SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
COMMISSION FILE NUMBER 0-26224
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 51-0317849
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(609) 275-0500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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.
/X/ - YES / / - NO
AS OF AUGUST 13, 2001 THE REGISTRANT HAD OUTSTANDING 25,590,875 SHARES OF
COMMON STOCK, $.01 PAR VALUE.
1
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Statements of Operations for the three and
six months ended June 30, 2001 and 2000 (Unaudited) 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000 (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands, except per share amounts
June 30, December 31,
2001 2000
--------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 8,602 $ 14,086
Short-term investments ............................. 3,053 1,052
Accounts receivable, net of allowances of
$1,512 and $1,003 ................................ 15,032 13,087
Inventories ........................................ 22,651 16,508
Prepaid expenses and other current assets .......... 1,106 1,484
--------- ---------
Total current assets ........................... 50,444 46,217
Property, plant, and equipment, net ................. 11,537 11,599
Goodwill and other intangible assets, net ........... 29,558 25,299
Other assets ........................................ 2,654 3,399
--------- ---------
Total assets ......................................... $ 94,193 $ 86,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt .................................... $ 7,189 $ 8,872
Accounts payable, trade ............................ 3,601 3,363
Income taxes payable ............................... 1,266 1,200
Customer advances and deposits ..................... 2,358 823
Deferred revenue ................................... 967 1,675
Accrued expenses and other current liabilities ..... 6,764 5,107
--------- ---------
Total current liabilities ...................... 22,145 21,040
Long-term debt ...................................... 2,514 4,758
Deferred revenue .................................... 4,358 4,728
Deferred income taxes ............................... 2,278 1,788
Other liabilities ................................... 376 419
--------- ---------
Total liabilities .................................... 31,671 32,733
Commitments and contingencies
Stockholders' Equity:
Preferred stock; $0.01 par value; 15,000 authorized
shares; 0 and 100 Series B Convertible shares
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively; 54 Series C
Convertible shares issued and outstanding at
June 30, 2001 and December 31, 2000, $6,075
including a 10% annual cumulative dividend
liquidation preference ........................... 1 2
Common stock; $0.01 par value; 60,000 authorized
shares; 20,745 and 17,334 issued and outstanding
at June 30, 2001 and December 31, 2000,
respectively ..................................... 207 173
Additional paid-in capital ......................... 164,707 160,134
Treasury stock, at cost; 20 shares at June 30, 2001
and December 31, 2000 ............................ (180) (180)
Other .............................................. (51) (66)
Accumulated other comprehensive loss ............... (1,191) (553)
Accumulated deficit ................................ (100,971) (105,729)
--------- ---------
Total stockholders' equity ....................... 62,522 53,781
--------- ---------
Total liabilities and stockholders' equity .......... $ 94,193 $ 86,514
========= =========
The accompanying notes are an integral part of the
consolidated financial statements
3
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Product sales .................................... $21,385 $15,827 $41,669 $29,159
Other revenue .................................... 1,535 1,259 2,935 2,458
------- ------- ------- -------
Total revenues .......................... 22,920 17,086 44,604 31,617
COSTS AND EXPENSES
Cost of product sales............................. 8,310 7,212 16,904 13,899
Research and development ......................... 1,837 2,004 3,910 3,894
Selling and marketing ............................ 5,269 3,904 10,020 6,853
General and administrative ....................... 3,319 3,884 6,523 7,631
Amortization ..................................... 729 670 1,409 1,150
------- ------- ------- -------
Total costs and expenses ................ 19,464 17,674 38,766 33,427
Operating income (loss)........................... 3,456 (588) 5,838 (1,810)
Interest income .................................. 108 141 315 432
Interest expense ................................. (222) (320) (507) (600)
Gain on disposition of product line .............. -- 1,031 -- 1,146
Other income (expense), net ...................... (151) 9 (213) 132
------- ------- ------- -------
Income (loss) before income taxes ................ 3,191 273 5,433 (700)
Income tax expense ............................... 429 161 675 223
------- ------- ------- -------
Income (loss) before accounting change............ 2,762 112 4,758 (923)
Cumulative effect of accounting change............ -- -- -- (470)
------- ------- ------- -------
Net income (loss) ................................ $ 2,762 $ 112 $ 4,758 $(1,393)
======= ======= ======= =======
Earnings (loss) per share:
Basic net income (loss) per share before
accounting change............................ $ 0.12 $ (0.02) $ 0.20 $ (0.33)
Accounting change.............................. -- -- -- (0.03)
------- ------- ------- -------
Basic net income (loss) per share $ 0.12 $ (0.02) $ 0.20 $ (0.36)
Diluted net income (loss) per share before
accounting change............................ $ 0.10 $ (0.02) $ 0.18 $ (0.33)
Accounting change.............................. -- -- -- (0.03)
------- ------- ------- -------
Diluted net income (loss) per share $ 0.10 $ (0.02) $ 0.18 $ (0.36)
Weighted average common shares outstanding:
Basic.......................................... 20,245 17,341 19,931 17,282
Diluted........................................ 25,049 17,341 22,211 17,282
The accompanying notes are an integral part of the
consolidated financial statements
4
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30,
-------------------
2001 2000
-------- --------
OPERATING ACTIVITIES:
Net income (loss) .................................... $ 4,758 $ (1,393)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ..................... 2,855 2,444
Gain on sale of product line ...................... -- (1,146)
Other, net ........................................ 82 (211)
Changes in assets and liabilities, net of
business acquisitions:
Accounts receivable ............................ (1,492) (1,147)
Inventories .................................... (5,406) (1,761)
Prepaid expenses and other current assets ...... 605 28
Non-current assets ............................. 642 (561)
Accounts payable, accrued expenses and
other liabilities .............................. 520 11
Customer advances and deposits ................. 1,535 (1,364)
Deferred revenue ............................... (1,115) 7
-------- --------
Net cash provided by (used in) operating
activities ........................................ 2,984 (5,093)
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of product line and
other assets ......................................... -- 1,600
Proceeds from sale/maturity of investments ........... 1,000 16,072
Purchases of available-for-sale investments .......... (2,891) (14,928)
Cash used in business acquisition,
net of cash acquired ................................. (5,899) (15,712)
Purchases of property and equipment .................. (1,168) (2,223)
-------- --------
Net cash used in investing activities ............. (8,958) (15,191)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit facility .......... 747 1,008
Repayments of term loan .............................. (3,203) (1,000)
Repayment of note payable ............................ (1,540) --
Proceeds from sale of preferred stock ................ -- 5,375
Proceeds from stock option and warrant exercises ..... 4,533 1,429
Treasury stock purchases ............................. -- (130)
Collection of related party note receivable .......... -- 36
Preferred dividends paid ............................. -- (40)
-------- --------
Net cash provided by financing activities ......... 537 6,678
-------- --------
Effect of exchange rate changes on cash and
cash equivalents ......................................... (47) (19)
Net decrease in cash and cash equivalents ................ (5,484) (13,625)
Cash and cash equivalents at beginning of period ......... 14,086 19,301
-------- --------
Cash and cash equivalents at end of period ............... $ 8,602 $ 5,676
======== ========
Non-cash investing and financing activities:
Business acquisition costs accrued in liabilities ... $ 716 $ 634
Note issued in a business acquisition ............... -- 2,654
The accompanying notes are an integral part of the
consolidated financial statements
5
INTEGRA LIFESCIENCES HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the June 30 unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of the
financial position and results of operations of the Company. Operating results
for the periods ended June 30, 2001 are not necessarily indicative of the
results to be expected for the entire year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, including disclosures of
contingent assets and liabilities and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
As of December 31, 2000, the Company had provided a $44.8 million valuation
allowance against its consolidated deferred tax asset due to the uncertainty of
its realization. Because the Company has generated taxable income during recent
quarters, management is continuing to reassess the potential realizability of
this asset through the generation of future taxable income. The recognition of
the deferred tax asset could affect the Company's income tax provision in the
near term.
These unaudited consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended December
31, 2000 included in the Company's Annual Report on Form 10-K/A.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. ACQUISITIONS
On April 27, 2001, the Company acquired Satelec Medical, a subsidiary of the
Satelec-Pierre Rolland group, for $3.8 million in cash, of which $3.6 million
was paid at closing. Satelec Medical, based in France, manufactures and markets
the Dissectron(R) ultrasonic surgical aspirator console and a line of related
handpieces. The Dissectron(R) product has United States FDA 510(k) clearance for
neurosurgical applications and CE Mark Certification in the European Union.
Revenues of the acquired business were approximately $1.5 million in 2000.
On April 4, 2001, the Company acquired GMSmbH, the German manufacturer of the
LICOX(R) Brain Tissue Oxygen Monitoring System, for $2.9 million. The purchase
price consisted of $2.3 million in cash paid at closing, the forgiveness of $0.2
million in notes receivable from GMSmbH, and $0.4 million of future minimum
royalty payments to the seller. Prior to the acquisition, the Company's Integra
NeuroSciences division had exclusive marketing rights to the LICOX(R) products
in the United States and certain other markets. Revenues of the acquired
business were approximately $1.2 million in 2000, consisting primarily of sales
of the LICOX(R) products in Germany and to various international distributors,
including Integra.
6
These acquisitions have been accounted for using the purchase method of
accounting, and the results of operations of the acquired businesses have been
included in the consolidated financial statements since their respective dates
of acquisition. The preliminary allocation of the purchase price for these
acquisitions resulted in approximately $6.2 million of acquired intangible
assets and residual goodwill, which are being amortized on a straight-line basis
over lives ranging from 5 to 15 years.
The following unaudited pro forma financial information assumes that the
acquisitions had occurred as of the beginning of each period (in thousands,
except per share data):
For the Six Months
Ended June 30,
2001 2000
------- -------
Total revenue ............................. $45,018 $32,940
Net income(loss) .......................... 4,556 (1,777)
Net income (loss) per share:
Basic .................................. $ 0.19 $ (0.38)
Diluted................................. $ 0.17 $ (0.38)
The pro forma results do not necessarily represent results that would have
occurred if the acquisition had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations.
3. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS (Statement 141),
and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS (Statement 142). These
Statements change the accounting for business combinations, goodwill, and
intangible assets. Statement 141 eliminates the pooling-of-interests method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. Statement 141 further clarifies the
criteria to recognize intangible assets separately from goodwill. The
requirements of Statement 141 are effective for any business combination that is
completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. Goodwill and intangible assets acquired prior to July 1, 2001 will
continue to be amortized through December 31, 2001 for all calendar year
companies. After December 31, 2001, such goodwill and indefinite lived
intangible assets will cease being amortized. Management is reviewing the impact
of these two statements on the Company's consolidated financial statements.
In December 1999 (as amended in March 2000 and June 2000) the staff of the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101,
Revenue Recognition (the "SAB"). As the result of the adoption of the SAB, the
Company recorded a $470,000 cumulative effect of an accounting change to defer a
portion of a nonrefundable, up-front fee received and recorded in other revenue
in 1998. The cumulative effect of this accounting change was measured and
recorded as of January 1, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133, as amended by Statement No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
such instruments at fair value. The Company's adoption of Statement No. 133 as
of January 1, 2001 did not have a material impact on the Company's results of
operations or financial position.
7
4. INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share for the periods ended June 30 were
as follows:
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
------- -------- ------- -------
Basic net income (loss) per share:
Net income (loss) .............................. $ 2,762 $ 112 $ 4,758 $(1,393)
Dividends on preferred stock ................... (371) (405) (756) (675)
Beneficial conversion feature preferred stock... -- -- -- (4,170)
------- -------- ------- -------
Net income (loss) applicable to common stock.. $ 2,391 $ (293) $ 4,002 $(6,238)
Basic net income (loss) per share ............ $ 0.12 $ (0.02) $ 0.20 $ (0.36)
======= ======== ======= =======
Diluted net income (loss) per share:
Net income (loss) .............................. $ 2,762 $ 112 $ 4,758 $(1,393)
Dividends on preferred stock ................... (135) (405) (756) (675)
Beneficial conversion feature preferred stock... -- -- -- (4,170)
------- -------- ------- -------
Net income (loss) applicable to common stock.. $ 2,627 $ (293) $ 4,002 $(6,238)
Diluted net income (loss) per share .......... $ 0.10 $ (0.02) $ 0.18 $ (0.36)
======= ======== ======= =======
Weighted average shares outstanding:
Basic......................................... 20,245 17,341 19,931 17,282
Effect of dilutive securities:
Options and warrants...................... 2,330 -- 2,280 --
Preferred stock........................... 2,474 -- -- --
------- -------- ------- -------
Diluted....................................... 25,049 17,341 22,211 17,282
======= ======== ======= =======
For the three and six month periods ended June 30, 2001, the Series C Preferred
Stock convertible into 600,000 shares of common stock was not included in the
computation of diluted net income per share because its effect would have been
antidilutive. Prior to its conversion on June 26, 2001, the Series B Preferred
Stock convertible into 2,617,800 shares of common stock was not included in the
computation of diluted net income per share for the six months ended June 30,
2001 because its effect would have been antidilutive. Options and warrants to
purchase 4,365,816 shares of common stock and preferred stock convertible into
3,467,800 shares of common stock at June 30, 2000 were not included in the
computation of diluted net loss per share for the three and six months ended
June 30, 2000 because their effect would have been antidilutive.
In connection with the issuance of 54,000 shares of Series C Preferred and
common stock warrants in March 2000, the Company reflected a $4.2 million
nonrecurring, non-cash dividend related to the beneficial conversion feature of
the Series C Preferred in the calculation of net loss per share applicable to
common stock for the six month period ended June 30, 2000. The beneficial
conversion feature is based upon the excess of the price of the underlying
common stock as compared to the fixed conversion price of the Series C
Preferred, after taking into account the value assigned to the common stock
warrants.
8
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the periods ended June 30 was as follows:
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income (loss) ......................... $ 2,762 $ 112 $ 4,758 $(1,393)
Foreign currency translation adjustment.... (414) (338) (745) (338)
Unrealized gain (loss) on investments ..... 26 (7) 12 117
Reclassification for Other than temporary
decline in value of available for sale
securities.............................. 95 -- 95 --
-------- -------- -------- --------
Comprehensive income (loss) ............... $ 2,469 $ (233) $ 4,120 $(1,614)
======== ======== ======== ========
6. INVENTORIES
Inventories consist of the following:
June 30, December 31,
2001 2000
-------- --------
(In thousands)
Raw materials.............................. $ 7,248 $ 5,805
Work-in process............................ 4,361 3,825
Finished goods............................. 11,042 6,878
------- -------
$22,651 $16,508
======= =======
7. STOCKHOLDERS' EQUITY
In March 2001, warrants to purchase 240,000 shares of common stock at $3.82 per
share were exercised, for which the Company received proceeds of $916,800.
On June 26, 2001, all of the holders of the Company's Series B Preferred stock
converted their 100,000 shares of Series B Preferred Stock into 2,617,800 shares
of common stock.
9
8. SEGMENT AND GEOGRAPHIC REPORTING
The Company's reportable business segments consist of the Integra NeuroSciences
division, which is a leading provider of implants, devices and monitors used in
neurosurgery, neurotrauma, and related critical care, and the Integra
LifeSciences division, which develops and manufactures a variety of medical
products and devices, including products based on the Company's proprietary
tissue regeneration technology, which are used to treat soft-tissue and
orthopedic conditions. Integra NeuroSciences sells primarily through a direct
sales organization, and Integra LifeSciences sells primarily through strategic
alliances and distributors. The Company has reclassified certain items within
its segments to conform to the current methodology for determining segment
profitability. These reclassifications were not material and did not change the
basic nature of the business segments. Selected financial information on the
Company's business segments is reported below (in thousands):
Integra Integra Total
Neuro- Life Reportable
Sciences Sciences Segments
-------- -------- --------
(in thousands)
Three months ended June 30, 2001
----
Product sales .................... $ 15,724 $ 5,661 $ 21,385
Total revenue .................... 16,002 6,918 22,920
Operating expenses ............... 12,295 4,667 16,962
Operating income ................. 3,707 2,251 5,958
Depreciation included in segment
operating expenses ............ 373 257 630
Three months ended June 30, 2000
----
Product sales .................... $ 11,138 $ 4,689 $ 15,827
Total revenue .................... 11,416 5,670 17,086
Operating expenses ............... 9,792 4,902 14,694
Operating income ................. 1,624 768 2,392
Depreciation included in segment
operating expenses ............ 299 326 625
Six months ended June 30, 2001
----
Product sales .................... $ 30,203 $ 11,466 $ 41,669
Total revenue .................... 30,759 13,845 44,604
Operating expenses ............... 23,648 9,869 33,517
Operating income ................. 7,111 3,976 11,087
Depreciation included in segment
operating expenses ............ 790 519 1,309
Six months ended June 30, 2000
----
Product sales .................... $ 19,958 $ 9,201 $ 29,159
Total revenue .................... 20,514 11,103 31,617
Operating expenses ............... 17,807 9,605 27,412
Operating income ................. 2,707 1,498 4,205
Depreciation included in segment
operating expenses ............ 559 611 1,170
10
A reconciliation of the amounts reported for total reportable segments to the
consolidated financial statements is as follows:
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
-------- -------- -------- --------
(in thousands)
Operating expenses:
Total reportable segments ............ $ 16,962 $ 14,694 $ 33,517 $ 27,412
Plus: Corporate general and
administrative expenses ..... 1,773 2,310 3,840 4,865
Amortization ................... 729 670 1,409 1,150
-------- -------- -------- --------
Consolidated total operating expenses. $ 19,464 $ 17,674 $ 38,766 $ 33,427
Operating income (loss):
Total reportable segments ............ $ 5,958 $ 2,392 11,087 4,205
Less: Corporate general and
administrative expenses ..... 1,773 2,310 3,840 4,865
Amortization ................... 729 670 1,409 1,150
-------- -------- -------- --------
Consolidated operating income (loss).. $ 3,456 $ (588) $ 5,838 $ (1,810)
Product sales consisted of the following:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences:
Neuro intensive care unit.......... $ 6,811 $ 5,549
Neuro operating room............... 8,913 5,589
-------- --------
Total product sales................ 15,724 11,138
Integra LifeSciences:
Private label products............. 3,330 2,713
Distributed products............... 2,331 1,976
-------- --------
Total product sales................ 5,661 4,689
Consolidated product sales............ $ 21,385 $ 15,827
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences:
Neuro intensive care unit.......... $ 13,344 $ 11,081
Neuro operating room............... 16,859 8,877
-------- --------
Total product sales................ 30,203 19,958
Integra LifeSciences:
Private label products............. 6,773 5,434
Distributed products............... 4,693 3,767
-------- --------
Total product sales................ 11,466 9,201
Consolidated product sales............ $ 41,669 $ 29,159
11
Product sales by major geographic area are summarized below:
United Asia Other
States Europe Pacific Foreign Total
-------- -------- -------- -------- --------
(in thousands)
Three months ended June 30, 2001..... $ 16,819 $ 2,330 $ 1,390 $ 846 $ 21,385
Three months ended June 30, 2000..... $ 12,340 $ 1,870 $ 1,073 $ 544 $ 15,827
Six months ended June 30, 2001....... $ 32,750 $ 4,714 $ 2,505 $ 1,700 $ 41,669
Six months ended June 30, 2000....... $ 22,928 $ 2,951 $ 2,343 $ 937 $ 29,159
9. LEGAL MATTERS
In July 1996, we filed a patent infringement lawsuit in the United States
District Court for the Southern District of California against Merck KGaA, a
German corporation, Scripps Research Institute, a California nonprofit
corporation, and David A. Cheresh, Ph.D., a research scientist with Scripps,
seeking damages and injunctive relief. The complaint charged, among other
things, that the defendant Merck KGaA willfully and deliberately induced, and
continues to willfully and deliberately induce, defendants Scripps Research
Institute and Dr. David A. Cheresh to infringe certain of our patents. These
patents are part of a group of patents granted to The Burnham Institute and
licensed by us that are based on the interaction between a family of cell
surface proteins called integrins and the arginine-glycine-aspartic acid peptide
sequence found in many extracellular matrix proteins. The defendants filed a
countersuit asking for an award of defendants' reasonable attorney fees. This
case went to trial in February 2000, and on March 17, 2000, a jury returned a
unanimous verdict for us finding that Merck KGaA had willfully infringed and
induced the infringement of our patents, and awarded $15,000,000 in damages. The
court dismissed Scripps and Dr. Cheresh from the case. On October 6, 2000, the
United States District Court for the Southern District of California entered
judgment in our favor and against Merck KGaA in the case. In entering the
judgment, the court also granted us pre-judgment interest of approximately
$1,350,000, bringing the total amount to approximately $16,350,000, plus
post-judgment interest. Various post-trial motions are pending, including a
request by Merck KGaA for a judgment as a matter of law notwithstanding the
verdict, which could have the effect of reducing the judgment or reversing the
verdict of the jury. In addition, if we win these post-trial motions, we expect
Merck KGaA to appeal various decisions of the Court. No amounts for this
favorable verdict have been reflected in our financial statements.
We are also subject to other claims and lawsuits in the ordinary course of our
business, including claims by employees and with respect to our products. In the
opinion of management, the other claims are either adequately covered by
insurance or otherwise indemnified, and are not expected, individually or in the
aggregate, to result in a material adverse effect on our financial condition.
Our financial statements do not reflect any material amounts related to possible
unfavorable outcomes of the matters above or others. However, it is possible
that these contingencies could materially affect our results of operations,
financial position and cash flows in a particular period.
10. SUBSEQUENT EVENT
On August 13, 2001, the Company issued 4,747,500 shares of common stock in a
public offering at $25.50 per share for net proceeds of approximately $113.8
million after deducting expenses related to the offering. The Company plans to
use the proceeds from the offering for general corporate purposes, which could
include, among other things, acquisition of product lines or companies,
repayment of indebtedness, the expansion of sales and marketing, the development
of new technologies and increases in working capital.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements, the notes thereto and the other financial
information included elsewhere in this report and in the Company's 2000 Annual
Report on Form 10-K/A filed with the Securities and Exchange Commission.
OVERVIEW
The Company develops, manufactures and markets medical devices, implants and
biomaterials for the neurosurgical, orthopedic and soft tissue repair markets.
The Company's operations consist of:
o Integra NeuroSciences, which is a leading provider of implants, devices,
and monitors used in neurosurgery, neurotrauma, and related critical care;
and
o Integra LifeSciences, which develops and manufactures a variety of medical
products and devices, including products based on our proprietary tissue
regeneration technology which are used to treat soft tissue and orthopedic
conditions.
Integra NeuroSciences sells primarily through a direct sales organization and
Integra LifeSciences sells primarily through strategic alliances and
distributors.
Certain items within the Company's business segments have been reclassified to
conform to the current methodology for determining segment profitability. These
reclassifications were not material and did not change the basic nature of the
business segments.
RECENT ACQUISITIONS
On April 27, 2001, we acquired Satelec Medical, a subsidiary of the
Satelec-Pierre Rolland group, for $3.8 million in cash, of which $3.6 million
was paid at closing. Satelec Medical, based in France, manufactures and markets
the Dissectron(R) ultrasonic surgical aspirator console and a broad line of
related handpieces. The Dissectron(R) product is the leading ultrasonic surgical
system in France. The Dissectron(R) product has FDA 510(k) clearance for
neurosurgical applications and CE Mark Certification in the European Union.
Revenues of the acquired business were approximately $1.5 million in 2000.
On April 4, 2001, we acquired all of the outstanding stock of GMSmbH, the German
manufacturer of the LICOX(R) Brain Tissue Oxygen Monitoring System, for $2.9
million of which $2.3 million was paid in cash at closing. Prior to the
acquisition, our Integra NeuroSciences division had exclusive marketing rights
to the LICOX(R) products in the United States and certain other markets.
Revenues of the acquired GMS business were approximately $1.2 million in 2000,
consisting primarily of sales of the LICOX(R) products in Germany and to various
international distributors, including Integra.
On April 6, 2000, we purchased the Selector(R) Ultrasonic Aspirator, Ruggles(TM)
hand-held neurosurgical instruments and Spembly(R) Medical cryosurgery product
lines, including certain assets and liabilities, from NMT Medical, Inc. for
$11.6 million in cash.
On January 17, 2000, the Company purchased the business, including certain
assets and liabilities, of Clinical Neuro Systems, Inc. for $6.8 million. CNS
designs, manufactures and sells neurosurgical external ventricular drainage
systems, including catheters and drainage bags, as well as cranial access kits.
The purchase price of the CNS business consisted of $4.0 million in cash and a
$2.8 million 5% secured promissory note issued to the seller. The promissory
note, of which approximately $1.4 million remains outstanding, is collateralized
by inventory, property and equipment of the CNS business and by a collateral
assignment of a $2.8 million promissory note from one of our subsidiaries.
13
These acquisitions have been accounted for using the purchase method of
accounting, and our consolidated financial statements include the results of
operations of the acquired businesses since their respective dates of
acquisition. As a result of these acquisitions, the Company's segment financial
results for the three and six months ended June 30, 2001 and 2000 may not be
directly comparable.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 2001 to Three Months Ended June 30,
2000
Product Sales and Gross Margins on Product Sales:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences:
Neuro intensive care unit.......... $ 6,811 $ 5,549
Neuro operating room............... 8,913 5,589
-------- --------
Total product sales................ 15,724 11,138
Cost of product sales.............. 5,752 4,817
-------- --------
Gross margin on product sales...... 9,972 6,321
Gross margin percentage............ 63% 57%
Integra LifeSciences:
Private label products............. 3,330 2,713
Distributed products............... 2,331 1,976
-------- --------
Total product sales................ 5,661 4,689
Cost of product sales.............. 2,558 2,395
-------- --------
Gross margin on product sales...... 3,103 2,294
Gross margin percentage............ 55% 49%
Consolidated:
Product sales......................... $ 21,385 $ 15,827
Consolidated gross margin percentage.. 61% 54%
In the second quarter of 2001, total revenues increased $5.8 million, or 34%,
over the second quarter of 2000 to $22.9 million. Revenue growth was led by a
$5.6 million increase in product sales to $21.4 million, a 35% increase over the
second quarter of 2000. Included in this increase was $0.4 million in sales of
product lines acquired in the quarter. Sales in the Integra NeuroSciences
division increased $4.6 million to $15.7 million in the second quarter of 2001,
and included $0.4 million in sales of acquired product lines. Contributing to
the strong growth in the Integra NeuroSciences division were sales of the
DuraGen(R) Dural Graft Matrix, our line of intracranial monitoring products for
the neuro intensive care unit, and the Selector(R) Integra Ultrasonic Aspirator
for the ablation of cranial tumors. For the second quarter of 2001 and 2000,
Integra NeuroSciences' reported gross margin on product sales was reduced by one
percentage point and two percentage points, respectively, relating to fair value
inventory purchase accounting adjustments recorded in connection with
acquisitions. The adjusted gross margin on product sales increased five
percentage points to 64% in the second quarter of 2001 through an improved sales
mix of higher margin products.
Future product sales in the Integra NeuroSciences division are expected to
benefit from growth in the division's existing product lines and the launch of
new or recently developed products, including the LICOX(R) Brain Tissue Oxygen
Monitoring System, the Ventrix(R) True Tech Tunneling Catheter for intracranial
pressure monitoring, and the NeuraGen(TM) Nerve Guide for the repair of damaged
peripheral nerves.
Sales of Integra LifeSciences division products increased $1.0 million to $5.7
million in the second quarter of 2001 primarily because of growth in the
Company's private label products. Sales of private label products can vary
significantly from quarter to quarter and are dependent upon the efforts of our
strategic marketing partners. For the second quarter of 2000, Integra
LifeSciences' reported gross margin on product sales was reduced by two
percentage
14
points relating to fair value inventory purchase accounting adjustments recorded
in connection with an acquisition. As compared to the adjusted gross margin of
51% in the second quarter of 2000, gross margin on product sales increased four
percentage points to 55% in the second quarter of 2001 primarily as a result of
increased capacity utilization.
Other revenue, which increased $0.3 million to $1.5 million in the first quarter
of 2001, consisted of $1.1 million of research and development funding from
strategic partners and government grants, $0.3 million of royalty income, and
$0.1 million of license and distribution revenues.
Research and development expenses were as follows:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 712 $ 735
Integra LifeSciences.............. 1,125 1,269
------- -------
Total.......................... $ 1,837 $ 2,004
======= =======
The future allocation and timing of research and development expenditures
between segments and programs will vary depending on various factors, including
the timing and outcome of pre-clinical and clinical results, changing
competitive conditions, continued program funding levels, potential funding
opportunities and determinations with respect to the commercial potential of the
Company's technologies.
Selling and marketing expenses were as follows:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 4,784 $ 3,038
Integra LifeSciences.............. 485 866
------- -------
Total.......................... $ 5,269 $ 3,904
======= =======
Integra NeuroSciences selling and marketing expenses increased $1.7 million as
compared to the second quarter of 2000 primarily because of the increase in the
size of the direct sales force in the United States throughout 2000 and into
2001 from 18 to 44 neurospecialists.
Within the Integra LifeSciences division, product sales and marketing activities
are primarily the responsibility of our strategic marketing partners and
distributors. The $0.4 million decrease in Integra LifeSciences' sales and
marketing expenses to $0.5 million in the second quarter of 2001 reflects the
transition of selling and marketing activities to these strategic marketing
partners and lower distributor selling costs.
15
General and administrative expenses were as follows:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 1,047 $ 1,202
Integra LifeSciences.............. 499 372
Corporate......................... 1,773 2,310
------- -------
Total.......................... $ 3,319 $ 3,884
======= =======
The $0.2 million decrease in Integra NeuroSciences' general and administrative
expenses was primarily related to headcount reductions in 2001 and consulting
costs incurred in 2000 related to the CNS acquisition.
The $0.5 million decrease in corporate general and administrative expenses was
primarily the result of decreased legal fees.
Other income (expense), net includes the following:
Three Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Other than temporary decline in
available for sale securities.. $ (95) $ --
Other, net........................ (56) 9
------- -------
Total.......................... $ (151) $ 9
======= =======
The provision for income taxes increased $0.3 million in the second quarter of
2001 to $0.4 million, which brings the effective tax rate for the year-to-date
period to approximately 12.5%. The decrease in the effective rate as compared to
the second quarter of 2000 is the result of greater taxable income generated in
2001 in jurisdictions where the Company has net operating loss carryforwards
available to offset taxable income.
Net income for the second quarter of 2001 was $2.8 million, or $0.10 per diluted
share, as compared to net income of $0.1 million for the second quarter of 2000,
or a $0.02 loss per share (after the effect of preferred stock dividends). The
net income for the second quarter of 2000 includes a $1.0 million gain on the
sale of a product line and $0.3 million of fair value inventory purchase
accounting adjustments. Excluding these items, the Company would have reported a
net loss of $0.6 million, or a $0.06 per share loss, for the second quarter of
2000.
Comparison of Six Months Ended June 30, 2001 to Six Months Ended June 30, 2000
16
Product Sales and Gross Margins on Product Sales:
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences:
Neuro intensive care unit.......... $ 13,344 $ 11,081
Neuro operating room............... 16,859 8,877
-------- --------
Total product sales................ 30,203 19,958
Cost of product sales.............. 11,389 8,995
-------- --------
Gross margin on product sales...... 18,814 10,963
Gross margin percentage............ 62% 55%
Integra LifeSciences:
Private label products............. 6,773 5,434
Distributed products............... 4,693 3,767
-------- --------
Total product sales................ 11,466 9,201
Cost of product sales.............. 5,515 4,904
-------- --------
Gross margin on product sales...... 5,951 4,297
Gross margin percentage............ 52% 47%
Consolidated:
Product sales......................... $ 41,669 $ 29,159
Consolidated gross margin percentage.. 59% 52%
For the six months ended June 30, 2001, total revenues increased $13.0 million,
or 41%, over the six month period ended June 30, 2000 to $44.6 million. Revenue
growth was led by a $12.5 million increase in product sales to $41.7 million, a
43% increase over the six month period ended June 30, 2000. Included in this
increase was $0.4 million in sales of product lines acquired in the second
quarter of 2001 and an additional three months of sales of product lines
acquired from NMT Medical in April 2000. Sales in the Integra NeuroSciences
division increased $10.2 million to $30.2 million for the six months ended June
30, 2001, and included $0.4 million in sales of product lines acquired in the
second quarter of 2001 and six months of sales of product lines acquired from
NMT Medical in April 2000. Contributing to the strong growth in the Integra
NeuroSciences division were sales of the DuraGen(R) Dural Graft Matrix, our line
of intracranial monitoring products for the neuro intensive care unit, and the
Selector(R) Integra Ultrasonic Aspirator for the ablation of cranial tumors. For
the six month periods ended June 30, 2001 and 2000, Integra NeuroSciences'
reported gross margin on product sales was reduced by one percentage point and
two percentage points, respectively, relating to fair value inventory purchase
accounting adjustments recorded in connection with acquisitions. The adjusted
gross margin on product sales increased six percentage points to 63% for the six
months ended June 30, 2001 through an improved sales mix of higher margin
products.
Sales of Integra LifeSciences division products increased $2.3 million to $11.5
million for the six month period ended June 30, 2001 primarily because of growth
in both private label and distributed products. For the six months ended June
30, 2000, Integra LifeSciences' reported gross margin on product sales was
reduced by one percentage point relating to fair value inventory purchase
accounting adjustments recorded in connection with an acquisition. As compared
to the adjusted gross margin of 48% for the six month period ended June 30,
2000, gross margin on product sales increased four percentage points to 52% for
the six months ended June 30, 2001 primarily as a result of increased capacity
utilization in the second quarter of 2001.
Other revenue, which increased $0.5 million to $2.9 million for the six months
ended June 30, 2001, consisted of $2.0 million of research and development
funding from strategic partners and government grants, $0.6 million of royalty
income, and $0.3 million of license and distribution revenues.
17
Research and development expenses were as follows:
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 1,400 $ 1,238
Integra LifeSciences.............. 2,510 2,656
------- -------
Total.......................... $ 3,910 $ 3,894
======= =======
The $0.2 million increase in Integra NeuroSciences' research and development
expenses to $1.4 million for the six months ended June 30, 2001 was primarily
related to development activities for the NeuraGen(TM) Nerve Guide, which
received FDA approval in June 2001.
Selling and marketing expenses were as follows:
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 9,022 $ 5,482
Integra LifeSciences.............. 998 1,371
------- -------
Total.......................... $10,020 $ 6,853
======= =======
Integra NeuroSciences selling and marketing expenses increased $3.5 million to
$9.0 million for the six months ended June 30, 2001 primarily because of the
increase in the size of the direct sales force in the United States.
The $0.4 million decrease in Integra LifeSciences' sales and marketing expenses
to $1.0 million for the six months ended June 30, 2001 reflects the transition
of selling and marketing activities to strategic marketing partners and lower
distributor selling costs.
General and administrative expenses were as follows:
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Integra NeuroSciences............. $ 1,837 $ 2,092
Integra LifeSciences.............. 846 674
Corporate......................... 3,840 4,865
------- -------
Total.......................... $ 6,523 $ 7,631
======= =======
The $0.3 million decrease in Integra NeuroSciences' general and administrative
expenses was primarily related to headcount reductions in 2001 and consulting
costs incurred in 2000 related to the CNS acquisition.
The $0.2 million increase in Integra LifeSciences' general and administrative
expenses was primarily related to increased headcount.
The $1.0 million decrease in corporate general and administrative expenses was
primarily the result of decreased legal fees.
18
Other income (expense), net includes the following:
Six Months Ended June 30,
2001 2000
-------- --------
(in thousands)
Other than temporary decline in
available for sale securities.... $ (95) $ --
Gain on sale of available for sale
securities....................... -- 176
Other, net.......................... (118) (44)
------- -------
Total............................ $ (213) $ 132
======= =======
The provision for income taxes increased $0.5 million for the six month period
ended June 30, 2001 to $0.7 million, which brings the effective tax rate for the
year-to-date period to approximately 12.5%.
Net income for the six months ended June 30, 2001 was $4.8 million, or $0.18 per
diluted share, as compared to a net loss of $1.4 million, or $0.36 per share,
for the six months ended June 30, 2000. The net loss per share for the six
months ended June 30, 2000 includes a $4.2 million beneficial conversion feature
associated with the issuance of convertible preferred stock and common stock
warrants in March 2000, which is treated as a non-cash dividend in computing per
share earnings. The beneficial conversion feature is based upon the excess of
the price of the underlying common stock as compared to the fixed conversion
price of the convertible preferred stock, after taking into account the value
assigned to the warrants. Included in the $1.4 million net loss for the six
months ended June 30, 2000 was a $0.5 million cumulative effect of an accounting
change, $0.4 million of fair value inventory purchase accounting adjustments,
and a $1.1 million gain on the sale of product lines. Excluding these items and
the $4.2 million beneficial conversion feature associated with the convertible
preferred stock, the Company would have reported a $0.09 net loss per share for
the six months ended June 30, 2000.
INTERNATIONAL PRODUCT SALES AND OPERATIONS
For the six months ended June 30, 2001, sales to customers outside the United
States totaled $8.9 million, or 21% of consolidated product sales, of which
approximately 53% were to Europe. Of this amount, $3.0 million of these sales
were generated in foreign currencies from our foreign-based subsidiaries in
England, Germany and France. Our international sales and operations are subject
to the risk of foreign currency fluctuations, both in terms of exchange risk
related to transactions conducted in foreign currencies and the price of our
products in those markets for which sales are denominated in the U.S. dollar.
For the six months ended June 30, 2000, sales to customers outside the United
States totaled $6.2 million, or 21% of consolidated product sales, of which
approximately 47% were to Europe. Of this amount, $1.1 million of these sales
were generated in foreign currencies from our foreign-based subsidiary in
England.
We seek to increase our presence in international markets, particularly in
Europe, through acquisitions of businesses with an existing international sales
and marketing infrastructure or the capacity to develop such an infrastructure.
The Company acquired operations in Germany and France with the acquisitions of
GMS and Satelec Medical in April 2001.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has experienced significant cumulative operating losses.
Historically, we have funded our operations primarily through private and public
offerings of equity securities, product revenues, research and collaboration
funding, borrowings under a revolving credit line and cash acquired in
connection with business acquisitions and dispositions. Recently, however, the
Company has substantially reduced its cash burn rate and, for the six months
ended June 30, 2001, generated positive operating cash flows of $3.0 million.
Included in operating cash flows was a $5.4 million use of cash due to inventory
growth, $1.5 million use of cash due to accounts receivable growth, and a $1.5
million source of cash from advanced payments and customer deposits from our
strategic alliance partners.
19
At June 30, 2001, the Company had cash, cash equivalents and short-term
investments of approximately $11.7 million and $9.7 million in short and
long-term debt.
The Company's principal uses of funds during the six months ended June 30, 2001
were $5.9 million for business acquisitions, $4.7 million of debt repayments and
$1.2 million in purchases of property and equipment. Principal sources of funds
were $3.0 million of positive operating cash flow, $0.7 million of proceeds from
short-term borrowings, and $4.5 million from the issuance of common stock.
The Company maintains a term loan and revolving credit facility from Fleet
Capital Corporation (collectively, the "Fleet Credit Facility"), which is
collateralized by all of the assets and ownership interests of various of our
subsidiaries including Integra NeuroCare LLC, and NeuroCare Holding Corporation
(the parent company of Integra NeuroCare LLC) has guaranteed Integra NeuroCare
LLC's obligations. Integra NeuroCare LLC is subject to various financial and
non-financial covenants under the Fleet Credit Facility, including significant
restrictions on its ability to transfer funds to the Company or its other
subsidiaries and restrictions on its ability to borrow more money. The financial
covenants specify minimum levels of interest and fixed charge coverage and net
worth, and also specify maximum levels of capital expenditures and total
indebtedness to operating cash flow, among others. While the Company anticipates
that Integra NeuroCare LLC will be able to satisfy the requirements of these
financial covenants, there can be no assurance that Integra NeuroCare LLC will
generate sufficient earnings before interest, taxes, depreciation and
amortization to meet the requirements of such covenants. The term loan is
subject to mandatory prepayment amounts if certain levels of cash flow are
achieved. In April 2001, Integra NeuroCare LLC prepaid approximately $2.1
million in principal as a result of such provisions in addition to the scheduled
quarterly principal payment.
On August 13, 2001, the Company issued 4,747,500 shares of common stock in a
public offering at $25.50 per share for net proceeds of approximately $113.8
million after deducting expenses related to the offering. The Company plans to
use the proceeds from the offering for general corporate purposes, which could
include, among other things, acquisition of product lines or companies,
repayment of indebtedness, the expansion of sales and marketing, the development
of new technologies and increases in working capital. The Company expects to use
some of the proceeds to reduce or eliminate borrowings under the Fleet Credit
Facility.
In the short-term, the Company believes that it has sufficient resources to fund
its operations. In the absence of a material acquisition or a material adverse
change in our business, we believe we have the ability to fund our operations
from our existing capital resources and cash generated from the business through
the end of 2002. However, in the longer-term, there can be no assurance that the
Company will be able to generate sufficient revenues to sustain positive
operating cash flows or profitability or to find acceptable alternatives to
finance future acquisitions.
20
OTHER MATTERS
At December 31, 2000, the Company had provided a $44.8 million valuation
allowance against its consolidated deferred tax asset due to the uncertainty of
its realization. Because the Company has generated taxable income during recent
quarters, management is continuing to reassess the potential realizability of
this asset through the generation of future taxable income. The recognition of
the deferred tax asset could affect the Company's income tax provision in the
near term.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS (Statement 141),
and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS (Statement 142). These
Statements change the accounting for business combinations, goodwill, and
intangible assets. Statement 141 eliminates the pooling-of-interests method of
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. Statement 141 further clarifies the
criteria to recognize intangible assets separately from goodwill. The
requirements of Statement 141 are effective for any business combination that is
completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. Goodwill and intangible assets acquired prior to July 1, 2001 will
continue to be amortized through December 31, 2001 for all calendar year
companies. After December 31, 2001, such goodwill and indefinite lived
intangible assets will cease being amortized. Management is reviewing the impact
of these two statements on the Company's consolidated financial statements.
In December 1999 (as amended in March 2000 and June 2000) the staff of the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101,
Revenue Recognition (the "SAB"). As the result of the adoption of the SAB, the
Company recorded a $470,000 cumulative effect of an accounting change to defer a
portion of a nonrefundable, up-front fee received and recorded in other revenue
in 1998. The cumulative effect of this accounting change was measured and
recorded as of January 1, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133, as amended by Statement No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
such instruments at fair value. The Company's adoption of Statement No. 133 as
of January 1, 2001 did not have a material impact on the Company's results of
operations or financial position.
FORWARD-LOOKING STATEMENTS
We have made statements in this report, including statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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.
These forward-looking statements are subject to a number of risks, uncertainties
and assumptions about the Company, including those described under "Risk
Factors" in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 2000 filed with the Securities and Exchange Commission. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this report may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
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.
21
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 4, 2001, we notified the holders of the 100,000 shares of Series B
Preferred of our intention to redeem these shares on June 29, 2001 for $12.3
million. The holders of the Series B Preferred had the right to convert their
shares into common stock prior to this redemption. As of June 26, 2001, all of
the holders of the Series B Preferred exercised this right to convert their
100,000 shares of Series B Preferred into 2,617,800 shares of common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of matters voted on at the Company's Annual Meeting of Stockholders
held on May 15, 2001 were filed in a Current Report on Form 8-K dated May 15,
2001 filed with the Securities and Exchange Commission on May 25, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission a Report on Form
8-K dated May 15, 2001 with respect to the results of the matters voted on at
the Company's Annual Meeting of Stockholders held on May 15, 2001.
22
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: August 14, 2001 /s/ Stuart M. Essig
--------------------
Stuart M. Essig
President and Chief Executive Officer
Date: August 14, 2001 /s/ David B. Holtz
-------------------
David B. Holtz
Senior Vice President, Finance and Treasurer
23