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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021
or
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 51-0317849
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1100 Campus Road 08540
Princeton,New Jersey(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 
Registrant's Telephone Number, Including Area Code: (609275-0500
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report:
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASSTRADING SYMBOLNAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, Par Value $.01 Per ShareIARTNasdaq Global Select Market
 
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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and "emerging growth company" in Rule 12b-2 of the Exchange Act.





Large accelerated filerAccelerated filer
Non-accelerated filer
  
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes      No  
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of April 27, 2021 was 84,549,309.















































Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX

 
 Page
Number
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT



Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME / (LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
 
 Three Months Ended March 31,
 20212020
Total revenue, net$360,071 $354,324 
Costs and expenses:
Cost of goods sold
145,823 133,476 
Research and development
22,374 20,816 
Selling, general and administrative
156,633 165,952 
Intangible asset amortization
4,527 6,977 
Total costs and expenses
329,357 327,221 
Operating income30,714 27,103 
Interest income1,748 2,570 
Interest expense(12,929)(17,752)
Gain from the sale of business42,876  
Other income (expense), net4,869 (479)
Income before income taxes67,278 11,442 
Provision for income taxes21,884 2,262 
Net income$45,394 $9,180 
Net income per share
Basic$0.54 $0.11 
Diluted$0.53 $0.11 
Weighted average common shares outstanding (See Note 13):
Basic
84,500 85,188 
Diluted
85,258 85,892 
Comprehensive income (loss) (See Note 14)75,826(19,007)


The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amounts) 
March 31, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$408,976 $470,166 
Trade accounts receivable, net of allowances of $6,886 and $6,439
223,542 225,532 
Inventories, net328,049 310,117 
Prepaid expenses and other current assets78,508 69,282 
Assets held for sale 162,105 
  Total current assets1,039,075 1,237,202 
Property, plant and equipment, net296,193 287,529 
Right of use asset - operating leases91,174 83,635 
Intangible assets, net1,193,681 989,436 
Goodwill1,010,072 932,367 
Deferred tax assets, net74,626 73,690 
Other assets36,733 11,277 
Total assets$3,741,554 $3,615,136 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility$45,000 $33,750 
Current portion of borrowings under securitization facility110,900 112,500 
Current portion of lease liability - operating leases13,900 12,818 
Accounts payable, trade61,500 54,608 
Income taxes payable13,700  
Contract liabilities5,400 5,275 
Accrued compensation65,442 76,117 
Accrued expenses and other current liabilities96,459 94,194 
Liabilities held for sale 11,751 
  Total current liabilities412,301 401,013 
Long-term borrowings under senior credit facility922,672 933,387 
Long-term convertible securities562,240 474,834 
Lease liability - operating leases95,549 88,118 
Deferred tax liabilities65,282 16,190 
Other liabilities154,179 186,727 
Total liabilities2,212,223 2,100,269 
Stockholders’ equity:
Preferred stock; no par value; 15,000 authorized shares; none outstanding
  
Common stock; $0.01 par value; 240,000 authorized shares; 89,406 and 89,251 issued at March 31, 2021 and December 31, 2020, respectively
894 893 
Additional paid-in capital1,231,637 1,290,909 
Treasury stock, at cost; 4,899 shares and 4,914 shares at March 31, 2021 and December 31, 2020, respectively
(234,461)(235,141)
Accumulated other comprehensive loss(43,627)(74,059)
         Retained earnings574,888 532,265 
Total stockholders’ equity1,529,331 1,514,867 
Total liabilities and stockholders’ equity$3,741,554 $3,615,136 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Three Months Ended March 31,
 20212020
OPERATING ACTIVITIES:
Net income$45,394 $9,180 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,214 29,151 
Non-cash impairment charges2,754  
Deferred income tax (benefit) provision(1,234)5,068 
Share-based compensation6,334 3,750 
Amortization of debt issuance costs and expenses associated with debt refinancing1,721 4,246 
Non-cash lease expense1,522 178 
Accretion of bond issuance discount 2,529 
Loss on disposal of property and equipment(2)374 
Gain from the sale of business(42,876) 
Change in fair value of contingent consideration and others281 (1,051)
Changes in assets and liabilities:
Accounts receivable16,756 28,301 
Inventories(2,332)(26,236)
Prepaid expenses and other current assets(3,574)4,683 
Other non-current assets10,419 3,000 
Accounts payable, accrued expenses and other current liabilities14,449 (40,413)
Contract liabilities(83)338 
Other non-current liabilities(9,662)(2,284)
Net cash provided by operating activities69,081 20,814 
INVESTING ACTIVITIES:
Purchases of property and equipment(6,675)(16,519)
Proceeds from sale of Extremity Orthopedics business 191,736  
Proceeds from sale of property and equipment 34 
Cash (paid) provided for business acquisitions, net of cash acquired(302,627) 
Acquired in-process research and development (5,000)
Net cash used in investing activities(117,566)(21,485)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness600 113,200 
Payments on debt(2,200)(344,200)
Purchase of option hedge on convertible notes (104,248)
Proceeds from convertible notes issuance 575,000 
Proceeds from sale of stock purchase warrants 44,562 
Payment of debt issuance costs (20,264)
Purchases of treasury stock (100,000)
Proceeds from exercised stock options2,222 2,303 
Cash taxes paid in net equity settlement(3,637)(4,348)
Net cash (used) provided by financing activities(3,015)162,005 
Effect of exchange rate changes on cash and cash equivalents(9,690)(2,533)
Net increase in cash and cash equivalents(61,190)158,801 
Cash and cash equivalents at beginning of period470,166 198,911 
Cash and cash equivalents at end of period$408,976 $357,712 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
(In thousands, except per share amounts) 

Three Months Ended March 31, 2021
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
(In thousands)
Balance, January 1, 202189,251 $893 (4,914)$(235,141)$1,290,908 $(74,059)$532,266 $1,514,867 
Net income— — — — — — 45,394 45,394 
Other comprehensive income (loss), net of tax— — — — — 30,432 — 30,432 
Issuance of common stock through employee stock purchase plan18 — — — 1,127 — — 1,127 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes137 1 15 680 (3,222)— — (2,541)
Share-based compensation— — — — 6,098 — — 6,098 
Adoption of Update No. 2020-06— — — — (63,274)— (2,772)(66,046)
Balance, March 31, 202189,406 894 (4,899)(234,461)1,231,637 (43,627)574,888 1,529,331 

Three Months Ended March 31, 2020
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
(In thousands)
Balance, January 1, 202088,735 $887 (2,865)$(119,943)$1,213,620 $(76,401)$398,573 $1,416,736 
Net income— — — — — — 9,180 9,180 
Other comprehensive loss, net of tax— — — — — (28,187)— (28,187)
Issuance of common stock through employee stock purchase plan13 — — — 694 — — 694 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes357 2 10 476 (3,217)— — (2,739)
Share-based compensation— — — — 3,781 — — 3,781 
Share repurchase and equity component of the convertible note issuance, net— — (135)(7,632)42,538 — — 34,906 
Accelerated shares repurchased— — (1,304)(75,407)(16,961)— — (92,368)
Adoption of Update No. 2016-13— — — — — — (200)(200)
Balance, March 31, 202089,105 $889 (4,294)$(202,506)$1,240,455 $(104,588)$407,553 $1,341,803 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, 2021 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, statement of changes in shareholder's equity, results of operations and cash flows of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K. The December 31, 2020 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, 2021 are not necessarily indicative of the results to be expected for the entire year.
The preparation of consolidated financial statements is in conformity with generally accepted accounting principles in the United States ("GAAP") which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets including amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of contingent liabilities, the fair value of debt instruments and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the responses to the pandemic and information is rapidly evolving. During the beginning of 2020, the Company's customers diverted resources to treat COVID-19 patients and deferred or canceled elective or non-emergent surgical procedures, all of which impacted hospitals' abilities to meet their obligations, including to the Company. Towards the end of 2020 and during the first quarter of 2021, procedural volumes relevant to the Company’s products steadily increased and, in some geographic areas, began to approach normalized levels. However, on-going uncertainty persists about the continuing sustainability of those procedural volumes as virus outbreaks constrain healthcare networks. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption has had an adverse effect on the Company's business as customers curtailed and reduced capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and the economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted with certainty. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. During the first quarter of 2021, the Company's revenues were still impacted due to COVID-19 resurgences and lower surgical procedural volumes, though not to the levels seen in early 2020. As a result, the Company has continued to manage its operating costs in this environment. Even after the COVID-19 pandemic and government responses thereto have subsided, residual economic and other effects may have an impact on the demand for post-pandemic surgery levels that are difficult to predict. If the downturn is more severe and prolonged than currently expected, the Company may need to take further steps to reduce costs.

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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with no change to financial results reported in prior periods. The cumulative-effect adjustment recorded on January 1, 2020 is not material. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements and related disclosures.
The Company's exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the COVID-19 pandemic, and other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be an adverse impact due to customer and governmental responses to the COVID-19 pandemic.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. This guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted this guidance during the year ended December 31, 2020. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (e.g., a service contract). Under this guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 using a prospective transition method. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. The Company adopted ASU No. 2019-12 as of January 1, 2021. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The adoption of this guidance did not have a material impact on the Company's results or financial position.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This amendment applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. This ASU is effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform- Scope which clarified certain optional expedients and exceptions to entities that are affected because of the reference rate reform. The amendments in this ASU affect the guidance in ASU No. 2020-04 and are effective in the same timeframe as ASU No. 2020-04. The Company is currently assessing the impact that this ASU will have on its consolidated financial statements and related disclosures.

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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
In August 2020, the FASB issued ASU No. 2020-06 Debt- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify. The guidance also simplifies the diluted net income per share calculation in certain areas. The ASU will be effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years using either the modified retrospective or full retrospective method.

As detailed in Note 6 – Debt, on February 4, 2020, the Company issued $575.0 million aggregate principal amount of its 0.5% Convertible Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes are subject to the guidance included in ASU 2020-06. The Company adopted this guidance on January 1, 2021 using the modified retrospective approach which resulted in a cumulative-effect adjustment that increased (decreased) the following consolidated balance sheet accounts:

ADJUSTMENTCONSOLIDATED BALANCE SHEET CLASSIFICATIONAMOUNT
(in millions)
Deferred tax impact of cumulative-effect adjustmentDeferred tax liabilities$(20.6)
Debt discount reclassificationLong-term convertible securities89.1
Equity issuance costs reclassificationLong-term convertible securities(2.5)
Debt discount amortization and equity costs reclassification, net of taxRetained Earnings(2.8)
Net impact of cumulative-effect adjustmentAdditional paid-in capital(63.3)

Upon adoption of this ASU No. 2020-06, the Company’s Convertible Senior Notes were reflected entirely as a liability since the embedded conversion feature will no longer be separately presented within stockholders’ equity. On December 9, 2020, the Company made an irrevocable election under the indenture to require the principal portion of its convertible senior notes to be settled in cash and any excess in shares. Following the irrevocable notice, only the amounts settled in excess of the principal will be considered in diluted earnings per share under the “if-converted” method. Additionally, from January 1, 2021, the Company is no longer incurring non-cash interest expense for the amortization of debt discount, therefore the interest expense for the 2025 Notes, which is included in the interest expense on the consolidated statements of operations and comprehensive loss, is lower as compared to the fiscal year of 2020.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The ASU will be effective for the Company for annual and interim periods beginning after beginning January 1, 2021. The Company adopted this standard on the January 1, 2021. The adoption of this guidance did not have a material impact on the Company's results, financial position or disclosures.
There are no other recently issued accounting pronouncements that are expected to have any significant effect on the Company's financial position, results of operations or cash flows.
2. ACQUISITIONS AND DIVESTITURES
Sale of Extremity Orthopedics Business
On January 4, 2021, the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited ("Smith & Nephew"). The transaction included the sale of the Company's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines. The Company received an aggregate purchase price of $240.0 million from Smith and Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO") effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products.




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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Assets and liabilities divested consisted of the following as of December 31, 2020 (amounts in thousands):
Prepaid expenses and other current assets$713 
Right of use asset-operating leases and Other assets3,186 
Deferred tax assets
6,589 
Intangible assets, net13,332 
Property, plant and equipment, net37,893 
Goodwill47,546 
Inventories52,845 
Total assets held for sale $162,104 
Other liabilities
336 
Current portion of lease liability - operating leases539 
Accrued compensation
1,767 
Deferred tax liabilities
3,440 
Lease liability - operating leases5,669 
Total liabilities held for sale$11,751 
The Divestiture does not represent a strategic shift that will have a major effect on the Company's operations and financial statements. Goodwill was allocated to the assets and liabilities divested using the relative fair value method of the Extremity Orthopedics business to the Company's Tissue Technologies reporting unit. The Company recognized a gain of $42.9 million in connection with the sale that is presented in Gain from the sale of business in the consolidated statement of operations for the three months ended March 31, 2021. The net proceeds are subject to adjustments based on changes in the actual closing net working capital.The purchase price is preliminary pending finalization of potential working capital adjustments.
The Company also entered into a transition services agreement ("TSA") with Smith & Nephew which requires the Company to provide certain services on behalf of Smith & Nephew for the duration of the period subsequent to the sale of the business as defined in the agreement. The Company recognized a payable due to Smith & Nephew of $9.0 million, included in the consolidated balance sheet within accrued expenses and other current liabilities respectively.
ACell Inc. Acquisition
On January 20, 2021, the Company acquired ACell Inc. (the "ACell Acquisition") for an acquisition purchase price of $305.4 million plus contingent consideration of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025. The purchase price is subject to adjustments based on changes in the actual closing net working capital. The consideration is preliminary pending finalization of potential working capital adjustments. ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix.
Assets Acquired and Liabilities Assumed at Fair Value
The ACell Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination are recognized at their fair values as of the acquisition date. As of March 31, 2021, certain amounts relating to the valuation of intangible assets and tax related matters have not been finalized. The finalization of these matters may result in changes to goodwill.








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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
Preliminary ValuationWeighted Average Life
(In thousands)
Current assets:
Cash$2,726 
Trade accounts receivable, net 16,469 
Inventories, net18,299 
Prepaids expenses and other current assets1,498 
Total current assets38,992 
Property, plant and equipment, net13,769 
Intangible assets245,000 
13-14 years
Goodwill92,983 
Right of use asset - operating leases9,259 
Deferred tax assets9,768 
Other assets148 
Total assets acquired409,919 
Current liabilities:
Accounts payable$718 
Accrued expenses6,227 
Current portion of lease liability - operating leases1,673 
Total current liabilities8,618 
Other long-term liability276
Lease liability - operating leases7,585 
Deferred tax liability64,178 
Contingent consideration23,900 
Total liabilities assumed104,557 
Net assets acquired$305,362 
Intangible Assets
The estimated fair value of the developed technology acquired was determined using the multi-period excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each product including net revenues, cost of sales, R&D costs, selling and marketing costs, working capital, and contributory asset charges, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream.
The Company used a discount rate of 8.5% to arrive at the present value for the acquired intangible assets to reflect the rate of return a market participant would expect to earn and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
Goodwill
The Company allocated goodwill related to the ACell Acquisition to the Tissue Technologies segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected synergies of the combined company and assembled workforce. Goodwill recognized as a result of this acquisition is non-deductible for income tax purposes.
Contingent Consideration
As part of the acquisition, the Company is required to pay the former shareholders of ACell up to $100 million based on the achievement of certain revenue-based performance milestones in 2022, 2023, and 2025. The Company used iterations of the Monte Carlo simulation to calculate the fair value of the contingent consideration that considered the possible outcomes of
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
scenarios related to each specific milestone. The Company estimated the fair value of the contingent consideration to be $23.9 million at the acquisition date.
The Company determines the acquisition date fair value of contingent consideration obligations using a Monte Carlo simulation, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined using the fair value concepts in ASC 820. The resultant most likely payouts are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value will be reflected as income or expense in our consolidated statement of operations. Changes in the fair value of the contingent considerations may result from changes in discount periods and rates and changes in the timing and amount of revenue estimates. Adverse changes in assumptions utilized in the contingent consideration fair value estimates could result in an increase in the contingent consideration obligation and a corresponding charge to operating results.
Deferred Tax Liabilities
Deferred tax liabilities result from identifiable intangible assets’ fair value adjustments. These adjustments create excess book basis over tax basis which is tax-effected by the statutory tax rates of applicable jurisdictions.
Pro forma revenues for the three months ended March 31, 2021 and 2020 were $364.7 million and $377.3 million, respectively. Pro forma net income and earnings per share are not presented for this acquisition as they are not material.
3. REVENUES FROM CONTRACTS WITH CUSTOMERS
Summary of Accounting Policies on Revenue Recognition
Revenue is recognized upon the transfer of control of promised products or services to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services.
Performance Obligations
The Company's performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders, or invoices. The Company has no significant multi-element contracts with customers.
Significant Judgments
Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company and the Company's strategic partners. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information, and expected sales trends. Differences between actual reported licensee sales and those that were estimated are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant.
The Company estimates returns, price concessions, and discount allowances using the expected value method based on historical trends and other known factors. Rebate allowances are estimated using the most likely method based on each customer contract.
The Company's return policy, as set forth in its product catalogs and sales invoices, requires review and authorization in advance prior to the return of product. Upon the authorization, a credit will be issued for the goods returned within a set amount of days from the shipment, which is generally ninety days.
The Company disregards the effects of a financing component if the Company expects, at contract inception, that the period between the transfer and customer payment for the goods or services will be one year or less. The Company has no significant revenues recognized on payments expected to be received more than one year after the transfer of control of products or services to customers.
Contract Asset and Liability
Revenues recognized from the Company's private label business that are not invoiced to the customers as a result of recognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheet.
Other operating revenues may include fees received under service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability.
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table summarizes the changes in the contract asset and liability balances for the three months ended March 31, 2021:
Contract Asset
Contract asset, January 1, 2021$7,430 
Transferred to trade receivable of contract asset included
     in beginning of the year contract asset
(7,430)
Contract asset, net of transferred to trade receivables on contracts during the period
6,499 
Contract asset, March 31, 2021$6,499 
Contract Liability
Contract liability, January 1, 2021$11,961 
Recognition of revenue included in beginning of year contract liability
(1,677)
Contract liability, net of revenue recognized on contracts during the period1,604 
Foreign currency translation
(22)
Contract liability, March 31, 202111,866 
At March 31, 2021, the short-term portion of the contract liability of $5.4 million and the long-term portion of $6.5 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet.
As of March 31, 2021, the Company is expected to recognize approximately 46% of unsatisfied (or partially unsatisfied) performance obligations as revenue through 2021, with the remaining balance to be recognized in 2022 and thereafter.
Shipping and Handling Fees
The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold.
Product Warranties
Certain of the Company's medical devices, including monitoring systems and neurosurgical systems, are designed to operate over long periods of time. These products are sold with warranties which may extend for up to two years from the date of purchase. The warranties are not considered a separate performance obligation. The Company estimates its product warranties using the expected value method based on historical trends and other known factors. The Company includes them in accrued expenses and other current liabilities in the consolidated balance sheet.
Taxes Collected from Customers
The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.
Disaggregated Revenue
The following table presents revenues disaggregated by the major sources of revenues for the three months ended March 31, 2021 and 2020 (amounts in thousands):
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Neurosurgery$189,254 $184,943 
Instruments51,987 46,497 
Total Codman Specialty Surgical241,241 231,440 
Wound Reconstruction and Care(2)
88,698 72,267 
Extremity Orthopedics(1)
 21,472 
Private Label30,132 29,145 
Total Tissue Technologies118,830 122,884 
Total revenue$360,071 $354,324 
(1) On January 4, 2021, the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited. In conjunction with the sale of this business, the Company rebranded the Orthopedics and Tissue Technologies segment as Tissue Technologies in the first quarter of 2021. See Note 2. Acquisitions and Divestitures, for details.
(2) On January 20, 2021, the Company acquired ACell Inc. for an acquisition purchase price of $305.4 million plus contingent consideration of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.See Note 2. Acquisitions and Divestitures, for details.
See Note 15, Segment and Geographical Information, for details of revenues based on the location of the customer.
4. INVENTORIES
Inventories, net consisted of the following:
March 31, 2021December 31, 2020
 (In thousands)
Finished goods$191,712 $180,301 
Work in process57,173 53,336 
Raw materials79,164 $76,480 
Total inventories, net$328,049 $310,117 

At December 31, 2020, $52.8 million of inventories, net was presented separately as "Assets held for sale" in conjunction with the sale of the Extremity Orthopedics business. Further, the increase in inventory at March 31, 2021 as compared to the year ended December 31, 2020, was primarily driven from the inventory acquired in conjunction with the ACell Inc. acquisition. See Note 2, Acquisitions and Divestitures, for details.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill for the three-month period ended March 31, 2021 were as follows:
Codman Specialty
Surgical
Tissue TechnologiesTotal
 (In thousands)
Goodwill at December 31, 2020$671,975 $260,392 $932,367 
ACell Acquisition 92,983 92,983 
Foreign currency translation(10,013)(5,265)(15,278)
Goodwill at March 31, 2021$661,962 $348,110 $1,010,072 
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The components of the Company’s identifiable intangible assets were as follows:
 March 31, 2021
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Completed technology18 years1,120,918(257,360)863,558
Customer relationships12 years212,332(134,794)77,538
Trademarks/brand names28 years98,533(28,862)69,671
Codman tradenameIndefinite165,091165,091
Supplier relationships30 years30,211(15,447)14,764
All other10 years6,813(3,754)3,059
1,633,898(440,217)1,193,681

 December 31, 2020
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Completed technology19 years896,478 (248,088)648,390 
Customer relationships12 years213,270 (132,838)80,432 
Trademarks/brand names28 years104,209 (31,767)72,442 
Codman tradenameIndefinite170,226 — 170,226 
Supplier relationships27 years30,211 (15,203)15,008 
All other (1)
4 years6,693 (3,755)2,938 
1,421,087 (431,651)989,436 
(1)Prior period amounts were reclassified as it relates to All other within this table to conform to the current period presentation.
The increase in the Company's identifiable intangible assets at March 31, 2021 as compared to the year ended December 31, 2020, was primarily driven from intangible assets acquired in conjunction with the ACell Inc. acquisition. See Note 2, Acquisitions and Divestitures, for details.
Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of product revenues) is expected to be approximately $60.7 million for the remainder of 2021, $78.8 million in 2022, $78.0 million in 2023, $77.3 million in 2024, $77.3 million in 2025, $77.2 million in 2026 and $582.7 million thereafter.

6. DEBT
Amendment to the Sixth Amended and Restated Senior Credit Agreement
On February 3, 2020, the Company entered into the sixth amendment and restatement (the "February 2020 Amendment") of its Senior Credit Facility (the "Senior Credit Facility") with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent. The February 2020 Amendment extended the maturity date to February 3, 2025. The Company continues to have the aggregate principal amount of up to approximately $2.2 billion available to it through the following facilities: (i) a $877.5 million Term Loan facility, and (ii) a $1.3 billion revolving credit facility, which includes a $60 million sublimit for the issuance of standby letters of credit and a $60 million sublimit for swingline loans.

On July 14, 2020, the Company entered into an amendment (the "July 2020 Amendment") to the February 2020 Amendment of the Senior Credit Facility to increase financial flexibility in light of the unprecedented impact and uncertainty of the COVID-19 pandemic on the global economy. The July 2020 amendment does not increase the Company’s total indebtedness.
In connection with the July 14, 2020 amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:
16

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
Execution of July 2020 Amendment through June 30, 2021
5.50 to 1.00
September 30, 2021 through June 30, 2022
5.00 to 1.00
September 30, 2022 through June 30, 2023
4.50 to 1.00
September 30, 2023 and the last day of each fiscal quarter thereafter
4.00 to 1.00
Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at a rate equal to the following:
i.the Eurodollar Rate (as defined in the amendment and restatement) in effect from time to time plus the applicable rate (ranging from 1.00% to 2.25%), or
ii.the highest of:
1.the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus 0.50%
2.the prime lending rate of Bank of America, N.A. or
3.the one-month Eurodollar Rate plus 1.00%

The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness as of such date less cash that is not subject to any restriction on the use or investment thereof to (b) consolidated EBITDA as defined by the July 2020 amendment, for the period of four consecutive fiscal quarters ending on such date).
The Company will pay an annual commitment fee (ranging from 0.15% to 0.30%), based on the Company's consolidated total leverage ratio, on the amount available for borrowing under the revolving credit facility.
The Senior Credit Facility is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. The Senior Credit Facility is subject to various financial and negative covenants and at March 31, 2021, the Company was in compliance with all such covenants. In connection with the February 2020 Amendment, the Company capitalized $4.6 million of financing costs in connection with modification of the Senior Credit Facility and wrote off $1.2 million of previously capitalized financing costs during the first quarter of 2020. In connection with the July 2020 amendment, the Company expensed $3.3 million of incremental financing costs in connection with the modification of the Senior Credit Facility during the third quarter of 2020.
At March 31, 2021 and December 31, 2020, there was $97.5 million outstanding under the revolving credit component of the Senior Credit Facility at weighted average interest rates of 1.5%. At March 31, 2021 and December 31, 2020, there was $877.5 million outstanding under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 1.5%. At March 31, 2021, $45.0 million of the Term Loan component of the Senior Credit Facility is classified as current on the consolidated balance sheet as the first mandatory repayment is due June 30, 2021.
The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at March 31, 2021 were $98.5 million and $884.9 million, respectively. These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy. Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities.
Letters of credit outstanding as of March 31, 2021 and December 31, 2020 totaled $1.6 million. There were no amounts drawn as of March 31, 2021.







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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
Quarter Ended March 31, 2021Principal Repayment
(In thousands)
Remainder of 2021$33,750 
202245,000 
202361,875 
202467,500 
2025669,375 
$877,500 
The outstanding balance of the revolving credit component of the Senior Credit Facility is due on February 3, 2025.
Convertible Senior Notes
On February 4, 2020, the Company issued $575.0 million aggregate principal amount of its 0.5% Convertible Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes will mature on August 15, 2025 and bear interest at a rate of 0.5% per annum payable semi-annually in arrears, unless earlier converted, repurchased or redeemed in accordance with the terms of the Notes. The portion of debt proceeds that was classified as equity at the time of the offering was $104.5 million. The effective interest rate implicit in the liability component was 4.2%. In connection with this offering, the Company capitalized $13.2 million of financing fees.
The 2025 Notes are senior, unsecured obligations of the Company, and are convertible into cash and shares of its common stock based on initial conversion rate, subject to adjustment of 13.5739 shares per $1,000 principal amounts of the 2025 Notes (which represents an initial conversion price of $73.67 per share). The 2025 Notes convert only in the following circumstances: (1) if the closing price of the Company's common stock has been at least 130% of the conversion price during the period; (2) if the average trading price per $1000 principal amount of the 2025 Notes is less than or equal to 98% of the average conversion value of the 2025 Notes during a period as defined in the indenture; (3) at any time on or after February 20, 2023; or (4) if specified corporate transactions occur. As of March 31, 2021, none of these conditions existed with respect to the 2025 Notes and as a result the 2025 Notes are classified as long term.
On December 9, 2020, the Company entered into the First Supplemental Indenture to the original agreement dated as of February 4, 2020 between the Company and Citibank, N.A., as trustee, governing the Company’s outstanding 2025 Notes. The Company irrevocably elected (1) to eliminate the Company’s option to choose physical settlement on any conversion of the 2025 Notes that occurs on or after the date of the First Supplemental Indenture and (2) with respect to any Combination Settlement for a conversion of the 2025 Notes, the Specified Dollar Amount that will be settled in cash per $1,000 principal amount of the 2025 Notes shall be no lower than $1,000.
Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the Notes). The Company will also be required to increase the conversion rate for holders who convert their Notes in connection with certain fundamental changes occurring prior to the maturity date or following delivery by the Company of a notice of redemption.
In connection with the issuance of the 2025 Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the 2025 Notes (the “hedge participants”). The cost of the call transactions was $104.2 million for the 2025 Notes. The Company received $44.5 million of proceeds from the warrant transactions for the 2025 Notes. The call transactions involved purchasing call options from the hedge participants, and the warrant transactions involved selling call options to the hedge participants with a higher strike price than the purchased call options. The initial strike price of the call transactions was $73.67, subject to anti-dilution adjustments substantially similar to those in the 2025 Notes. The initial strike price of the warrant transactions was $113.34 for the 2025 Notes, subject to customary anti-dilution adjustments.
At December 31, 2020, the carrying amount of the liability component was $485.9 million, the remaining unamortized discount was $89.1 million, and the principal amount outstanding was $575.0 million. On January 1, 2021, the Company adopted ASU 2020-06 using the modified retrospective method. See Note 1, Basis of Presentation, for further details. At March 31, 2021, in conjunction with the adoption of the ASU, the carrying amount of the liability was $575.0 million. The fair value of the 2025 Notes at March 31, 2021 was $642.1 million. Factors that the Company considered when estimating the fair value of the 2025 Notes included recent quoted market prices or dealer quote. The level of the 2025 Notes is considered as Level 1.
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INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
During the three months ended March 31, 2020, the Company recognized cash interest of $0.4 million and amortization of the discount on the liability component of $2.5 million for a total interest charge of $2.9 million on the 2020 Notes. On January 1, 2021, the Company adopted ASU 2020-06 using the modified retrospective method. See Note 1, Basis of Presentation, for further details. During the three months ended March 31, 2021, as a result of the adoption of the ASU, the Company recognized only cash interest related to the contractual interest coupon of $0.7 million on the 2025 Notes.
Securitization Facility
During the fourth quarter of 2018, the Company entered into an accounts receivable securitization facility (the "Securitization Facility") under which accounts receivable of certain domestic subsidiaries are sold on a non-recourse basis to a special purpose entity (“SPE”), which is a bankruptcy-remote, consolidated subsidiary of the Company. Accordingly, the assets of the SPE are not available to satisfy the obligations of the Company or any of its subsidiaries. From time to time, the SPE may finance such accounts receivable with a revolving loan facility secured by a pledge of such accounts receivable. The amount of outstanding borrowings on the Securitization Facility at any one time is limited to $150.0 million. The Securitization Facility Agreement ("Securitization Agreement") is for an initial three-year term and may be extended. The Securitization Agreement governing the Securitization Facility contains certain covenants and termination events. An occurrence of an event of default or a termination event under this Securitization Agreement may give rise to the right of its counterparty to terminate this facility. As of March 31, 2021, the Company was in compliance with the covenants and none of the termination events had occurred. At March 31, 2021 and December 31, 2020, the Company had $110.9 million and $112.5 million, respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 1.3%. At March 31, 2021, the total amount outstanding under the Securitization Facility is classified as current on the consolidated balance sheet as the total amount is due on December 21, 2021.
The fair value of the outstanding borrowing of the Securitization Facility at March 31, 2021 was $110.8 million. These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy. Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities.
7. DERIVATIVE INSTRUMENTS
Interest Rate Hedging
The Company’s interest rate risk relates to U.S. dollar denominated variable interest rate borrowings. The Company uses interest rate swap derivative instruments to manage earnings and cash flow exposure resulting from changes in interest rates. These interest rate swaps apply a fixed interest rate on a portion of the Company's expected LIBOR-indexed floating-rate borrowings.
The Company held the following interest rate swaps as of March 31, 2021 and December 31, 2020 (dollar amounts in thousands):
March 31, 2021December 31, 2020
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month USD LIBOR Loan100,000 March 27, 2017December 31, 2017June 30, 20211.971 %(463)(929)
1-month USD LIBOR Loan