, favorable impact of foreign exchange in the current year and higher income from additional cross currency swaps that were entered into during Q4 2020.

Our effective inco me tax rate was 21.2% and (43.2)% of income before income taxes in 2021 and 2020, respectively.

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At December 31, 2021, the Company had $9.8 million of valuation allowance against the remaining $190.7 million of gross deferred tax assets recorded at December 31, 2021.

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

Our deferred tax asset valuation allowance decreased by $0.1 million in 2021 and remained substantially unchanged in 2020.

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.

At December 31, 2021, we had net operating loss carryforwards of $71.7 million for federal income tax purposes, $26.6 million for foreign income tax purposes and $39.0 million for state income tax purposes to offset future taxable income.

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Of the total federal net operating loss carryforwards, $67.5 million expire through 2037 and $4.1 million have an indefinite carryforward period.

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

Regarding the foreign net operating loss carryforwards, $26.6 million have an indefinite carryforwa rd period.

The state net operating loss carryforwards expire in 2036.

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Years Ended December 31,

(In thousands)

Dollars in thousands 2021 2020

United States $ 1,089,526 $ 971,975

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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 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.

Domestic revenues increased by $117.6 million for the year ended December 31, 2021 compared to the same period last year.

European sales increased by $18.6 million for the year ended December 31, 2021 compared to the same period last year.

Sales to customers in Asia Pacific increased by $24.9 million for the year ended December 31, 2021 compared to the same period last ye ar.

The Rest of the World for the year ended December 31, 2021 increased by $9.5 million compared to the same period last year.

The increase in revenues globally was primarily driven by the continued recovery experienced from the COVID-19 pandemic across all franchises compared to the prior year due to rebound in surgical procedure volumes.

Sales in China, Japan Canada, Europe and our indirect markets continue to drive international growth.

The Company also benefited from the launch of the CereLink ICP Monitor which occurred during the second half of the 2021.

LIQUIDITY AND CAPITAL RESOURCES

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The Company had cash and cash equivalents totaling approximately $513.4 million and $470.2 million at December 31, 2021 and 2020, respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At December 31, 2020,

At December 31, 2021, our non-U.S.

subsidiaries held approximately $245.2 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,

(In thousands)

Dollars in thousands 2021 2020

Net cash provided by operating activities $ 312,427 $ 203,832

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Cash Flows Provided by Operating Activities

Operating cash flows for the year ended December 31, 2021 increased by $108.6 million compared to the same period in 2020.

Net income after removing the impact of the gain on sale of business and non-cash adjustments increased for the year ended December 31, 2021, by approximately $49.1 million as compared to the same period in 2020 primarily due to the continuing revenue recovery in the current year as compared to the height of the COVID-19 pandemic in the prior year.

The changes in assets and liabilities, net of business acquisitions, increased cash flows from operating activities in the current year by $18.2 million compared to the decrease of $41.3 million for the same period in 2020.

The improvement in 2021 working capital is attributable to a decrease in inventory of $5.4 million due to investments in building safety stock made in the prior year where inventory increased by $48.3 million as well as improved sales in 2021.

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

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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.

In addition, decreases were also driven 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, 2021, we paid a net cash amount of $303.9 million in relation to the acquisition of ACell and received net proceeds of $190.5 million for the sale of the Extremity Orthopedics business.

The Company also paid for $48.0 million capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

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.

Cash Flows Provided by (Used in) Financing Activities

Cash Flows (Used in) Provided by Financing Activities

Uses of cash from financing activities for the year ended December 31, 2021 were repayments of $125.5 million on the revolving portion of our Senior Credit Facility and Securitization Facility.

In addition, the Company had $4.8 million in cash taxes paid in net equity settlements.

These uses were offset by $6.8 million proceeds from the exercise of stock options and $25.5 million borrowings under our Senior Credit Facility and Securitization Facility.

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.

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.

See Note 5, Debt, to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for a discussion of our Amended and Restated Senior Credit Agreement, the 2025 Notes and Securitization Facility and Note 6, Derivative Instruments to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for discussion of our hedging activities.

We are forecasting that sales and earnings for the next twelve months 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.

Share Repurchase Plan

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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, 2021.

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.

For the year ended December 31, 2021, there were no repurchases of the Company’s common stock as part of the share repurchase authorization.

On January 12, 2022, the Company entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.5 million shares of the Company common stock at inception of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR.

The remaining 20% of the expected total shares is expected to settle in the first half of 2022, upon which additional shares of common stock may be delivered to the Company or, under certain circumstances, the Company may be required to make a cash payment or may elect to deliver shares of our common stock to the 2022 ASR counterparty in each case pursuant to the terms of the 2022 ASR agreement between the Company and the 2022 ASR counterparty.

The total number of shares to be delivered or the amount of such payment, as well as the final average price per share, will be based on the volume-weighted average price, less a discount, of the Company's common stock during the term of the transaction.

As a result of this transaction, $100.0 million remains available under the $225.0 million stock repurchase authorization .

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

The Company utilized $100.0 million of net proceeds from the offering of convertible 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.

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

The Company received 1.3 million shares at inception of the 2020 ASR, which represented approximately 80% of the expected total shares.

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

See Note 8, Treasury Stock of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further details.

Dividend Policy

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

We have 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.

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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

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Contractual Obligations and Commitments

As of December 31, 2020, we were obligated to pay the following amounts under the following agreements:

Payments Due by Calendar Year

Total 2021 2022-2023 2024-2025 Thereafter

(In millions)

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 $ —

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.

(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.

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.

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.

We will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to fund acquisitions.

As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.

Our primary obligations include principal and interest payments on revolving portion and Term Loan component of the Senior Credit Facility, Securitization Facility and Convertible Securities.

See Note 5 , Debt , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

The Company also leases some of our manufacturing facilities and office buildings which have future minimum lease payments associated.

See Note 11, Leases and Related Party Leases to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for a schedule of our future minimum lease payments.

Amounts related to the Company's other obligations, including employment agreements and purchase obligations were not material.

The Company has contingent consideration obligation related to prior and current year acquisitions and future pension contribution obligations.

See Note 10, Retirement Benefit Plans and Note 15, Commitments and Contingencies to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

The associated obligations are not fixed.

The Company also has a liability for uncertain tax benefits including interest and penalties.

See Note 12, Income Taxes to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

The Company cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

Employee Termination Benefits

The Company incurred restructuring costs of $3.4 million and $4.9 million in cost of goods sold, $0.5 million and $1.2 million in selling, general and administrative and $0.3 million and $0.3 million in research and development related to employee terminations associated with a future plant closure in the consolidated statement of operations for the years ended December 31, 2021 and 2020, respectively.

Restructuring costs of $10.2 million were included in a ccrued expenses and other current liabilities and $6.4 million were included in other liabilities in the consolidated balance sheet for the year ended December 31, 2021 and 2020, respectively.

See Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further details.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

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, 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.

Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets including amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of 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:

As we continue to navigate the COVID-19 pandemic and recent variants of the virus, as well as the adverse impacts to global economic conditions, supply chain and our operations, there may be impact to 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.

Because of this uncertainty, actual results could differ from these estimates.

Allowances for Doubtful Accounts Receivable and Sales Returns and Allowances

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If actual returns or allowances differ from our estimates and the related provisions for sales returns and allowances, we may change the provision in the future through an increase or decrease in revenues.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

We adopted this guidance on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with no change to financial results reported in prior periods.

The cumulative-effect adjustment recorded on January 1, 2020 was not material.

The adoption of this ASU did not have a significant impact on our consolidated financial statements and related disclosures.

Our exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the COVID-19 pandemic and recent variants of the virus, and other customer-specific factors.

Although we have historically not experienced significant credit losses, it is possible that there could be an adverse impact due to customer and governmental responses to the COVID-19 pandemic.

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

At each balance sheet date, we evaluate ending inventories for excess quantities, obsolescence or shelf-life expiration.

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.

Our evaluation includes an analysis of historical sales levels by product, projections of future demand by product, the risk of technological or competitive obsolescence for our products, general market conditions, a review of the shelf-life expiration dates for our products, and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory.

To the extent that we determine there are excess or obsolete quantities or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust their carrying value to estimated net realizable value.

If future demand or market conditions are lower than our projections, or if we are unable to rework excess or obsolete quantities into other products, we may record further adjustments to the carrying value of inventory through a charge to cost of product revenues in the period the revision is made.

The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management's judgment of probable economic benefit.

The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program.

Results of operations of acquired companies are included in the Company’s results of operations as of the respective acquisition dates.

Net assets acquired are recorded at fair value at the date of the acquisition.

Any purchase price in excess of these net assets is recorded as goodwill.

The fair values of net assets acquired may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

Contingent consideration is recognized at the estimated fair value on the acquisition date for a business combination and recorded when probable for an asset acquisition.

Subsequent changes to the fair value of contingent payments are recognized in earnings.

The Company accounts for the acquisition of a business in accordance with ASC 805, Business Combinations (ASC 805).

Amounts paid to acquire a business are allocated to the assets acquired and liabilities assumed based on the fair values at the date of acquisition.

Any excess of the purchase price over the fair value of the net assets acquired in recorded as goodwill.

Transaction costs and costs to restructure the acquired company are expensed as incurred.

Contingent consideration is recorded at fair value as measured on the date of acquisition.

The value recorded is based on estimates of future financial projections under various potential scenarios using either a Monte Carlo simulation or the probability-weighted income approach derived from revenue estimates and probability assessment with respect to the likelihood of achieving contingent obligations.

Contingent payments related to acquisitions consist of development, regulatory, and commercial milestone payments, in addition to sales-based payments, and are valued using discounted cash flow techniques.

The fair value of development, regulatory, and commercial milestone payments reflects management’s expectations of the probability of payment and increases or decreases as the probability of payment or expectation of timing of payments changes.

The fair value of sales-based payments is based upon probability-weighted future revenue estimates and increases or decreases as revenue estimates or expectation of timing of payments changes.

Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period and adjusted as a component of operating expenses based on changes to the underlying assumptions.

The change in the fair value of sales-based payments is based upon future revenue estimates and increases or decreases as revenue estimates or expectation of timing of payment charges.

The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and actual results are likely to differ from the amounts originally recorded.

The Company determi nes the fair value of acquired intangible assets based on detailed valuations that use certain information and assumptions provided by management.

The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.

Determining the fair value of these intangible assets, acquired as part of a business combination requires the Company to make significant estimates.

These estimates include the amount and timing of projected future cash flows, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.

The fair value assigned to other intangible assets is determined by estimating the future cash flows of each project or technology and discounting the net cash flows back to their present values.

The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies.

Acquired IPR&D is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

The Company uses the income approach to determine the fair value of developed technology and IPR&D acquired in a business combination.

This approach determines fair value by estimating the after-tax cash flows attributable to the respective asset over its useful life and then discounting these after-tax cash flows back to a present value.

Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each product including net revenues, cost of sales, R&D costs, selling and marketing costs, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream.

The Company also uses the income approach, as described above, to determine the estimated fair value of certain other identifiable intangible assets including customer relationships, trade names and business licenses.

Customer relationships represent established relationships with customers, which provide a ready channel for the sale of additional products and services.

Trade names represent acquired company and product names.

IPR&D acquired in a business combination is capitalized as an indefinite-lived intangible asset.

Development costs incurred after the acquisition are expensed as incurred.

Upon receipt of regulatory approval, the indefinite-lived intangible asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis or accelerated basis, as appropriate, over its estimated useful life.

If the research and development project is subsequently abandoned, the indefinite-lived intangible asset is charged to expense.

IPR&D acquired outside of a business combination is expensed immediately.

Due to the uncertainty associated with research and development projects, there is risk that actual results will differ materially from the original cash flow projections and that the research and development project will result in a successful commercial product.

The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, delay or failure to obtain required market clearances, delays or issues with patent

issuance, or validity and litigation.

If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized.

In an asset acquisition, the amount allocated to acquired IPR&D with no alternative future use is charged to expense at the acquisition date.

Payments that would be recognized as contingent consideration in a business combination are expensed when probable in an asset acquisition.

Refer to Note 4, Acquisitions and Divestitures to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Valuation of Goodwill

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Goodwill is not subject to amortization but is reviewed for impairment at the reporting unit level annually, or more frequently if impairment indicators arise.

Our assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value.

We review goodwill for impairment annually as of July 31 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Refer to Note 8 - Goodwill and Other Intangible Assets for more information on reportable segments.

The Company's assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value.

The Company reviews goodwill for impairment in the third quarter every year in accordance with ASC Topic 350 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Refer to Note 7, Goodwill and Other Intangibles of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for more information.

Valuation of Identifiable Intangible Assets

Other intangible assets include patents, trademarks, purchased technology, and supplier and customer relationships.

Identifiable intangible assets are initially recorded at fair market value at the time of acquisition generally using an income or cost approach.

The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.

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

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

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

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

The Company may elect to bypass this qualitative evaluation and perform a quantitative test.

Product rights and other definite-lived intangible assets are tested periodically for impairment in accordance with ASC Topic 360 when events or changes in circumstances indicate that an asset's carrying value may not be recoverable.

The impairment test involves comparing the carrying amount of the asset or asset group to the forecasted undiscounted future cash flows.

In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not recoverable and impairment exists.

An impairment loss is measured as the excess of the asset's carrying value over its fair value, calculated using discounted future cash flows.

The computed impairment loss is recognized in the period that the impairment occurs.

We develop, manufacture, and sell medical devices globally.

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Our derivative instruments do not subject our earnings or cash flows to material risk, and gains and losses on these derivatives generally offset losses and gains on the item being hedged.

We have not entered into derivative transactions for speculative purposes and from time to time, we may enter into derivatives that are not designated as hedging instruments in order to protect the Company from currency volatility due to intercompany balances.

We have not entered into derivative transactions for speculative purposes.

From time to time, we may enter into derivatives that are not designated as hedging instruments in order to protect the Company from currency volatility due to intercompany balances.

All derivative instruments are recognized at their fair values as either assets or liabilities on the balance sheet.

We determine the fair value of our derivative instruments, using the framework prescribed by the authoritative guidance, by considering the estimated amount we would receive to sell or transfer these instruments at the reporting date and by taking into account expected forward interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities.

We determine the fair value of our derivative instruments, by considering the estimated amount we would receive to sell or transfer these instruments at the reporting date and by taking into account expected forward interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities.

In certain instances, we may utilize a discounted cash flow model to measure fair value.

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We maintain strategic management and operational activities in overseas subsidiaries.

See Note 13, Income Taxes , in our consolidated financial statements for disclosures related to foreign and domestic pretax income, foreign and domestic income tax expense (benefit) and the effect foreign taxes have on our overall effective tax rate.

See Note 12, Income Taxes of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), in our consolidated financial statements for disclosures related to foreign and domestic pretax income, foreign and domestic income tax expense (benefit) and the effect foreign taxes have on our overall effective tax rate.

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.

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cash needs without requiring the repatriation of foreign cash.

The 2017 Tax Act imposed a Toll Tax on a deemed repatriation of undistributed earnings of foreign subsidiaries.

One time or unusual items that may impact our ability or intent to keep the foreign earnings and cash indefinitely reinvested include significant U.S.

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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, 2021.

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

Loss Contingencies

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Recently Issued and Adopted Accounting Standards

Refer to Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements for recently adopted accounting pronouncements.

Refer to Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), to the consolidated financial statements for recently adopted accounting pronouncements.

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