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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 2024
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 NUMBER 000-26224
 
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: (609) 275-0500
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 filer☒Accelerated 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 Exchange Act).    Yes  ☐    No  ☒
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of July 26, 2024 was 77,582,027.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX

 
 Page
Number


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands, except per share amounts)
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Total revenue, net$418,175 $381,267 $787,047 $762,113 
Costs and expenses:
Cost of goods sold192,258 174,241 354,296 322,216 
Research and development29,767 26,588 56,732 53,312 
Selling, general and administrative195,472 164,908 361,270 331,565 
Intangible asset amortization3,707 3,026 13,814 6,134 
Total costs and expenses421,204 368,763 786,112 713,227 
Operating income(3,029)12,504 935 48,886 
Interest income5,058 3,939 10,098 8,046 
Interest expense(18,651)(12,464)(32,275)(24,564)
Other (expense) income, net1,437 (155)827 1,234 
(Loss) income before income taxes(15,185)3,824 (20,415)33,602 
(Benefit) provision for income taxes(2,783)(360)(4,732)5,192 
Net (loss) income$(12,402)$4,184 $(15,683)$28,410 
Net (loss) income per share
Basic$(0.16)$0.05 $(0.20)$0.35 
Diluted$(0.16)$0.05 $(0.20)$0.35 
Weighted average common shares outstanding (See Note 13):
Basic77,409 80,966 77,572 81,418 
Diluted77,409 81,151 77,572 81,739 
Comprehensive income (See Note 14)
(20,482)1,947 (19,303)$22,975 

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
3
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share amounts)
June 30, 2024December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents$215,236 $276,402 
Short-term investments81,691 32,694 
Trade accounts receivable, net of allowances of $10,992 and $4,879
271,155 259,327 
Inventories, net421,775 389,608 
Prepaid Expenses93,639 67,362 
Other Current Assets28,790 32,643 
Total current assets1,112,286 1,058,036 
Property, plant and equipment, net373,570 340,199 
Right of use asset - operating leases147,472 156,184 
Intangible assets, net1,219,942 1,067,833 
Goodwill1,104,640 1,055,462 
Deferred tax assets, net45,763 46,080 
Other assets70,822 58,194 
Total assets$4,074,495 $3,781,988 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility$24,219 $14,531 
Current portion of lease liability - operating leases14,613 15,284 
Accounts payable, trade107,492 92,326 
Contract liabilities9,905 8,540 
Accrued compensation69,600 75,455 
Accrued expenses and other current liabilities102,487 100,844 
Total current liabilities328,316 306,980 
Long-term borrowings under senior credit facility1,151,665 825,563 
Long-term borrowings under securitization facility77,700 89,200 
Long-term convertible securities571,713 570,255 
Lease liability - operating leases169,561 166,849 
Deferred tax liabilities86,525 35,317 
Other liabilities154,820 199,940 
Total liabilities2,540,300 2,194,104 
Stockholders’ equity:
Preferred stock; no par value; 15,000 authorized shares; none outstanding
— — 
Common stock; $0.01 par value; 240,000 authorized shares; 91,591 and 90,920 issued at June 30, 2024 and December 31, 2023, respectively
916 909 
Additional paid-in capital1,301,582 1,302,484 
Treasury stock, at cost; 14,008 shares and 12,751 shares at June 30, 2024 and December 31, 2023, respectively
(680,753)(647,262)
Accumulated other comprehensive loss(18,726)(15,106)
Retained earnings931,176 946,859 
Total stockholders’ equity1,534,195 1,587,884 
Total liabilities and stockholders’ equity$4,074,495 $3,781,988 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
4

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
 Six Months Ended June 30,
 20242023
OPERATING ACTIVITIES:
Net (Loss) Income$(15,683)$28,410 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization67,343 61,969 
Non-cash impairment charges12,144 — 
Deferred income tax provision (benefit)(4,700)1,726 
Share-based compensation12,843 8,891 
Amortization of debt issuance costs and expenses associated with debt refinancing2,858 3,314 
Non-cash lease expense696 1,751 
Loss (gain) on disposal of property and equipment1,265 (104)
Change in fair value of contingent consideration and others1,804 6,081 
Changes in assets and liabilities:
Accounts receivable10,111 4,826 
Inventories(17,278)(27,555)
Prepaid expenses and other current assets(16,773)(10,512)
Other non-current assets9,521 (8,184)
Accounts payable, accrued expenses and other current liabilities(4,140)(15,899)
Contract liabilities2,169 724 
Other non-current liabilities(6,023)(1,003)
Net cash provided by operating activities56,157 54,435 
INVESTING ACTIVITIES:
Purchases of property and equipment(45,172)(29,252)
Cash (paid) for business acquisitions, net of cash acquired(281,994)— 
Purchases of Investments(48,997)— 
Net cash used in investing activities(376,163)(29,252)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness429,300 15,200 
Payments on debt(105,644)(29,100)
Payment of debt issuance costs— (7,578)
Purchases of treasury stock(50,000)(150,000)
Payments for Contingent Consideration (11,923)— 
Proceeds from exercised stock options6,398 3,437 
Cash taxes paid in net equity settlement(3,203)(5,335)
Net cash provided by (used in) financing activities264,928 (173,376)
Effect of exchange rate changes on cash and cash equivalents(6,088)724 
Net (decrease) in cash and cash equivalents(61,166)(147,469)
Cash and cash equivalents at beginning of period276,402 456,661 
Cash and cash equivalents at end of period$215,236 $309,192 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
5
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Six Months Ended June 30, 2024
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 202490,920 $909 (12,751)$(647,262)$1,302,484 $(15,106)$946,859 $1,587,884 
Net loss— — — — — — (3,281)(3,281)
Other comprehensive income (loss), net of tax— — — — — 4,460 — 4,460 
Issuance of common stock through employee stock purchase plan23 — — — 965 — — 965 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes541 2 16 840 1,470 — — 2,312 
Share-based compensation— 4 — — 5,608 — — 5,612 
Balance, March 31, 202491,484 $915 (12,735)$(646,422)$1,310,527 $(10,646)$943,578 $1,597,952 
Net income— — — — — — (12,402)(12,402)
Other comprehensive loss, net of tax— — — — — (8,080)— (8,080)
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes107 1 — 20 (101)— — (80)
Share-based compensation— — — — 7,305 — — 7,305 
Accelerated shares repurchased— $— (1,273)(34,351)(16,149)$— $— (50,500)
Balance, June 30, 202491,591 $916 (14,008)$(680,753)$1,301,582 $(18,726)$931,176 $1,534,195 
Six Months Ended June 30, 2023
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 2023
90,476 $905 (6,823)$(362,862)$1,276,977 $10,265 $879,118 $1,804,403 
Net income— — — — — — 24,226 24,226 
Other comprehensive income, net of tax— — — — — (3,198)— (3,198)
Issuance of common stock through employee stock purchase plan21 — — — 1,107 — — 1,107 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes316 1 16 846 (4,858)— — (4,011)
Share-based compensation— 2 — — 3,609 — — 3,611 
Accelerated shares repurchased— — (2,111)(119,662)(31,538)— — (151,200)
Balance, March 31, 2023
90,813 $908 (8,918)$(481,678)$1,245,297 $7,067 $903,344 $1,674,938 
Net income— — — — — — 4,184 4,184 
Other comprehensive income (loss), net of tax— — — — — (2,237)— (2,237)
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes68 1 — 21 985 — — 1,007 
Share-based compensation— — — — 5,268 — — 5,268 
Accelerated shares repurchased— $— (609)$(32,125)$32,125 $— $— — 
Balance, June 30, 2023
90,881 909 (9,527)(513,782)1,283,675 4,830 907,528 1,683,160 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6
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 June 30, 2024 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 shareholders’ 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 in the United States (“GAAP”) 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, 2023 included in the Company’s Annual Report on Form 10-K. The consolidated balance sheet as of December 31, 2023 was derived from audited financial statements, but does not include all disclosures required by GAAP. Operating results for the three and six-month period ended June 30, 2024 are not necessarily indicative of the results to be expected for the entire year.
The preparation of consolidated financial statements is in conformity with 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 unaudited condensed 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.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and, in January 2021, subsequently amended the initial guidance in: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to 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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which delayed the effective date from December 31, 2022 to December 31, 2024. The Alternative Reference Rates Committee, a group of private-market participants convened by the U.S. Federal Reserve Board and the New York Federal Reserve, has recommended the use of the Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to LIBOR. On March 24, 2023, the Company entered into the seventh amendment and restatement (the “March 2023 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. In connection with the March 2023 Amendment, the Company replaced all LIBOR-based contracts with SOFR, which is calculated based on overnight transactions under repurchase agreements backed by Treasury securities. In addition, on April 17, 2023 the Company entered into an amendment (the “April 2023 Amendment”) of the Securitization Facility (as defined below) and amended the interest rate from LIBOR to a SOFR-indexed rate. (See Note 6. Debt). In March 2023, the Company entered into a basis swap contract by which the Company receives Term SOFR and pays LIBOR to convert its portfolio of interest rate swaps from LIBOR to SOFR. The Company has elected to adopt the optional expedient under Topic 848, which will allow the interest rate swap hedging relationship to continue, without de-designation, due to the change in the indexed rate from LIBOR to SOFR.
7
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which enhances the transparency of income tax disclosures by expanding annual disclosure requirements related to the rate reconciliation and income taxes paid. The amendments are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company does not plan to early adopt and is currently evaluating this ASU to determine its impact on the Company’s disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company does not plan to early adopt and is currently evaluating this ASU to determine its impact on the Company’s 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.
Cash and cash equivalents
The Company had cash and cash equivalents, primarily consisting of cash on-hand as well as time deposits with original maturities of three months or less and money market funds which are highly liquid and readily convertible to cash, totaling approximately $215.2 million and $276.4 million at June 30, 2024 and December 31, 2023 respectively. Time deposits with original maturities of three months or less and money market funds are valued based on Level 1 measurements in the fair value hierarchy established within FASB Topic 820, Fair Value Measurement (“ASC 820”). Level 1 inputs represent quoted prices in active markets for identical assets or liabilities.
Short-term investments
The Company had short term investments, primarily consisting of time deposits with original maturities between three months and one year, which are valued based on Level 1 measurements in the fair value hierarchy, totaling approximately $81.7 million at June 30, 2024 compared to $32.7 million at December 31, 2023.
2. ACQUISITIONS AND DIVESTITURES
Acquisition of Acclarent, Inc.
On April 1, 2024, the Company completed the acquisition of all of the outstanding capital stock of Acclarent, Inc. (“Acclarent”), a developer and marketer of medical devices used in ear, nose, throat (“ENT”) procedures, from Ethicon, Inc., a subsidiary of Johnson & Johnson, for approximately $282.0 million in cash, subject to customary adjustments set forth in the purchase agreement related to working capital balances transferred to the Company. The addition of Acclarent’s ENT product portfolio, including sinus balloon dilation, eustachian tube balloon dilation, and surgical navigation systems technologies, and dedicated salesforce will enhance the Company’s position in the ENT specialty device market.
Acclarent’s results of operations have been reported in the Company’s Codman Specialty Surgical reportable segment from the date of acquisition. The Company recorded revenue from Acclarent of approximately $31.3 million, in the consolidated statements of operations and comprehensive income for the three months ended June 30, 2024. The net income or loss attributable to this acquisition cannot be identified on a stand-alone basis because it is in the process of being integrated into the Company’s operations.
Assets Acquired and Liabilities Assumed at Fair Value
The Acclarent acquisition has been accounted for using the acquisition method of accounting in accordance with FASB Topic ASC 805, Business Combinations (“ASC 805”). This method requires that assets acquired and liabilities assumed in a business combination are recognized at their fair values as of the acquisition date. The Company estimated fair values at the date of acquisition for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed. The Company has not completed its analysis regarding the assets acquired and liabilities assumed. Therefore, the allocation to intangible assets, goodwill, and income taxes are preliminary and subject to finalization. During the measurement period ending no later than one year after the acquisition date, the Company will continue to obtain information to assist in finalizing the fair values of the net assets acquired, which may differ materially from these preliminary estimates. If any measurement period adjustment is material, the Company will record such adjustment, including any related impact on net income, in the reporting period in which the adjustment is determined.
8
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
Dollars in thousandsEstimated Fair ValueEstimated Useful Life
Current assets:
Cash$— 
Trade accounts receivable, net 23,716 
Inventories, net20,294 
Prepaid expenses273 
Other current assets476 
Total current assets$44,759 
Property, plant and equipment, net7,716 
Right of use asset - operating leases989 
Intangible assets, net
Completed technology202,000 12 years
Trademarks/brand names3,000 5 years
All other17,000 4 years
Goodwill65,579 
Deferred tax assets6,863 
Total assets acquired$347,906 
Current liabilities:
Accounts payable, trade$3,989 
Contract liabilities3,984 
Accrued compensation1,037 
Accrued expenses and other current liabilities2,278 
Current portion of lease liability - operating leases365 
Total current liabilities$11,653 
Lease liability - operating leases624 
Deferred tax liabilities53,635 
Total liabilities assumed65,912 
Net assets acquired$281,994 
The carrying value of trade accounts receivable, prepaid expenses, other current assets, accounts payable, contract liabilities, accrued compensation, accrued expenses and other current liabilities, as well as certain other current and non-current assets and liabilities, generally represented the fair value at the date of acquisition.
Intangible Assets
The estimated fair value of the intangible assets 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 attributable to the intangible assets. The significant assumptions used in developing the valuation included the estimated annual net cash flows including application of forecasted revenue, the discount rate that appropriately reflects the risk inherent in each future cash flow stream, and an assessment of the asset’s life cycle, as well as other factors. The assumptions used in the financial forecasts were based on historical data, supplemented by current and anticipated growth rates, management plans, and market-comparable information. Fair-value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Preliminary assumptions may change and may result in significant changes to the final valuation. The intangible assets acquired have a weighted average useful life of 11 years.
The Company used a discount rate of 12.2% 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.
9
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Goodwill
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 has been allocated to the Codman Specialty Surgical segment, as shown in Note 5. Goodwill and Other Intangible Assets. Goodwill recognized as a result of this acquisition is non-deductible for income tax purposes.
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.
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 Estimates
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’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 90 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 other current assets account in the consolidated balance sheets.
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.
10
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 six months ended June 30, 2024:
Dollars in thousandsTotal
Contract Asset
Contract asset, January 1, 2024
$9,233 
Transferred to trade receivable from contract asset included in beginning of the year contract asset(9,233)
Contract asset, net of transferred to trade receivables on contracts during the period6,623 
Contract asset, June 30, 2024
$6,623 
Contract Liability
Contract liability, January 1, 2024
$16,252 
Recognition of revenue included in beginning of year contract liability(5,365)
Contract liability, net of revenue recognized on contracts during the period7,519 
Foreign currency translation(77)
Contract liability, June 30, 2024
$18,329 
At June 30, 2024, the short-term portion of the contract liability of $9.9 million and the long-term portion of $8.4 million are included in current liabilities and other liabilities, respectively, in the consolidated balance sheets.
As of June 30, 2024, the Company is expected to recognize revenue of approximately 54% of unsatisfied (or partially unsatisfied) performance obligations as revenue within 12 months, with the remaining balance to be recognized 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.
11
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Disaggregated Revenue
The following table presents revenues disaggregated by the major sources of revenues for the three and six months ended June 30, 2024 and 2023 (dollar amounts in thousands):
Three Months Ended June 30, 2024Three Months Ended June 30, 2023Six Months Ended June 30, 2024Six Months Ended June 30, 2023
Neurosurgery$205,502 $205,803 $407,770 $398,673 
Instruments54,537 56,365 98,910 102,603 
ENT(1)
41,722 8,862 51,515 17,890 
Total Codman Specialty Surgical301,761 271,030 558,195 519,166 
Wound Reconstruction and Care87,695 91,118 168,572 192,058 
Private Label28,719 19,119 60,280 50,889 
Total Tissue Technologies116,414 110,237 228,852 242,947 
Total revenue$418,175 $381,267 $787,047 $762,113 
(1) Prior period revenues included within our instruments business have been reclassified under the ENT business.
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:
Dollars in thousandsJune 30, 2024December 31, 2023
Finished goods$220,844 $196,402 
Work in process76,509 74,035 
Raw materials124,422 119,171 
Total inventories, net$421,775 $389,608 
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the carrying amount of goodwill for the six-month period ended June 30, 2024 were as follows:
Dollars in thousandsCodman Specialty
Surgical		Tissue TechnologiesTotal
Goodwill at December 31, 2023$666,937 $388,525 $1,055,462 
Acclarent Acquisition 65,579 — 65,579 
Foreign currency translation(10,717)(5,684)(16,401)
Goodwill at June 30, 2024
$721,799 $382,841 $1,104,640 
The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the third quarter in accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other (“ASC 350”). Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.
The Company tests for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative evaluation for some or all of its reporting units and perform a quantitative test. The quantitative test estimates the fair value of the reporting unit using a discounted cash flow model, which incorporates significant estimates and assumptions made by management which, by their nature, are characterized by uncertainty.
12
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Due to third-party audit findings and an update to the estimated timeframe to resume the commercial distribution of products manufactured in the Company’s manufacturing facility located in Boston, Massachusetts (the “Boston facility”), the Company elected to perform a quantitative analysis of its Tissue Technologies reporting unit in the first quarter of 2024 in accordance with ASC 350. The quantitative test estimates the fair value of the reporting unit using a discounted cash flow model, which incorporates significant estimates and assumptions made by management with respect to future revenue and expense growth rates and discount rates which, by their nature, are characterized by uncertainty. An impairment loss is recognized when the reporting unit’s carrying amount exceeds its estimated fair value. The quantitative test utilized a terminal growth rate of 2%, a discount rate of 15%, and a range and application of the company guideline multiples. The Company determined, after performing the quantitative analysis, that the fair value of the Tissue Technologies reporting unit was not less than its carrying amount, with 20% headroom.
Other Intangible Assets
The components of the Company’s identifiable intangible assets were as follows:
 June 30, 2024
Dollars in thousandsWeighted
Average
Life		CostAccumulated
Amortization		Net
Completed technology17 years$1,412,670 $(482,499)$930,171 
Customer relationships12 years167,273 (135,789)31,484 
Trademarks/brand names27 years100,600 (40,351)60,249 
Codman tradenameIndefinite 168,969 — 168,969 
Supplier relationships30 years30,211 (18,637)11,574 
All other6 years23,015 (5,520)17,495 
$1,902,738 $(682,796)$1,219,942 
 December 31, 2023
Dollars in thousandsWeighted
Average
Life		CostAccumulated
Amortization		Net
Completed technology18 years$1,226,128 $(448,519)$777,609 
Customer relationships12 years193,895 (152,160)41,735 
Trademarks/brand names28 years98,892 (38,754)60,138 
Codman tradenameIndefinite174,531 — 174,531 
Supplier relationships30 years30,211 (18,148)12,063 
All other11 years6,180 (4,423)1,757 
$1,729,837 $(662,004)$1,067,833 
Total amortization of intangible assets for the three and six months ended June 30, 2024 was $25.4 million and $53.1 million, respectively. Of these amounts, $21.7 million and $39.3 million, respectively, was related to amortization of technology based intangibles and included in cost of goods sold. $7.1 million related to the impairment of a customer relationship intangible and the remainder were included in intangible amortization in the statement of operations.
Total amortization of intangible assets for the three and six months ended June 30, 2023 was $20.6 million and $41.3 million, respectively. Of these amounts, $17.6 million and $35.1 million, respectively, was related to amortization of technology based intangibles and included in cost of goods sold, with the remainder included in intangible amortization in the statement of operations.
Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of goods sold) is expected to be approximately $50.8 million for the remainder of 2024, $101.6 million in 2025, $101.4 million in 2026, $100.4 million in 2027, $96.9 million in 2028, $91.6 million in 2029 and $506.8 million thereafter.
The Company periodically performs testing for impairment on certain long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
13
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Due to third-party audit findings and an update to the estimated timeframe to resume the commercial distribution of products manufactured in the Boston facility, the Company elected to perform impairment testing on certain definite-lived intangible assets including completed technology and customer relationships in accordance with FASB ASC Topic 360, Property, Plant and Equipment. In the first quarter of 2024, the Company recorded an impairment charge related to the definite-lived intangible asset associated with the customer relationships of $7.1 million in intangible asset amortization in the consolidated statement of operations. With respect to the definite-lived intangible assets associated with the completed technology of SurgiMend® and PriMatrix®, the Company determined that the carrying amount of these definite-lived intangible assets were recoverable and, therefore, the intangible assets were not deemed to be impaired. The carrying values of SurgiMend® and PriMatrix® are $36.5 million and $26.6 million, respectively, as of June 30, 2024.
6. DEBT
Amendment to the Seventh Amended and Restated Senior Credit Agreement
On March 24, 2023, the Company entered into the seventh amendment and restatement (the “March 2023 Amendment”) of the Senior Credit Facility (the “Senior Credit Facility”) with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent. The March 2023 Amendment extended the maturity date to March 24, 2028, amended the contractual repayments of the term loan component, and amended the interest rate from LIBOR to SOFR-indexed interest. The Company continues to have the aggregate principal amount of up to approximately $2.1 billion available to it through the following facilities: (i) a $775.0 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. The terms of the Senior Credit Facility limit the amount of dividends we may pay.
The Company’s maximum Consolidated Total Leverage Ratio (as defined in the March 2023 Amendment) in the financial covenants was modified to the following:
Fiscal Quarter EndingMaximum Consolidated Total Leverage Ratio
March 31, 2023 through December 31, 2024
4.50 to 1.00
March 31, 2025 through June 30, 2026
4.25 to 1.00
September 30, 2026 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.Term SOFR in effect from time to time plus 0.10% plus the applicable rate (ranging from 1.00% to 1.75%), 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 Term SOFR plus 1.00%.
The applicable rates are based on the Company’s Consolidated Total Leverage Ratio (defined, as of any date of determination, as the ratio of (a) Consolidated Funded Indebtedness as of such date (as defined in the Credit Agreement) less cash that is not subject to any restriction on the use or investment thereof to (b) Consolidated EBITDA (as defined by the Seventh Amended and Restated Credit Agreement (the “Credit Agreement”)), 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 component of the Senior 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 June 30, 2024, the Company was in compliance with all such covenants. The Company capitalized $7.6 million in deferred financing costs in connection with the modification of the Senior Credit Facility and wrote off $0.2 million of previously capitalized financing costs during the first quarter of 2023.
14
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
At June 30, 2024 and December 31, 2023 there was $410.0 million and $70.0 million, respectively, outstanding under the revolving credit facility component of the Senior Credit Facility. At June 30, 2024 and December 31, 2023, there was $770.2 million and $775.0 million outstanding under the term loan component of the Senior Credit Facility at a weighted average interest rate of 6.8% and 6.8%, respectively. As of June 30, 2024 and December 31, 2023 there was $24.2 million and $14.5 million, respectively, of the term loan component of the Senior Credit Facility classified as current on the condensed consolidated balance sheet.
The fair value of the term loan and revolving portion of the Senior Credit Facility at June 30, 2024 was $759.8 million, and $404.2 million, respectively. The fair value was 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 June 30, 2024 and December 31, 2023 totaled $1.7 million. There were no amounts drawn under the letters of credit outstanding as of June 30, 2024.
Contractual repayments of the term loan component of the Senior Credit Facility are due as follows:
As of June 30, 2024
Principal Repayment
Dollars in thousands
Remainder of 2024
$9,688 
2025
33,906 
2026
38,750 
2027
53,281 
Thereafter634,531 
$770,156 
Future interest payments on the term loan component of the Senior Credit Facility based on current interest rates are expected to approximate $26.2 million for the remainder of 2024, $50.9 million in 2025, $48.2 million in 2026, $45.1 million in 2027, and $10.0 million thereafter. Interest is calculated on the term loan portion of the Senior Credit Facility based on SOFR plus the certain amounts set forth in the Credit Agreement. As the revolving credit facility and Securitization Facility (defined below) can be repaid at any time, no interest has been included in the calculation.
Any outstanding borrowings on the revolving credit facility component of the Senior Credit Facility are due on March 24, 2028.
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”) pursuant to an indenture, dated as of February 4, 2020 (the “Original Indenture”), between the Company and Citibank, N.A., as trustee. 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 2025 Notes. 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 an 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 $1,000 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 specified in the Original Indenture; (3) if the Company calls the notes for optional redemption as described in the Original Indenture; or (4) if specified corporate transactions occur. As of June 30, 2024, none of these conditions existed and the 2025 Notes are classified as long term obligations.
On December 9, 2020, the Company entered into the first supplemental indenture to the Original Indenture (the “First Supplemental Indenture” and, together with Original Indenture, the “Indenture”), pursuant to which 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 (as defined in the First Supplemental Indenture) for a conversion of the 2025 Notes, the Specified Dollar Amount (as defined in the First Supplemental Indenture) that will be settled in cash per $1,000 principal amount of the 2025 Notes shall be no lower than $1,000.
15
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Holders of the 2025 Notes will have the right to require the Company to repurchase for cash all or a portion of their 2025 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). The Company will also be required to increase the conversion rate for holders who convert their 2025 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 June 30, 2024, the carrying amount of the liability of the 2025 Notes was $575.0 million. The fair value of the 2025 Notes at June 30, 2024 was $539.6 million. Factors that the Company considered when estimating the fair value of the 2025 Notes included recent quoted market prices or dealer quotes. The 2025 Notes are valued based on Level 1 measurements in the fair value hierarchy. Level 1 inputs represent quoted prices in active markets for identical assets or liabilities.
Securitization Facility
In 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”) 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 June 30, 2024, the Company was in compliance with the covenants and none of the termination events had occurred.
On December 15, 2023, the Company entered into an amendment (the “December 2023 Amendment”) of the Securitization Facility which extended the maturity date from May 28, 2024 to December 15, 2026. The Company incurred approximately $0.3 million of new issuance costs associated with the December Amendment which will be amortized over 3 years, the length of the Securitization Agreement as amended by the December 2023 Amendment. Due to the increase in borrowing capacity, the remaining $0.1 million of unamortized costs from the previous agreement will also be amortized over the length of the amended agreement, 3 years. In addition, on April 17, 2023 the Company entered into an amendment (the “April 2023 Amendment”) of the Securitization Facility and amended the interest rate from LIBOR to SOFR-indexed rate. The December 2023 Amendment and April 2023 Amendment did not increase the Company’s total indebtedness.
At June 30, 2024 and December 31, 2023, the Company had $77.7 million and $89.2 million, respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 6.8% and 5.9%, respectively. The fair value of the outstanding borrowing of the Securitization Facility at June 30, 2024 was $76.1 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.
16
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 SOFR-indexed borrowings. In March 2023, the Company entered into a basis swap where the Company receives Term SOFR and pays daily compounded SOFR to convert the portfolio of swaps from daily compounded SOFR to term SOFR.
The Company held the following interest rate swaps as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands):
June 30, 2024December 31, 2023June 30, 2024December 31, 2023
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month Term SOFR Loan— 150,000 December 13, 2017July 1, 2019June 30, 20242.423 %— 2,105 
1-month Term SOFR Loan200,000 200,000 December 13, 2017January 1, 2018December 31, 20242.313 %3,063 4,978 
1-month Term SOFR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.220 %1,367 1,349 
1-month Term SOFR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.199 %1,356 1,312 
1-month Term SOFR Loan75,000 75,000 October 10, 2018July 1, 2020June 30, 20253.209 %1,339 1,346 
1-month Term SOFR Loan100,000 100,000 December 18, 2018December 30, 2022December 31, 20272.885 %4,366 3,015 
1-month Term SOFR Loan100,000 100,000 December 18, 2018December 30, 2022December 31, 20272.867 %4,572 3,052 
1-month Term SOFR Loan575,000 575,000 December 15, 2020July 31, 2025December 31, 20271.415 %31,747 22,965 
1-month Term SOFR Loan125,000 125,000 December 15, 2020July 1, 2025December 31, 20271.404 %7,240 5,263 
Basis Swap (1)
—— March 31, 2023March 24, 2023December 31, 2027N/A(1,935)0(1,829)
$1,325,000 $1,475,000 $53,115 $43,556 
(1) The notional of the basis swap amortizes to match the total notional of the interest rate swap portfolio over time
The interest rate swaps were carried on the consolidated balance sheet at fair value and changes in the fair values were recorded as unrealized gains or losses in accumulated other comprehensive income (“AOCI”). For the three and six months ended June 30, 2024, the Company recorded a gain of $5.1 million and $19.8 million, respectively, in AOCI related to the change in fair value of the interest rate swaps. For the three and six months ended June 30, 2023 the Company recorded a gain of $18.7 million and $8.2 million, respectively, in AOCI related to the change in fair value of the interest rate swaps.
For the three and six months ended June 30, 2024, the Company recorded gains of $5.0 million and $10.3 million, respectively, in the consolidated statements of operations related to the interest rate differential of the interest rate swaps. For the three and six months ended June 30, 2023 the Company recorded gains of $4.5 million and $8.0 million, respectively, in the consolidated statements of operations related to the interest rate differential of the interest rate swaps. The estimated gain that is expected to be reclassified to interest income from AOCI as of June 30, 2024 within the next twelve months is $11.0 million.
The Company has designated these derivative instruments as cash flow hedges. The Company assesses the effectiveness of these derivative instruments and has recorded the changes in the fair value of the derivative instrument designated as a cash flow hedge as unrealized gains or losses in AOCI, net of tax, until the hedged item affected earnings, at which point any gain or loss was reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the remaining amount of any gain or loss on the related cash flow hedge recorded in AOCI to interest expense at that time.
17
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Foreign Currency Hedging
From time to time, the Company enters into foreign currency hedge contracts intended to protect the U.S. dollar value of certain forecasted foreign currency denominated transactions. The Company assesses the effectiveness of the contracts that are designated as hedging instruments. The changes in fair value of foreign currency cash flow hedges are recorded in AOCI, net of tax. Those amounts are subsequently reclassified to earnings from AOCI as impacted by the hedged item when the hedged item affects earnings. If the hedged forecasted transaction does not occur or if it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. For contracts not designated as hedging instruments, the changes in fair value of the contracts are recognized in other income, net in the consolidated statements of operation, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.
The success of the Company’s hedging anticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activities during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect earnings and cash flows.
Cross-Currency Rate Swaps
The objective of these cross-currency swaps is to reduce volatility of earnings and cash flows associated with changes in the foreign currency exchange rate. Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make interest payments in Swiss francs (“CHFs”) and receive interest in U.S. dollars. Upon the maturity of these contracts, the Company will pay the principal amount of the loans in CHFs and receive U.S. dollars from the counterparties.
On September 22, 2023, the Company amended the Swiss franc denominated intercompany loan to partially settle CHF 20.0 million and extend the termination date to September 2024 and as a result, the Company terminated the cross-currency swap designated as cash flow hedge of an intercompany loan with aggregate notional amount of $48.5 million. Simultaneously, the Company entered into a cross-currency swap agreement to hedge a notional amount of CHF 28.5 million equivalent to $31.5 million of this amended intercompany loan into U.S. dollars. The loss recorded by the Company upon the settlement of the swap was not material for the period.
On December 21, 2020, the Company entered into cross-currency swap agreements to convert a notional amount of $471.6 million equivalent to 420.1 million of a CHF-denominated intercompany loan into U.S. dollars. The CHF-denominated intercompany loan was the result of an intra-entity transfer of certain intellectual property rights to a subsidiary in Switzerland completed during the fourth quarter of 2020. The intercompany loan requires quarterly payments of CHF 5.8 million plus accrued interest. As a result, the aggregate notional amount of the related cross-currency swaps will decrease by a corresponding amount.
The Company held the following cross-currency rate swaps as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands):
June 30, 2024December 31, 2023June 30, 2024December 31, 2023
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay CHFDecember 21, 2020December 22, 20253.00%CHF CHF 339,637 351,137 (12,894)(38,324)
Receive U.S.$3.98%$381,272 394,183 
Pay CHFSeptember 22, 2023September 29, 20242.40%CHF CHF 28,500 28,500 (283)(2,348)
Receive U.S.$6.27%$31,457 31,457 
Total$(13,177)$(40,672)
18
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The cross-currency swaps are carried on the consolidated balance sheet at fair value, and changes in the fair values are recorded as unrealized gains or losses in AOCI. For the three and six months ended June 30, 2024, the Company recorded a gain of $0.6 million and $30.1 million, respectively, in AOCI related to change in fair value of the cross-currency swaps. For the three and six months ended June 30, 2023, the Company recorded a loss of $12.9 million and $10.7 million in AOCI related to change in fair value of the cross-currency swaps.
For the three and six months ended June 30, 2024 the Company recorded a loss of $1.5 million and a gain of $28.6 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the losses recognized on the intercompany loans. For the three and six months ended June 30, 2023, the Company recorded a loss of $10.0 million and $14.9 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the losses recognized on the intercompany loans.
For the three and six months ended June 30, 2024, the Company recorded a gain of $1.3 million and $2.6 million, respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps. For the three and six months ended June 30, 2023, the Company recorded a gain of $1.4 million and $2.9 million, respectively, in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.
The estimated loss that is expected to be reclassified to other income (expense), net from AOCI as of June 30, 2024 within the next twelve months is $2.7 million. As of June 30, 2024, the Company does not expect any gains or losses will be reclassified into earnings because the original forecasted transactions will not occur.
Net Investment Hedges
The Company manages certain foreign exchange risks through a variety of strategies, including hedging. The Company is exposed to foreign exchange risk from its international operations through foreign currency purchases, net investments in foreign subsidiaries, and foreign currency assets and liabilities created in the normal course of business.
On May 2, 2024, the Company entered into a cross-currency swap agreement with a notional amount of CHF 68.5 million, equivalent to $75.0 million, where the Company agreed with third-parties to sell Swiss francs in exchange for U.S. dollars at a specified rate at the maturity of the contract. The new cross-currency swap agreement was designated as a net investment hedge to partially offset the effects of foreign currency on foreign subsidiaries.
On October 1, 2018 May 24, 2022, and November 17, 2023, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries.
The Company held the following cross-currency rate swaps designated as net investment hedges as of June 30, 2024 and December 31, 2023, respectively (dollar amounts in thousands):
June 30, 2024December 31, 2023June 30, 2024December 31, 2023
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay EUROctober 3, 2018September 30, 2025—%EUR€ 38,82038,820 3,566 2,475 
Receive U.S.$2.19%$45,000 45,000 
Pay CHFMay 26, 2022December 16, 2028—%CHF288,210 288,210 (32,105)(48,047)
Receive U.S.$1.94%$300,000 300,000 
Pay CHFNovember 21, 2023December 17, 2029—%CHF CHF 66,525 66,525 (1,960)(4,037)