Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NO. 0-26224
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
|
|
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
|
|
51-0317849
(I.R.S. EMPLOYER
IDENTIFICATION NO.) |
|
|
|
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
|
|
08536
(ZIP CODE) |
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 275-0500
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
The number of shares of the registrants Common Stock, $.01 par value, outstanding as of
April 28, 2010 was 29,002,636.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Total revenue, net |
|
$ |
172,698 |
|
|
$ |
160,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of product revenues |
|
|
63,224 |
|
|
|
58,148 |
|
Research and development |
|
|
11,301 |
|
|
|
10,643 |
|
Selling, general and administrative |
|
|
72,511 |
|
|
|
66,451 |
|
Intangible asset amortization |
|
|
3,019 |
|
|
|
3,456 |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
150,055 |
|
|
|
138,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
22,643 |
|
|
|
22,252 |
|
Interest income |
|
|
61 |
|
|
|
247 |
|
Interest expense |
|
|
(4,541 |
) |
|
|
(6,684 |
) |
Other income (expense), net |
|
|
1,146 |
|
|
|
(868 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,309 |
|
|
|
14,947 |
|
Provision for income taxes |
|
|
4,087 |
|
|
|
5,380 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.51 |
|
|
$ |
0.33 |
|
Diluted net income per share |
|
$ |
0.50 |
|
|
$ |
0.32 |
|
Weighted average common shares outstanding (See Note 10): |
|
|
|
|
|
|
|
|
Basic |
|
|
29,488 |
|
|
|
28,943 |
|
Diluted |
|
|
29,982 |
|
|
|
29,252 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
81,674 |
|
|
$ |
71,891 |
|
Trade accounts receivable, net of allowances of $10,429 and $11,216 |
|
|
98,532 |
|
|
|
103,228 |
|
Inventories, net |
|
|
142,113 |
|
|
|
140,240 |
|
Deferred tax assets |
|
|
29,444 |
|
|
|
29,972 |
|
Prepaid expenses and other current assets |
|
|
21,081 |
|
|
|
20,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
372,844 |
|
|
|
365,363 |
|
Property, plant, and equipment, net |
|
|
83,418 |
|
|
|
83,526 |
|
Intangible assets, net |
|
|
206,344 |
|
|
|
211,117 |
|
Goodwill |
|
|
257,789 |
|
|
|
261,941 |
|
Deferred tax assets |
|
|
15,516 |
|
|
|
15,841 |
|
Other assets |
|
|
2,086 |
|
|
|
2,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
937,997 |
|
|
$ |
940,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Convertible securities |
|
$ |
77,470 |
|
|
$ |
76,760 |
|
Accounts payable, trade |
|
|
25,403 |
|
|
|
24,598 |
|
Deferred revenue |
|
|
3,937 |
|
|
|
4,077 |
|
Accrued compensation |
|
|
25,253 |
|
|
|
23,227 |
|
Accrued expenses and other current liabilities |
|
|
27,117 |
|
|
|
28,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
159,180 |
|
|
|
156,730 |
|
Long-term borrowings under senior credit facility |
|
|
145,000 |
|
|
|
160,000 |
|
Long-term convertible securities |
|
|
150,313 |
|
|
|
148,754 |
|
Deferred tax liabilities |
|
|
8,452 |
|
|
|
9,319 |
|
Other liabilities |
|
|
17,132 |
|
|
|
20,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
480,077 |
|
|
|
495,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Preferred Stock; no par value; 15,000 authorized shares; none outstanding |
|
|
|
|
|
|
|
|
Common stock; $.01 par value; 60,000
authorized shares; 35,266 and
34,958 issued |
|
|
353 |
|
|
|
350 |
|
Additional paid-in capital |
|
|
529,848 |
|
|
|
520,849 |
|
Treasury stock, at cost; 6,354 shares |
|
|
(252,380 |
) |
|
|
(252,380 |
) |
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(1,483 |
) |
|
|
9,746 |
|
Pension liability adjustment, net of tax |
|
|
(814 |
) |
|
|
(860 |
) |
Unrealized gain on derivatives, net of tax |
|
|
13 |
|
|
|
19 |
|
Retained earnings |
|
|
182,383 |
|
|
|
167,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
457,920 |
|
|
|
444,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
937,997 |
|
|
$ |
940,102 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these condensed consolidated financial statements.
2
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,431 |
|
|
|
8,676 |
|
Deferred income tax benefit |
|
|
(369 |
) |
|
|
(419 |
) |
Amortization of bond issuance costs |
|
|
357 |
|
|
|
824 |
|
Non-cash interest expense |
|
|
2,053 |
|
|
|
2,762 |
|
Loss on disposal of property and equipment |
|
|
154 |
|
|
|
|
|
Payment of accreted interest |
|
|
|
|
|
|
(1,544 |
) |
Gain on bond repurchases |
|
|
|
|
|
|
(1,213 |
) |
Share-based compensation |
|
|
3,843 |
|
|
|
3,760 |
|
Excess tax benefits from stock-based compensation arrangements |
|
|
(2,912 |
) |
|
|
(8 |
) |
Changes in assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,278 |
|
|
|
9,141 |
|
Inventories |
|
|
(2,199 |
) |
|
|
2,693 |
|
Prepaid expenses and other current assets |
|
|
(821 |
) |
|
|
7,247 |
|
Other non-current assets |
|
|
196 |
|
|
|
910 |
|
Accounts payable, accrued expenses and other current liabilities |
|
|
3,196 |
|
|
|
(5,420 |
) |
Deferred revenue |
|
|
(456 |
) |
|
|
(191 |
) |
Other non-current liabilities |
|
|
(2,836 |
) |
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28,137 |
|
|
|
37,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash used in business acquisition, net of cash acquired |
|
|
|
|
|
|
(4,003 |
) |
Purchases of property and equipment |
|
|
(5,944 |
) |
|
|
(3,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,944 |
) |
|
|
(7,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Repayments under senior credit facility |
|
|
(15,000 |
) |
|
|
|
|
Repurchase of liability component of convertible notes |
|
|
|
|
|
|
(27,988 |
) |
Proceeds from exercise of stock options, net |
|
|
2,624 |
|
|
|
23 |
|
Excess tax benefits from stock-based compensation arrangements |
|
|
2,912 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9,464 |
) |
|
|
(27,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(2,946 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
9,783 |
|
|
|
2,084 |
|
Cash and cash equivalents at beginning of period |
|
|
71,891 |
|
|
|
183,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
81,674 |
|
|
$ |
185,630 |
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash activity:
During the three months ended
March 31, 2010, 282,086 stock options were exercised,
whereby in lieu of a cash payment for the exercise price, an option holder tendered 73,546 shares of Company stock that
had a fair market value of approximately $3.1 million. These tendered shares were then
immediately retired.
The
accompanying notes are an integral part of these condensed consolidated financial statements.
3
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
General
The terms we, our, us, Company and Integra refer to Integra LifeSciences
Holdings Corporation, a Delaware corporation, and its subsidiaries unless the context
suggests otherwise.
In the opinion of management, the March 31, 2010 unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial position, results of
operations and cash flows of the Company. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated
financial statements should be read in conjunction with the Companys consolidated
financial statements for the year ended December 31, 2009 included in the Companys
Annual Report on Form 10-K. The December 31, 2009 condensed consolidated balance sheet
was derived from audited financial statements but does not include all disclosures
required by accounting principles generally accepted in the United States. Operating
results for the three-month period ended March 31, 2010 are not necessarily indicative of
the results to be expected for the entire year.
The preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, the disclosure of contingent
liabilities, and the reported amounts of revenues and expenses. Significant estimates
affecting amounts reported or disclosed in the consolidated financial statements include
allowances for doubtful accounts receivable and sales returns and allowances, net
realizable value of inventories, amortization periods for acquired intangible assets and
goodwill, discount rates and estimated projected cash flows used to value and test
impairments of long-lived assets and goodwill, estimates of projected cash flows and
depreciation and amortization periods for long-lived assets, valuation of intangible
assets and in-process research and development, pension assets, computation of taxes,
valuation allowances recorded against deferred tax assets, the valuation of stock-based
compensation, 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.
Certain amounts from the prior-years financial statements have been reclassified in
order to conform to the current years presentation.
Recently Issued Accounting Standards
There have been no recently issued accounting standards that have an impact on the
Companys financial statements.
2. BUSINESS AND ASSET ACQUISITIONS
Athrodax Healthcare International Ltd.
In December 2009, the Company acquired certain assets as well as the distribution rights
for its Newdeal® product lines in the United Kingdom from Athrodax Healthcare
International Ltd. (Athrodax), for approximately $3.3 million (2.0 million British
Pounds) in cash, subject to certain adjustments for working capital items. For the last
10 years Athrodax had been the Companys distributor of extremity reconstruction products
in the United Kingdom. The acquisition provides the Company with the opportunity to
distribute orthopedic products directly to its United Kingdom customers, and included an
experienced sales team in the foot and ankle surgery market which had successfully
developed its brand in the United Kingdom.
Innovative Spinal Technologies, Inc.
In August 2009, we acquired certain assets and liabilities of Innovative Spinal
Technologies, Inc. (IST) for approximately $9.3 million in cash and $0.2 million in
acquisition expenses. IST had filed for Chapter 7 bankruptcy protection in May 2009 and
the acquisition was the result of an auction process conducted by the bankruptcy trustee
and approved by the United States Bankruptcy Judge for the District of Massachusetts.
ISTs focus was on spinal implant products related to minimally invasive surgery and
motion preservation techniques. We acquired: three product lines, various product
development assets for posterior dynamic stabilization, various patents and trademarks
and inventory, and also assumed certain of ISTs patent license agreements and related
obligations. These assets and liabilities acquired did not meet the definition of a
business under the authoritative guidance for business combinations. Accordingly, the
assets and liabilities have been recognized at fair value with no related goodwill.
4
Theken
In August 2008 the Company acquired Theken Spine, LLC, Theken Disc, LLC and Therics, LLC
(collectively, Integra Spine) for $75.0 million in cash, acquisition expenses of $2.4
million, working capital adjustments of $3.9 million, and up to an additional $125.0
million in future payments based on the revenue performance of the business in each of
the two years after closing. Approximately $52.0 million of the potential revenue
performance obligation was paid in November 2009. Integra Spine, based in Akron, Ohio,
designs, develops and manufactures spinal fixation products, synthetic bone substitute
products and spinal arthroplasty products.
3. INVENTORIES
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Finished goods |
|
$ |
110,753 |
|
|
$ |
109,077 |
|
Work-in process |
|
|
31,079 |
|
|
|
28,757 |
|
Raw materials |
|
|
28,490 |
|
|
|
30,131 |
|
Less: reserves |
|
|
(28,209 |
) |
|
|
(27,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
142,113 |
|
|
$ |
140,240 |
|
|
|
|
|
|
|
|
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the three months ended March 31, 2010 were
as follows (in thousands):
|
|
|
|
|
Goodwill |
|
$ |
261,941 |
|
Accumulated impairment losses |
|
|
|
|
|
|
|
|
Goodwill at December 31, 2009 |
|
|
261,941 |
|
Foreign currency translation |
|
|
(4,152 |
) |
|
|
|
|
|
|
|
|
|
Goodwill at March 31, 2010 |
|
$ |
257,789 |
|
|
|
|
|
The Companys assessment of the recoverability of goodwill is based upon a
comparison of the carrying value of goodwill with its estimated fair value, determined
using a discounted cash flow methodology. This assessment is performed annually during
the second quarter and was performed most recently during the second quarter of 2009
which resulted in no impairment.
The components of the Companys identifiable intangible assets were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Average |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Life |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed technology |
|
12 years |
|
$ |
69,062 |
|
|
$ |
(23,621 |
) |
|
$ |
45,441 |
|
|
$ |
69,632 |
|
|
$ |
(22,526 |
) |
|
$ |
47,106 |
|
Customer relationships |
|
12 years |
|
|
97,726 |
|
|
|
(38,878 |
) |
|
|
58,848 |
|
|
|
97,922 |
|
|
|
(36,724 |
) |
|
|
61,198 |
|
Trademarks/brand names |
|
35 years |
|
|
35,609 |
|
|
|
(8,997 |
) |
|
|
26,612 |
|
|
|
35,741 |
|
|
|
(8,692 |
) |
|
|
27,049 |
|
Trademarks/brand names |
|
Indefinite |
|
|
49,384 |
|
|
|
|
|
|
|
49,384 |
|
|
|
49,384 |
|
|
|
|
|
|
|
49,384 |
|
Supplier relationships |
|
30 years |
|
|
29,300 |
|
|
|
(3,793 |
) |
|
|
25,507 |
|
|
|
29,300 |
|
|
|
(3,647 |
) |
|
|
25,653 |
|
All other |
|
15 years |
|
|
8,140 |
|
|
|
(7,588 |
) |
|
|
552 |
|
|
|
8,197 |
|
|
|
(7,470 |
) |
|
|
727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
289,221 |
|
|
$ |
(82,877 |
) |
|
$ |
206,344 |
|
|
$ |
290,176 |
|
|
$ |
(79,059 |
) |
|
$ |
211,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Annual amortization expense is expected to approximate $17.0 million in 2010, $16.7
million in 2011, $16.5 million in 2012, $13.8 million in 2013 and $12.8 million in 2014.
Identifiable intangible assets are initially recorded at fair market value at the time of
acquisition generally using an income or cost approach.
5. DEBT
2010 and 2012 Senior Convertible Notes
On June 11, 2007, the Company issued $165.0 million aggregate principal amount of its
2010 Notes and $165.0 million aggregate principal amount of its 2012 Notes (the 2010
Notes and the 2012 Notes, collectively the Notes). The 2010 Notes and the 2012 Notes
bear interest at a rate of 2.75% per annum and 2.375% per annum, respectively, in each
case payable semi-annually in arrears on December 1 and June 1 of each year. The
principal amount outstanding under the 2010 Notes and the 2012 Notes at March 31, 2010
was $77.9 million and $165.0 million, respectively. The fair value of the 2010 Notes and
the 2012 Notes at March 31, 2010 was approximately $78.3 million and $171.5 million,
respectively. The Notes are senior, unsecured obligations of the Company, and are
convertible into cash and, if applicable, shares of its common stock based on an initial
conversion rate, subject to adjustment, of 15.0917 shares per $1,000 principal amount of
notes for the 2010 Notes and 15.3935 shares per $1,000 principal amount of notes for the
2012 Notes (which represents an initial conversion price of approximately $66.26 per
share and approximately $64.96 per share for the 2010 Notes and the 2012 Notes,
respectively.) The Company will satisfy any conversion of the Notes with cash up to the
principal amount of the applicable series of Notes pursuant to the net share settlement
mechanism set forth in the applicable indenture and, with respect to any excess
conversion value, with shares of the Companys common stock. The Notes are convertible
only in the following circumstances: (1) if the closing sale price of the Companys
common stock exceeds 130% of the conversion price during a period as defined in the
indenture; (2) if the average trading price per $1,000 principal amount of the Notes is
less than or equal to 97% of the average conversion value of the Notes during a period as
defined in the indenture; (3) at any time on or after December 15, 2009 (in connection
with the 2010 Notes) or anytime after December 15, 2011 (in connection with the 2012
Notes); or (4) if specified corporate transactions occur. The issue price of the Notes
was equal to their face amount, which is also the amount holders are entitled to receive
at maturity if the Notes are not converted. However, none of these conditions existed
with respect to the 2012 Notes, but the 2010 Notes were freely convertible. As of March
31, 2010, the 2010 Notes are classified as current due to their maturity date and the
2012 Notes are classified as long term.
Holders of the Notes, who convert their notes in connection with a qualifying fundamental
change, as defined in the related indenture, may be entitled to a make-whole premium in
the form of an increase in the conversion rate. Additionally, following the occurrence of
a fundamental change, holders may require that the Company repurchase some or all of the
Notes for cash at a repurchase price equal to 100% of the principal amount of the notes
being repurchased, plus accrued and unpaid interest, if any.
The Notes, under the terms of the private placement agreement, are guaranteed fully by
Integra LifeSciences Corporation, a subsidiary of the Company. The 2010 Notes will rank
equal in right of payment to the 2012 Notes. The Notes will be the Companys direct
senior unsecured obligations and will rank equal in right of payment to all of the
Companys existing and future unsecured and unsubordinated indebtedness.
In connection with the issuance of the Notes, the Company entered into call transactions
and warrant transactions, primarily with affiliates of the initial purchasers of the
Notes (the hedge participants), in connection with each series of Notes. The cost of
the call transactions to the Company was approximately $46.8 million. The Company
received approximately $21.7 million of proceeds from the warrant transactions. The call
transactions involve the Companys purchasing call options from the hedge participants,
and the warrant transactions involve the Companys selling call options to the hedge
participants with a higher strike price than the purchased call options.
The initial strike price of the call transactions is (1) for the 2010 Notes,
approximately $66.26 per share of Common Stock, and (2) for the 2012 Notes, approximately
$64.96, in each case subject to anti-dilution adjustments substantially similar to those
in the Notes. The initial strike price of the warrant transactions is (x) for the 2010
Notes, approximately $77.96 per share of Common Stock and (y) for the 2012 Notes,
approximately $90.95, in each case subject to customary anti-dilution adjustments.
In 2009, the Company repurchased a total principal amount of $87.1 million of the 2010
Notes and recognized a gain of $0.5 million. Total cash paid for these repurchases was
$83.3 million of which $78.0 million related to repayment of the liability
component of the Notes. For all of these transactions, the bond hedge contracts were
terminated on a pro-rata basis and the number of options was adjusted to reflect the
number of convertible securities outstanding that together have a total principal amount
of $77.9 million. Also, in connection with the repurchases, in separate transactions, we
amended the warrant transactions to reduce the number of warrants outstanding to reflect
such number of convertible securities outstanding.
6
Senior Secured Revolving Credit Facility
As of March 31, 2010, the Company had $145.0 million of outstanding borrowings under this
credit facility at a weighted average interest rate of 0.98%. The fair value of the
$145.0 million outstanding borrowings on this credit facility at March 31, 2010 was
approximately $137.4 million. During the three months ended March 31, 2010, the Company
repaid $15.0 million of its outstanding borrowings. The Company considers all such
outstanding amounts to be long-term in nature based on its current intent and ability to
repay the borrowing outside of the next twelve-month period. This credit facility expires
in December 2011.
6. DERIVATIVE INSTRUMENTS
The Company utilizes a foreign currency forward exchange contract to hedge an anticipated
intercompany transaction in euros and designates this derivative instrument as a cash
flow hedge. Our forward exchange contract has a notional amount of 8.2 million euros
($11.0 million at March 31, 2010), and is short term in nature with a term of less than
twelve months. This forward exchange contract matches the currency, timing and notional
amount of underlying forecasted transactions. Therefore, no ineffectiveness resulted or
was recorded through the condensed consolidated statement of operations. As of March 31, 2010, this
forward exchange contract has an aggregate U.S. dollar equivalent fair value amounting to
net losses of $1.1 million included in other current liabilities. The net gains or losses
from this cash flow hedge reported in accumulated other comprehensive income is
reclassified to earnings and recorded in other income in our consolidated statement of
operations as the foreign currency rates fluctuate. At March 31, 2010, the amount of net
unrealized gains in other comprehensive income which will be recognized as an increase to
other income in the remainder of 2010 was not significant. The Company considers the
credit risk related to the forward to be low because the instrument was entered into with
a financial institution with a high credit rating.
7. STOCK-BASED COMPENSATION
As of March 31, 2010, the Company had stock options, restricted stock awards, performance
stock awards, contract stock awards and restricted stock unit awards outstanding under
six plans, the 1996 Incentive Stock Option and Non-Qualified Stock Option Plan (the 1996
Plan), the 1998 Stock Option Plan (the 1998 Plan), the 1999 Stock Option Plan (the
1999 Plan), the 2000 Equity Incentive Plan (the 2000 Plan), the 2001 Equity Incentive
Plan (the 2001 Plan), and the 2003 Equity Incentive Plan (the 2003 Plan, and
collectively, the Plans). No new awards may be granted under the 1996 Plan, the 1998
Plan, the 1999 Plan and beginning in April 2010, the 2000 Plan.
Stock options issued under the Plans become exercisable over specified periods, generally
within four years from the date of grant for officers, directors and employees, and
generally expire six years from the grant date for employees and from six to ten years
for directors and certain executive officers. The transfer and non-forfeiture provisions
of restricted stock issued under the Plans lapse over specified periods, generally three
years after the date of grant.
Stock Options
The Company did not grant stock options during the three months ended March 31, 2010 or
March 31, 2009. As of March 31, 2010, there were approximately $3.7 million of total
unrecognized compensation costs related to unvested stock options. These costs are
expected to be recognized over a weighted-average period of approximately 1.6 years. The
Company received net proceeds of $2.6 million and $23 thousand from stock option
exercises for the three months ended March 31, 2010 and 2009, respectively.
Awards of Restricted Stock, Performance Stock and Contract Stock
Performance stock awards have performance features associated with them. Performance
stock, restricted stock and contract stock awards generally have requisite service
periods of three years. The fair value of these awards is being expensed on a
straight-line basis over the vesting period or requisite service period, whichever is
shorter. As of March 31, 2010, there was approximately $13.8 million of total
unrecognized compensation costs related to unvested awards. These costs are expected to
be recognized over a weighted-average period of approximately 1.8 years.
The Company has no formal policy related to the repurchase of shares for the purpose of
satisfying stock-based compensation obligations. Independent of these programs, the
Company does have a practice of repurchasing shares, from time to time, in the open
market.
The Company also maintains an Employee Stock Purchase Plan (the ESPP), which provides
eligible employees of the Company with the opportunity to acquire shares of common stock
at periodic intervals by means of accumulated payroll deductions. The ESPP is a
non-compensatory plan based on its terms.
7
8. RETIREMENT BENEFIT PLANS
The Company maintains defined benefit pension plans that cover employees in its
manufacturing plants located in Andover, United Kingdom (the UK Plan) and Tuttlingen,
Germany (the Germany Plan). The Company closed the Tuttlingen, Germany plant in
December 2005. However, the Germany Plan was not terminated and the Company remains
obligated for the accrued pension benefits related to this plan. The plans cover certain
current and former employees. Net periodic benefit costs for the Companys defined
benefit pension plans included the following amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
27 |
|
|
$ |
27 |
|
Interest cost |
|
|
163 |
|
|
|
139 |
|
Expected return on plan assets |
|
|
(124 |
) |
|
|
(96 |
) |
Recognized net actuarial loss |
|
|
38 |
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net period benefit cost |
|
$ |
104 |
|
|
$ |
178 |
|
|
|
|
|
|
|
|
The Company made $0.3 million and $0.1 million of contributions to its defined
benefit pension plans during the three months ended March 31, 2010 and March 31, 2009,
respectively.
9. COMPREHENSIVE INCOME
Comprehensive income was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
Foreign currency translation adjustment |
|
|
(11,229 |
) |
|
|
(7,967 |
) |
Unrealized gain on derivatives, net of tax |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,999 |
|
|
$ |
1,600 |
|
|
|
|
|
|
|
|
10. NET INCOME PER SHARE
The Company adopted the authoritative guidance related to determining whether instruments
issued in share-based payment transactions are participating securities on January 1,
2009. Certain of the Companys unvested restricted share units contain rights to receive
nonforfeitable dividends, and thus, are participating securities requiring the two-class
method of computing EPS. As these securities had an insignificant impact (impacts the
rounding by $0.01 per share) on basic and diluted net income per share for the three
months ended March 31, 2010 and diluted net income per share for the three months ended
March 31, 2009, the full calculation has not been presented below.
8
Basic and diluted net income per share was as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
Weighted average common shares outstanding |
|
|
29,488 |
|
|
|
28,943 |
|
Basic net income per share |
|
$ |
0.51 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
Less: |
|
|
|
|
|
|
|
|
Impact of other participating securities |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
15,222 |
|
|
$ |
9,471 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Basic |
|
|
29,488 |
|
|
|
28,943 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and restricted stock |
|
|
494 |
|
|
|
309 |
|
|
|
|
|
|
|
|
Weighted average common shares for diluted earnings per share |
|
|
29,982 |
|
|
|
29,252 |
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.50 |
|
|
$ |
0.32 |
|
At March 31, 2010 and 2009, the Company had 1.9 million and 2.6 million of outstanding
stock options, respectively. The Company also has warrants outstanding relating to its
2010 Notes and 2012 Notes. Stock options and warrants are included in the diluted
earnings per share calculation using the treasury stock method, unless the effect of
including the stock options would be anti-dilutive. For the three months ended March 31,
2010 and 2009, 0.7 million and 2.3 million anti-dilutive stock options, respectively,
were excluded from the diluted earnings per share calculation. As the strike price of the
warrants exceeds the Companys average stock price for the period, the warrants are
anti-dilutive and the entire number of warrants, the amount of which is based on the
Companys average stock price, were also excluded from the diluted earnings per share
calculation.
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Companys management reviews financial results and manages the business on an
aggregate basis. Therefore, financial results are reported in a single operating segment,
the development, manufacture and marketing of medical devices for use in cranial and
spinal procedures, peripheral nerve repair, small bone and joint injuries, and the repair
and reconstruction of soft tissue.
Revenue consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Integra Orthopedics |
|
$ |
70,187 |
|
|
$ |
64,366 |
|
Integra NeuroSciences |
|
|
64,774 |
|
|
|
59,731 |
|
Integra Medical Instruments |
|
|
37,737 |
|
|
|
36,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
172,698 |
|
|
$ |
160,950 |
|
|
|
|
|
|
|
|
Total revenues by major geographic area are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
United States |
|
$ |
129,363 |
|
|
$ |
122,585 |
|
Europe |
|
|
24,152 |
|
|
|
23,394 |
|
Asia Pacific |
|
|
9,237 |
|
|
|
7,194 |
|
Other Foreign |
|
|
9,946 |
|
|
|
7,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
172,698 |
|
|
$ |
160,950 |
|
|
|
|
|
|
|
|
9
12. COMMITMENTS AND CONTINGENCIES
In consideration for certain technology, manufacturing, distribution and selling rights
and licenses granted to the Company, the Company has agreed to pay royalties on the sales
of products that are commercialized relative to the granted rights and licenses. Royalty
payments under these agreements by the Company were not significant for any of the
periods presented.
Various lawsuits, claims and proceedings are pending or have been settled by the Company.
The only significant item is described below.
In January 2010, the Company received a notice from the sellers representative of the
former Theken companies of a disagreement in the calculation of trade sales used in
calculating a revenue performance payment that the Company made in November 2009. The
notice alleges that the Company owes an additional $6.7 million. We are currently
discussing this matter with the sellers representative in an attempt to resolve the
dispute in accordance with the provisions contained in the asset purchase
agreement governing the transaction.
In addition to this matter, the Company is subject to various claims, lawsuits and
proceedings in the ordinary course of its business, including claims by current or former
employees, distributors and competitors and with respect to its products. In the opinion
of management, such claims are either adequately covered by insurance or otherwise
indemnified, or are not expected, individually or in the aggregate, to result in a
material adverse effect on the Companys financial condition. However, it is possible
that its results of operations, financial position and cash flows in a particular period
could be materially affected by these contingencies.
The Company accrues for loss contingencies when it is deemed probable that a loss has
been incurred and that loss is estimable. The amounts accrued are based on the full
amount of the estimated loss before considering insurance proceeds, and do not include an
estimate for legal fees expected to be incurred in connection with the loss contingency.
The Company consistently accrues legal fees expected to be incurred in connection with
loss contingencies as those fees are incurred by outside counsel as a period cost.
13. LEASES
On March 1, 2010, the Company exercised an option to extend a lease agreement for
production equipment dated June 2000 with Medicus Corporation. Under the option, the term
of the original lease agreement was extended through March 31, 2012. The sole stockholder
of Medicus Corporation is Provco Ventures I, LP, of which the Companys chairman serves
as partner and president.
10
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated financial
statements and the related notes thereto appearing elsewhere in this report and our
consolidated financial statements for the year ended December 31, 2009 included in our
Annual Report on Form 10-K.
We have made statements in this report which constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act). These forward-looking statements
are subject to a number of risks, uncertainties and assumptions about the Company. Our
actual results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set forth
above under the heading Risk Factors in our Annual Report on Form 10-K for the year
ended December 31, 2009. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or
otherwise.
You can identify these forward-looking statements by forward-looking words such as
believe, may, could, will, estimate, continue, anticipate, intend,
seek, plan, expect, should, would and similar expressions in this report.
GENERAL
Integra is a market-leading, innovative medical device company focused on helping the
medical professional enhance the standard of care for patients. Integra provides
customers with clinically relevant, innovative and cost-effective products that improve
the quality of life for patients. We focus on cranial and spinal procedures, small bone
and joint injuries, the repair and reconstruction of soft tissue, and instruments for
surgery.
We present revenues in three market categories: Orthopedics, NeuroSciences and Medical
Instruments. Our orthopedics products include specialty metal implants for surgery of the
extremities and spine, orthobiologics products for repair and grafting of bone, dermal
regeneration products and tissue engineered wound dressings and nerve and tendon repair
products. Our neurosciences products group includes, among other things, dural grafts
that are indicated for the repair of the dura mater, ultrasonic surgery systems for
tissue ablation, cranial stabilization and brain retraction systems, systems for
measurement of various brain parameters and devices used to gain access to the cranial
cavity and to drain excess cerebrospinal fluid from the ventricles of the brain. Our
medical instruments products include a wide range of specialty and general surgical and
dental instruments and surgical lighting for sale to hospitals, outpatient surgery
centers, and physician, veterinarian and dental practices.
We manage these product groups and distribution channels on a centralized basis.
Accordingly, we report our financial results under a single operating segment the
development, manufacture and distribution of medical devices.
We manufacture many of our products in plants located in the United States, Puerto Rico,
France, Germany, Ireland, the United Kingdom and Mexico. We also source most of our
hand-held surgical instruments through specialized third-party vendors.
In the United States, we have three sales channels Integra Orthopedics, Integra
NeuroSciences and Integra Medical Instruments. Within our Integra Orthopedics sales
channel, we sell through a large direct sales organization, and through specialty
distributors focused on their respective surgical specialties. Integra NeuroSciences
sells products through directly-employed sales representatives. The Integra Medical
Instruments sales channel sells directly and through distributors and wholesalers.
We also market certain products through strategic partners.
Our objective is to continue to build a customer-focused and profitable medical device
company by developing or acquiring innovative medical devices and other products to sell
through our sales channels. Our strategy therefore entails substantial growth in revenues
through both internal means through launching new and innovative products and selling
existing products more intensively and by acquiring existing businesses or already
successful product lines.
We aim to achieve this growth in revenues while maintaining strong financial results.
While we pay attention to any meaningful trend in our financial results, we pay
particular attention to measurements that are indicative of long-term profitable growth.
These measurements include revenue growth (derived through acquisitions and products
developed internally), gross margins on total revenues, operating margins (which we aim
to continually expand on as we leverage our existing infrastructure), operating cash
flows (which we aim to increase through improved working capital management), and
earnings per diluted share of common stock.
11
We believe that we are particularly effective in the following aspects of our business:
Developing metal implants for bone and joint repair, fixation and fusion. Through
acquisitions, particularly those of Integra Spine in 2008 and Newdeal Technologies SAS in
2005, we have acquired significant expertise in developing metal implants for use in bone
and joint repair, fixation and fusion and in successfully bringing those products to
market.
Developing, manufacturing and selling specialty regenerative technology products. We have
a broad technology platform for developing products that regenerate or repair soft tissue
and bone. We believe that we have a particular advantage in developing, manufacturing and
selling tissue repair products derived from bovine collagen. These products comprised 22%
and 23% of revenues for the three months ended March 31, 2010 and 2009, respectively.
Acquiring and integrating new product lines and complementary businesses. Since 2007, we
have acquired and integrated more than 10 product lines or businesses through an
acquisition program that focuses on acquiring companies or product lines at reasonable
valuations which complement our existing product lines or can be used to leverage our
broad technology platform in tissue regeneration and metal implants. Our managers and
executives have demonstrated their ability to successfully integrate acquired product
lines and businesses.
ACQUISITIONS
No acquisitions were completed during the first quarter of 2010.
RESULTS OF OPERATIONS
Executive Summary
Net income for the three months ended March 31, 2010 was $15.2 million, or $0.50 per
diluted share as compared with net income of $9.6 million or $0.32 per diluted share for
the three months ended March 31, 2009.
The increase in net income for the three months ended March 31, 2010 over the 2009 period
resulted from a 7.3% increase in revenues, decreased interest and income tax expenses,
and an increase in other income.
Our costs and expenses include the following charges (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Acquisition-related charges |
|
$ |
240 |
|
|
$ |
|
|
Inventory fair market value purchase accounting adjustments |
|
|
315 |
|
|
|
2,007 |
|
Employee termination and related costs |
|
|
628 |
|
|
|
450 |
|
Facility consolidation, acquisition integration,
manufacturing and distribution transfer, and system
implementation charges |
|
|
462 |
|
|
|
203 |
|
Discontinued product lines |
|
|
74 |
|
|
|
|
|
Incremental professional and bank fees related to the
possibility of obtaining a waiver under our revolving
credit facility |
|
|
|
|
|
|
350 |
|
Gain related to early extinguishment of convertible notes |
|
|
|
|
|
|
(1,213 |
) |
Non-cash interest expense related to convertible securities |
|
|
2,053 |
|
|
|
2,762 |
|
Foreign exchange loss on intercompany loan (1) |
|
|
|
|
|
|
1,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,772 |
|
|
$ |
6,435 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This foreign exchange loss is associated with our intercompany
loan set up in connection with the restructuring of a German
subsidiary in the fourth quarter of 2008. Net income for 2009 and
prior periods includes foreign exchange gains and losses
associated with intercompany loans not related to any
restructuring. |
Of these amounts, $0.7 million and $2.2 million were charged to cost of product revenues
in the three-month periods ended March 31, 2010 and 2009, respectively. Additionally,
$0.1 million was charged to research and development expense relating to costs to
relocate certain assets and personnel acquired in our Integra Spine acquisition, and for
costs associated with our IST
acquisition. The remaining amounts were charged to selling, general and administrative
expenses, except for the gain on convertible notes, interest expense, and the foreign
exchange loss.
12
We believe that, given our strategy of seeking new acquisitions and integrating recent
acquisitions, our current focus on rationalizing our existing manufacturing and
distribution infrastructure, our recent review of various product lines in relation to
our current business strategy, and a renewed focus on enterprise business systems
integrations, charges similar to those discussed above could recur in the future. We
believe that the delineation of these costs provides useful information to measure the
comparative performance of our business operations across reporting periods.
Revenues and Gross Margin on Product Revenues
Our revenues and gross margin on product revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Integra Orthopedics |
|
$ |
70,187 |
|
|
$ |
64,366 |
|
Integra NeuroSciences |
|
|
64,774 |
|
|
|
59,731 |
|
Integra Medical Instruments |
|
|
37,737 |
|
|
|
36,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
172,698 |
|
|
|
160,950 |
|
Cost of product revenues |
|
|
63,224 |
|
|
|
58,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on total revenues |
|
$ |
109,474 |
|
|
$ |
102,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of total revenues |
|
|
63.4 |
% |
|
|
63.9 |
% |
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, 2010 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2009
Revenues and Gross Margin
For the three months ended March 31, 2010, total revenues increased by $11.7 million, or
7.3%, to $172.7 million from $161.0 million for the same period during 2009. Domestic
revenues increased by $6.8 million to $129.4 million, or 75% of total revenues, for the
three months ended March 31, 2010 from $122.6 million, or 76% of total revenues, for the
three months ended March 31, 2009. International revenues increased to $43.3 million from
$38.4 million in the prior-year period, an increase of 13.0%.
Orthopedics revenues were $70.2 million, an increase of 9.0% over the prior-year period.
Most of the increase came from sales of engineered collagen products for skin and wound
repair and from metal implants for the forefoot, mid- and hindfoot applications. We
expect to see continued growth from these products and from our Spine products for the
balance of 2010 as we leverage our growing distributor network as well as the
introduction of new products, such as our Paramount® minimally invasive spinal
fixation products.
NeuroSciences revenues were $64.8 million, up 8.4% from the prior-year period. Sales of
capital goods, particularly CUSA® ultrasonic tissue ablation products, cranial
fixation systems and stereostatic radiosurgery systems, drove the growth in this market.
Revenues in the Medical Instruments category were $37.7 million, up 2.4% from the prior
year. Sales increased due to hospital expansions and ambulatory surgery center openings,
and as distributors began to stock higher levels of inventory. We expect to see continued
stabilization in this market, though it remains unclear when we can expect to achieve
growth beyond pre-recession volumes.
Foreign exchange fluctuations, primarily due to a stronger euro, Australian and Canadian
dollar versus the U.S. dollar, accounted for a $2.7 million increase in first quarter of
2010 revenues as compared to the same period last year.
Approximately 10% of our revenues in the quarter consisted of sales of capital
equipment products. These products improved 9.2% over the prior year period, and we are
cautiously optimistic that they will continue to improve during 2010. In addition, the
poor global economy is adversely affecting elective surgical procedures in many markets.
While our products are primarily used in non-elective procedures to treat trauma,
cancer, major burns, and degenerative diseases, our orthopedic products for elective
procedures have not performed as well as in the past. We expect to drive future revenue
growth by continuing to launch new products and acquire businesses and products that can
be sold through our existing sales organizations, and by gaining additional market share
through the expansion of our Integra Extremity Reconstruction and Integra Spine sales
organizations in the United States and leveraging the distribution channels in our
Integra Spine, Integra NeuroSciences, and Integra OrthoBiologics sales organizations to
broaden each organizations access to spine surgeons and to launch our spine products
internationally. We believe that the biggest opportunities for revenue growth exist in
the extremity reconstruction and spine markets.
13
Gross margin increased by $6.7 million to $109.5 million for the three-month period
ended March 31, 2010, from $102.8 million for the same period last year. Gross margin as
a percentage of total revenue declined to 63.4% for the first quarter 2010 from 63.9%
for the same period last year. This decrease resulted from higher costs of production
and increased inventory reserves relative to the same period in 2009. The 2010 period
includes lower inventory purchase accounting adjustments.
We expect our consolidated gross margin to improve for the rest of 2010 as sales of our
higher gross margin implant products are expected to increase as a proportion of total
revenues. Although we continuously identify and implement programs to reduce costs at our
manufacturing plants and to manage our inventory more efficiently, gross margin
improvements in our business are expected to continue to result primarily from changes in
sales mix to a larger proportion of sales of our higher gross margin implant products.
Other Operating Expenses
The following is a summary of other operating expenses as a percent of total revenues:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Research and development |
|
|
6.5 |
% |
|
|
6.6 |
% |
Selling, general and administrative |
|
|
42.0 |
% |
|
|
41.3 |
% |
Intangible asset amortization |
|
|
1.7 |
% |
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
50.2 |
% |
|
|
50.0 |
% |
|
|
|
|
|
|
|
Total other operating expenses, which consist of research and development expenses,
selling, general and administrative expenses, and amortization expenses, increased $6.3
million, or 7.8%, to $86.8 million in the first quarter of 2010 compared to $80.6 million
in the first quarter of 2009.
Research and development expenses in the first quarter of 2010 increased by $0.7 million
to $11.3 million, compared to $10.6 million in the same period last year. This increase
is primarily attributable to our spine product lines as we continue to focus on expanding
our product portfolio in this market.
We target 2010 spending on research and development to be between 6% and 7% of total
revenues. Most of this planned spending for 2010 is concentrated on product development
efforts for our spine, neurosurgery and extremity reconstruction product lines.
Selling, general and administrative expenses in the first quarter of 2010 increased by
$6.1 million to $72.5 million, compared to $66.5 million in the same period last year.
Selling expenses increased by $3.5 million primarily due to increases in the orthopedics
sales organization in the United States and Europe. General and administrative costs
increased $2.6 million primarily due to headcount, compensation and benefit costs, which
offset decreases in consulting and professional fees related to our financial operations
as well as lower legal fees. We will continue to expand our direct sales organizations in
our direct selling platforms where business opportunities are most attractive, including
extremity reconstruction, and increase corporate staff to support our information systems
infrastructure to facilitate future growth. We continue to expect that selling, general
and administrative spending will be between 41% and 42% of revenues.
Amortization expense in the first quarter of 2010 was $3.0 million, compared to $3.5
million in the same period last year. The decrease is due to the completion of the
amortization period for certain intangible assets.
Non-Operating Income and Expenses
The following is a summary of non-operating income and expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31 |
|
|
|
2010 |
|
|
2009 |
|
Interest income |
|
$ |
61 |
|
|
$ |
247 |
|
Interest expense |
|
$ |
(4,541 |
) |
|
$ |
(6,684 |
) |
Other income (expense) |
|
$ |
1,146 |
|
|
$ |
(868 |
) |
14
Interest Income
Interest income decreased in the three months ended March 31, 2010 compared to the same
period last year, primarily as a result of lower overall cash balances, a result of
$115.0 million in repayments of our credit facility and $53.9 million in convertible debt
repurchases since March 31, 2009.
Interest Expense
Interest expense in the three months ended March 31, 2010 decreased primarily as a result
of $53.9 million of repurchases of our 2010 Notes and repayments of $115.0 million on our
senior credit facility. Our reported interest expense for the three-month periods ended
March 31, 2010 and 2009 includes non-cash interest related to the accounting for
convertible securities of $2.3 million and $2.8 million, respectively. The remainder of
the expense represents non-cash interest expense related to the adoption of the
authoritative guidance for convertible debt and the amortization of debt issuance costs.
Other Income
Other income in 2010 of $1.1 million is comprised primarily of foreign exchange gains on
intercompany balances. In 2009, a $2.1 million foreign exchange loss on an intercompany
loan was partially offset by a gain of $1.2 million on the March 2009 repurchase of our
2010 Notes.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Income before income taxes |
|
$ |
19,309 |
|
|
$ |
14,947 |
|
Income tax expense |
|
|
4,087 |
|
|
|
5,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,222 |
|
|
$ |
9,567 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
21.2 |
% |
|
|
36.0 |
% |
Our effective income tax rate for the three months ended March 31, 2010 and 2009 was
21.2% and 36.0%. Our effective tax rate excluding discrete items has remained consistent
at approximately 32.5%. The effective rate for the quarter ended March 31, 2010 reflects
the reversal of $2.2 million of accruals for uncertain tax positions due to matters that
are considered effectively settled and the expiration of the statute of limitations for
certain matters. The effective rate for the quarter ended March 31, 2009 included $0.5
million of additional tax related to the gain on the buyback of a portion of our 2010
Notes.
Our effective tax rate may vary from period to period depending on, among other factors,
the geographic and business mix of taxable earnings and losses. We consider these factors
and others, including our history of generating taxable earnings, in assessing our
ability to realize deferred tax assets. We expect our effective income tax rate for the
full year to be approximately 29%.
GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS
Product revenues by major geographic area are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
United States |
|
$ |
129,363 |
|
|
$ |
122,585 |
|
Europe |
|
|
24,152 |
|
|
|
23,394 |
|
Asia Pacific |
|
|
9,237 |
|
|
|
7,194 |
|
Other Foreign |
|
|
9,946 |
|
|
|
7,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
172,698 |
|
|
$ |
160,950 |
|
|
|
|
|
|
|
|
15
We generate significant revenues outside the United States, a portion of which are
U.S. dollar-denominated transactions conducted with customers who generate revenue in
currencies other than the U.S. dollar. As a result, currency fluctuations between the
U.S. dollar and the currencies in which those customers do business may have an impact on
the demand for our products in foreign countries.
Local economic conditions, regulatory or political considerations, the effectiveness of
our sales representatives and distributors, local competition and changes in local
medical practice all may combine to affect our sales into markets outside the United
States.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Marketable Securities
We had cash and cash equivalents totaling approximately $81.7 million and $71.9 million
at March 31, 2010 and December 31, 2009, respectively.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net cash provided by operating activities |
|
$ |
28,137 |
|
|
$ |
37,187 |
|
Net cash used in investing activities |
|
|
(5,944 |
) |
|
|
(7,049 |
) |
Net cash used in financing activities |
|
|
(9,464 |
) |
|
|
(27,957 |
) |
Effect of exchange rate fluctuations on cash |
|
|
(2,946 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
9,783 |
|
|
$ |
2,084 |
|
|
|
|
|
|
|
|
Cash Flows Provided by Operating Activities
We
generated operating cash flows of $28.1 million and $37.2
million for the three months ended
March 31, 2010 and 2009, respectively.
Net income for the three months ended March 31, 2010 plus non-cash items included in those
earnings amounted to approximately $27.8 million. Changes in working capital contributed
another $3.0 million of net cash flows. Among the changes in working capital accounts
receivable contributed $3.3 million and accounts payable and accrued expenses contributed
another $3.2 million, while inventories used $2.2 million. Decreases in long-term
liabilities, principally a non-cash reversal of accruals for uncertain tax positions,
used another $2.8 million of cash.
Net income for the three months ended March 31, 2009 plus non-cash items included in those
earnings amounted to approximately $22.4 million. Changes in working capital contributed
another $13.5 million of net cash flows. Among the changes in working capital accounts
receivable contributed $9.2 million, decreases in inventories contributed $2.7 million and
reductions in prepaid expenses, principally income taxes, contributed another $7.2 million,
while decreases in accounts payable and accrued expenses used $5.5 million of cash. Decreases
in other long-term assets contributed another $0.9 million of cash.
Cash Flows Used in Investing Activities
We paid $5.9 million in cash for capital expenditures during the quarter ended March 31,
2010. For the same quarter in 2009, we had capital expenditures of $3.0 million and paid
$4.0 million related to working capital adjustments for our acquisitions of Integra
Spine and Integra Neurosciences Pty Ltd.
Cash Flows Used in Financing Activities
Our principal uses of cash for financing activities were to repay $15.0 million under our
revolving credit facility in the quarter ended March 31, 2010 and to buy back $28.0
million of our 2010 Notes in the quarter ended March 31, 2009. These amounts were
partially offset by the net proceeds from stock option exercises and the tax impact of
stock-based compensation for a total of $5.5 million in 2010 and an immaterial amount in
2009.
Working Capital
At March 31, 2010 and December 31, 2009, working capital was $213.7 million and $208.6
million, respectively. The increase in working capital is primarily related to the
additional cash generated in the period from the increase in net income.
16
Convertible Debt and Senior Secured Revolving Credit Facility
We pay interest each June 1 and December 1 on our $77.9 million senior convertible notes
due June 2010 (2010 Notes) at an annual rate of 2.75% and on our $165.0 million senior
convertible notes due June 2012 (2012 Notes and, collectively with the 2010 Notes,
the Notes) at an annual rate of 2.375%.
The Notes are senior, unsecured obligations of Integra, and are convertible into cash
and, if applicable, shares of our common stock based on an initial conversion rate,
subject to adjustment, of 15.0917 shares per $1,000 principal amount of notes for the
2010 Notes and 15.3935 shares per $1,000 principal amount of notes for the 2012 Notes
(which represents an initial conversion price of approximately $66.26 per share and
approximately $64.96 per share for the 2010 Notes and the 2012 Notes, respectively.) We
expect to satisfy any conversion of the Notes with cash up to the principal amount of the
applicable series of Notes pursuant to the net share settlement mechanism set forth in
the applicable indenture and, with respect to any excess conversion value, with shares of
our common stock. The Notes are convertible only in the following circumstances: (1) if
the closing sale price of our common stock exceeds 130% of the conversion price during a
period as defined in the indenture; (2) if the average trading price per $1,000 principal
amount of the Notes is less than or equal to 97% of the average conversion value of the
Notes during a period as defined in the indenture; (3) at any time on or after December
15, 2009 (in connection with the 2010 Notes) or anytime after December 15, 2011 (in
connection with the 2012 Notes); or (4) if specified corporate transactions occur. The
issue price of the Notes was equal to their face amount, which is also the amount holders
are entitled to receive at maturity if the Notes are not converted. However, none of
these conditions existed with respect to the 2012 Notes, but the 2010 Notes were freely
convertible. As of March 31, 2010, the 2010 Notes are classified as current due to their
maturity date and the 2012 Notes are classified as long term.
The Notes, under the terms of the private placement agreement, are guaranteed fully by
Integra LifeSciences Corporation, a subsidiary of Integra. The 2010 Notes will rank equal
in right of payment to the 2012 Notes. The Notes are Integras direct senior unsecured
obligations and will rank equal in right of payment to all of our existing and future
unsecured and unsubordinated indebtedness.
In connection with the issuance of the Notes, we entered into call transactions and
warrant transactions, primarily with affiliates of the initial purchasers of the Notes
(the hedge participants), in connection with each series of Notes. The cost of the call
transactions to us was approximately $46.8 million. We received approximately $21.7
million of proceeds from the warrant transactions. The call transactions involved our
purchasing call options from the hedge participants, and the warrant transactions
involved us selling call options to the hedge participants with a higher strike price
than the purchased call options.
The initial strike price of the call transactions is (1) for the 2010 Notes,
approximately $66.26 per share of Common Stock, and (2) for the 2012 Notes, approximately
$64.96, in each case subject to anti-dilution adjustments substantially similar to those
in the Notes. The initial strike price of the warrant transactions is (i) for the 2010
Notes, approximately $77.96 per share of Common Stock and (ii) for the 2012 Notes,
approximately $90.95, in each case subject to customary anti-dilution adjustments.
We may from time to time seek to retire or purchase additional outstanding Notes through
cash purchases and/or exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases or exchanges, if any,
will depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. Under certain circumstances, the call options associated
with any repurchased Notes may terminate early, but only with respect to the number of
Notes that cease to be outstanding. The amounts involved may be material.
As of March 31, 2010 we had $145.0 million of outstanding borrowings under our credit
facility at a weighted average interest rate of 0.98%. We consider all such outstanding
amounts to be long-term in nature based on our current intent and ability to repay this
borrowing outside of the next twelve-month period. We will likely use this facility to
partially fund the repayment of our 2010 Notes. This facility expires in December, 2011.
We believe that our cash and available borrowings under the senior secured revolving
credit facility are sufficient to finance our operations, capital expenditures and
potential acquisition-related earn-out payments in the near term.
Share Repurchase Plan
On October 30, 2008, our Board of Directors authorized us to repurchase shares of our
common stock for an aggregate purchase price not to exceed $75.0 million through December
31, 2010. Shares may be purchased either in the open market or in privately negotiated
transactions. No shares have been repurchased through March 31, 2010 under this program.
Dividend Policy
We have not paid any cash dividends on our common stock since our formation. Our credit
facility limits the amount of dividends that we may pay. Any future determinations to pay
cash dividends on our common stock will be at the discretion of our Board of Directors
and will depend upon our financial condition, results of operations, cash flows and other
factors deemed relevant by the Board of Directors.
17
Capital Resources
We believe that our cash and available borrowings under the senior secured revolving
credit facility are sufficient to finance our operations and capital expenditures, and
potential acquisition-related earn-out payments in the near term based on our current
plans. The Company considers all such outstanding amounts to be long-term in nature based
on its current intent and ability to repay the borrowings outside of the next twelve
month period. See Convertible Debt and Senior Secured Revolving Credit Facility for a
description of the material terms of our credit facility.
OTHER MATTERS
Critical Accounting Estimates
The critical accounting estimates included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 have not materially changed. Certain of these
estimates, such as the valuation of identifiable intangible assets, have been affected by
lower revenues and profitability than had been originally anticipated. Such valuations
have accordingly become more sensitive to factors such as prevailing interest rates and
assumptions about market royalty rates.
Recently Issued Accounting Standards
There have been no recently issued accounting standards that have an impact on our
financial statements.
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to various market risks, including changes in foreign currency exchange
rates and interest rates that could adversely affect our results of operations and
financial condition. To manage the volatility relating to these typical business
exposures, we may enter into various derivative transactions when appropriate. We do not
hold or issue derivative instruments for trading or other speculative purposes.
Foreign Currency Exchange and Other Rate Risks
With our global reach, we generate revenues and incur operating expenses in multiple
foreign currencies, including euros, British pounds, Swiss francs, Canadian dollars,
Japanese yen, and Australian dollars. Accordingly, we will experience currency exchange
risk with respect to those foreign currency denominated revenues and operating expenses.
The results of operations for the periods discussed herein have not been materially
affected by inflation.
We currently use a short-term forward exchange contract to hedge our risk related to the
foreign currency fluctuations of an intercompany loan denominated in foreign currency.
The forward exchange contract has a notional amount of 8.2 million euros ($11.0 million
at March 31, 2010). We consider the credit risk related to the foreign exchange contract
to be low because the instrument was entered into with a financial institution with a
high credit rating. We will continue to assess the potential effects that changes in
foreign currency exchange rates could have on our business. If we believe this potential
impact presents a significant risk to our business, we may enter into additional
derivative financial instruments to mitigate this risk.
Interest Rate Risk
Cash and Cash Equivalents. We are exposed to the risk of interest rate fluctuations on
the fair value and interest income earned on our cash and cash equivalents. A
hypothetical 100 basis point movement in interest rates applicable to our cash and cash
equivalents outstanding at March 31, 2010 would increase interest income by approximately
$0.8 million on an annual basis. No significant decrease in interest income would be
expected as our cash balances are earning interest at rates close to zero. We are subject
to foreign currency exchange risk with respect to cash balances maintained in foreign
currencies.
Senior Secured Credit Facility. We are exposed to the risk of interest rate fluctuations
on the interest paid under the terms of our senior secured credit facility. Based on our
outstanding borrowings as of March 31, 2010, a hypothetical 100 basis point movement in
interest rates applicable to this credit facility would increase interest expense by
approximately $1.5 million or decrease interest expense by approximately $1.4 million
from current levels. The primary reference rate under this credit facility is the London
Interbank Offered Rate (LIBOR) for the applicable duration.
18
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and that such information is
accumulated and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate, to allow for timely decisions regarding
required disclosure. Disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Management has designed
our disclosure controls and procedures to provide reasonable assurance of achieving the
desired control objectives.
As required by Exchange Act Rule 13a-15(b), we have carried out an evaluation, under the
supervision and with the participation of our management, including our principal
executive officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of March 31, 2010. Based upon this
evaluation, our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures were effective as of March 31, 2010 to
provide such reasonable assurance.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31,
2010 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
Various lawsuits, claims and proceedings are pending or have been settled by us. The only
significant item is described below.
In January 2010, we received a notice from the sellers representative of the former
Theken companies of a disagreement in the calculation of trade sales used in
calculating a revenue performance payment that we made in November 2009. The notice
alleges that we owe an additional $6.7 million. The Company is currently discussing this
matter with the sellers representative in an attempt to resolve the dispute in
accordance with the provisions contained in the asset purchase agreement governing the
transaction.
In addition to this matter, we are subject to various claims, lawsuits and proceedings in
the ordinary course of our business, including claims by current or former employees,
distributors and competitors and with respect to our products. In the opinion of
management, such claims are either adequately covered by insurance or otherwise
indemnified, or are not expected, individually or in the aggregate, to result in a
material adverse effect on our financial condition. However, it is possible that our
results of operations, financial position and cash flows in a particular period could be
materially affected by these contingencies.
The Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 have not materially changed other than the modifications to the risk
factors as set forth below.
Changes in the healthcare industry may require us to decrease the selling price for
our products, may reduce the size of the market for our products, or may eliminate a
market, any of which could have a negative impact on our financial performance.
Trends toward managed care, healthcare cost containment and other changes in
government and private sector initiatives in the United States and other countries in
which we do business are placing increased emphasis on the delivery of more
cost-effective medical therapies that could adversely affect the sale and/or the prices
of our products. For example:
|
|
|
new legislation will result in major changes in the United States healthcare
system that could have an adverse effect on our business, including an excise tax on
United States sales of medical devices, which could have a material adverse effect
on our earnings; |
19
|
|
|
major third-party payors of hospital services and hospital outpatient
services, including Medicare, Medicaid and private healthcare insurers, annually
revise their payment methodologies, which can result in stricter standards for
reimbursement of hospital charges for certain medical procedures or the
elimination of reimbursement; |
|
|
|
|
Medicare, Medicaid and private healthcare insurer cutbacks could create
downward price pressure on our products; |
|
|
|
|
recently effected local Medicare coverage determinations will eliminate
reimbursement for certain of our matrix wound dressing products in most regions,
negatively affecting our market for these products, and future determinations
could eliminate reimbursement for these products in other regions and could
eliminate reimbursement for other products; |
|
|
|
|
there has been a consolidation among healthcare facilities and purchasers
of medical devices in the United States who prefer to limit the number of
suppliers from whom they purchase medical products, and these entities may decide
to stop purchasing our products or demand discounts on our prices; |
|
|
|
|
we are party to contracts with group purchasing organizations, which
negotiate pricing for many member hospitals, that require us to discount our
prices for certain of our products and limit our ability to raise prices for
certain of our products, particularly surgical instruments; |
|
|
|
|
there is economic pressure to contain healthcare costs in domestic and
international markets; |
|
|
|
|
there are proposed and existing laws, regulations and industry policies in
domestic and international markets regulating the sales and marketing practices
and the pricing and profitability of companies in the healthcare industry; |
|
|
|
|
proposed laws or regulations that will permit hospitals to provide
financial incentives to doctors for reducing hospital costs (known as
gainsharing) and to award physician efficiency (known as physician profiling)
could reduce prices; and |
|
|
|
|
there have been initiatives by third-party payors to challenge the prices
charged for medical products that could affect our ability to sell products on a
competitive basis. |
Both the pressures to reduce prices for our products in response to or despite
these trends and the decrease in the size of the market as a result of these trends could
adversely affect our levels of revenues and profitability of sales.
Oversight of the medical device industry might affect the manner in which we may sell
medical devices.
There are laws and regulations that govern the means by which companies in the
healthcare industry may market their products to healthcare professionals and may compete
by discounting the prices of their products, including for example, the federal
Anti-Kickback Statute, the federal False Claims Act, the federal Health Insurance
Portability and Accountability Act of 1996, state law equivalents to these federal laws
that are meant to protect against fraud and abuse and analogous laws in foreign
countries. Violations of these laws are punishable by criminal and civil sanctions,
including, but not limited to, in some instances civil and criminal penalties, damages,
fines, exclusion from participation in federal and state healthcare programs, including
Medicare and Medicaid. Although we exercise care in structuring our sales and marketing
practices and customer discount arrangements to comply with those laws and regulations,
we cannot assure you that:
|
|
|
government officials charged with responsibility for enforcing those laws
will not assert that our sales and marketing practices or customer discount
arrangements are in violation of those laws or regulations; or |
|
|
|
government regulators or courts will interpret those laws or regulations
in a manner consistent with our interpretation. |
20
In January 2004, AdvaMed, the principal United States trade association for the
medical device industry, put in place a model code of conduct that sets forth standards
by which its members should abide in the promotion of their products. AdvaMed issued a
revised code of conduct effective July 1, 2009. We have in place policies and
procedures for compliance that we believe are at least as stringent as those set forth in
the revised AdvaMed Code, and we provide routine training to our sales and marketing
personnel on our policies regarding sales and marketing practices. Pursuant to the
revised AdvaMed Code, we have certified our adoption of the revised AdvaMed Code.
Nevertheless, the sales and marketing practices of our industry have been the subject of
increased scrutiny from federal and state government agencies, and we believe that this
trend will continue. For example, recent federal legislation and state legislation would
require detailed disclosure of gifts and other remuneration made to health care
professionals. In addition, prosecutorial scrutiny and governmental oversight, on the
state and federal levels, over some major device companies regarding the retention of
healthcare professionals as consultants has limited the manner in which medical device
companies may retain healthcare professionals as consultants. We have in place policies
to govern how we may retain healthcare professionals as consultants that reflect the
current climate on this issue and provide training on these policies. Finally, various
hospital organizations, medical societies and trade associations are establishing their
own practices that may require detailed disclosures of relationships between healthcare
professionals and medical device companies or ban or restrict certain marketing and sales
practices such as gifts and business meals.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
In October 2008, our Board of Directors adopted a new program that authorizes us to
repurchase shares of our common stock for an aggregate purchase price not to exceed $75.0
million through December 31, 2010. Shares may be repurchased either in the open market or
in privately negotiated transactions.
There were no such repurchases of our common stock during the quarter ended March 31,
2010 under this program.
|
|
|
|
*31.1
|
|
|
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
*31.2
|
|
|
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
*32.1
|
|
|
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
*32.2
|
|
|
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
|
|
Date: May 3, 2010 |
/s/ Stuart M. Essig
|
|
|
Stuart M. Essig |
|
|
President and Chief Executive Officer |
|
|
|
|
Date: May 3, 2010 |
/s/ John B. Henneman, III
|
|
|
John B. Henneman, III |
|
|
Executive Vice President, Finance and Administration,
and Chief Financial Officer |
|
22
Exhibits
|
|
|
|
*31.1
|
|
|
Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
*31.2
|
|
|
Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
*32.1
|
|
|
Certification of Principal Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
*32.2
|
|
|
Certification of Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
23
Exhibit 31.1
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Stuart M. Essig, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences Holdings
Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in
this report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13 a-15(e):
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
(d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
Date: May 3, 2010 |
/s/ Stuart M. Essig
|
|
|
Stuart M. Essig |
|
|
President and Chief Executive Officer |
|
Exhibit 31.2
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John B. Henneman, III, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences Holdings
Corporation; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in
this report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13 a-15(e):
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
|
evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
(d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
Date: May 3, 2010 |
/s/ John B. Henneman, III
|
|
|
John B. Henneman, III |
|
|
Executive Vice President,
Finance and Administration, and
Chief Financial Officer |
|
Exhibit 32.1
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Stuart M. Essig, Chief Executive Officer and Director of Integra LifeSciences Holdings
Corporation (the Company), hereby certify that, to my knowledge:
1. |
|
The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2010 (the
Report) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and |
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
|
Date: May 3, 2010 |
/s/ Stuart M. Essig
|
|
|
Stuart M. Essig |
|
|
President and Chief Executive Officer |
|
Exhibit 32.2
Exhibit 32.2
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, John B. Henneman, III, Executive Vice President Finance and Administration and Chief
Financial Officer of Integra LifeSciences Holdings Corporation (the Company), hereby
certify that, to my knowledge:
1. |
|
The Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2010 (the
Report) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended; and |
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
|
Date: May 3, 2010 |
/s/ John B. Henneman, III
|
|
|
John B. Henneman, III |
|
|
Executive Vice President,
Finance and Administration, and
Chief Financial Officer |
|