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


For the quarterly period ended SeptemberJune 30, 20172023
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from              to  
COMMISSION FILE NO. 0-26224000-26224
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
DELAWAREDelaware51-0317849
(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER

IDENTIFICATION NO.)
311 ENTERPRISE DRIVE
PLAINSBORO, NEW JERSEY
1100 Campus Road		0853608540
Princeton,New Jersey(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: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: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  x☒    No  o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x☒    No  o☐

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 “largelarge accelerated filer”, “accelerated filer” and “smallerfiler, accelerated filer, smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer☒Accelerated filer☐
Large accelerated filerxAccelerated filero
Non-accelerated filer
o  (Do not check if a smaller reporting company)☐
Smaller reporting companyo☐
Emerging growth companyo☐

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  o☐    No  ý☒
The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of October 24, 2017July 26, 2023 was 78,477,437.81,403,831.




Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
INDEX


Page
Number
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
34
34
45
56
7
68
2632
3743
3844
3944
4044
4045
45
4045
4145
4246
4347
Exhibit 2.1
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT




Table of Contents
PART I. FINANCIAL INFORMATION


Item 1. Financial Statements


INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(InDollars in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
2017 2016 2017 2016 2023202220232022
Total revenue, net$278,834
 $250,332
 $819,634
 $736,411
Total revenue, net$381,267 $397,815 $762,113 $774,453 
Costs and expenses:      
Costs and expenses:
Cost of goods sold101,757
 89,329
 287,340
 263,667
Cost of goods sold174,241 148,404 322,216 290,973 
Research and development15,034
 15,124
 46,275
 44,254
Research and development26,588 25,589 53,312 49,674 
Selling, general and administrative145,945
 112,317
 433,457
 343,510
Selling, general and administrative164,908 160,651 331,565 320,577 
Intangible asset amortization5,456
 3,467
 14,976
 10,410
Intangible asset amortization3,026 3,304 6,134 7,198 
Total costs and expenses268,192
 220,237
 782,048
 661,841
Total costs and expenses368,763 337,948 713,227 668,422 
Operating income10,642
 30,095
 37,586
 74,570
Operating income12,504 59,867 48,886 106,031 
Interest income89
 2
 160
 14
Interest income3,939 1,965 8,046 3,342 
Interest expense(6,761) (6,295) (18,073) (19,255)Interest expense(12,464)(12,236)(24,564)(23,891)
Other (expense) income, net(735) 1,192
 (3,691) (398)
Other income (expense), netOther income (expense), net(155)1,979 1,234 5,408 
Income before income taxes3,235
 24,994
 15,982
 54,931
Income before income taxes3,824 51,575 33,602 90,890 
Income tax expense (benefit)76
 4,850
 (4,406) 8,615
Provision (benefit) for income taxesProvision (benefit) for income taxes(360)6,787 5,192 13,201 
Net income$3,159
 $20,144
 $20,388
 $46,316
Net income$4,184 $44,788 $28,410 $77,689 
       
Net income per share       Net income per share
Basic$0.04
 $0.27
 $0.27
 $0.62
Basic$0.05 $0.54 $0.35 $0.93 
Diluted$0.04
 $0.25
 $0.26
 $0.59
Diluted$0.05 $0.54 $0.35 $0.93 
       
Weighted average common shares outstanding (See Note 10):       
Weighted average common shares outstanding (See Note 13):Weighted average common shares outstanding (See Note 13):
Basic78,186
 74,534
 76,387
 74,286
Basic80,966 83,168 81,418 83,400 
Diluted79,455
 81,032
 78,973
 78,804
Diluted81,151 83,622 81,739 83,979 
Comprehensive income (See Note 11)$13,534
 $23,410
 $53,759
 $53,908
Comprehensive income (See Note 14)Comprehensive income (See Note 14)1,947 52,598 22,975 $109,630 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

4
Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(InDollars in thousands, except per share amount)amounts)
 September 30, 2017 December 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$481,943
 $102,055
 Trade accounts receivable, net of allowances of $6,969 and $6,319171,126
 148,186
Inventories, net232,340
 217,263
Prepaid expenses and other current assets59,534
 27,666
  Total current assets944,943
 495,170
Property, plant and equipment, net232,241
 222,369
Intangible assets, net634,052
 561,175
Goodwill587,943
 510,571
Deferred tax assets, net6,351
 6,935
Other assets12,657
 11,734
Total assets$2,418,187
 $1,807,954
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Short-term portion of borrowings under senior credit facility$18,750
 $—
Accounts payable, trade40,740
 29,057
Deferred revenue7,668
 6,812
Accrued compensation59,621
 52,762
Accrued expenses and other current liabilities83,455
 34,970
  Total current liabilities210,234
 123,601
Long-term borrowings under senior credit facility1,152,633
 665,000
Deferred tax liabilities128,628
 148,941
Other liabilities13,576
 30,745
Total liabilities1,505,071
 968,287
Commitments and contingencies
 
Stockholders’ equity:   
Preferred stock; no par value; 15,000 authorized shares; none outstanding—
 —
Common stock; $0.01 par value; 240,000 authorized shares; 81,301 and 77,666 issued at September 30, 2017 and December 31, 2016, respectively813
 777
Additional paid-in capital817,071
 798,652
Treasury stock, at cost; 2,916 shares and 2,946 shares at September 30, 2017 and December 31, 2016, respectively(121,816) (123,051)
Accumulated other comprehensive loss(23,783) (57,154)
Retained earnings240,831
 220,443
Total stockholders’ equity913,116
 839,667
Total liabilities and stockholders’ equity$2,418,187
 $1,807,954

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

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
 Nine Months Ended September 30,
 2017 2016
    
OPERATING ACTIVITIES:   
Net income$20,388
 $46,316
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization62,281
 54,353
Non-cash impairment charges3,290
 —
Deferred income tax(935) (2,919)
Amortization of debt issuance costs1,178
 1,623
Non-cash interest expense—
 6,300
Realized loss on sale of short-term investment2,287
 —
Loss on disposal of property and equipment443
 1,046
Change in fair value of contingent consideration and other(2,773) 81
Share-based compensation16,359
 12,773
Changes in assets and liabilities, net of business acquisitions:   
Accounts receivable(9,861) (8,100)
Inventories(862) (9,061)
Prepaid expenses and other current assets(14,691) 1,051
Other non-current assets(1,977) (552)
Accounts payable, accrued expenses and other current liabilities24,021
 5,831
Deferred revenue1,405
 1,381
Other non-current liabilities2,442
 (247)
Net cash provided by operating activities102,995
 109,876
INVESTING ACTIVITIES:   
Purchases of property and equipment(29,806) (26,136)
Proceeds from sale of short-term investments16,951
 —
Proceeds from note receivable483
 —
Proceeds from sale of property and equipment157
 266
Cash used in business acquisition, net of cash acquired(225,552) —
Cash received from business acquisition purchase price adjustment—
 225
Change in restricted cash—
 4,165
Net cash used in investing activities(237,767) (21,480)
FINANCING ACTIVITIES:   
Borrowings under senior credit facility571,383
 15,000
Repayments under senior credit facility(65,000) (48,750)
Net cash paid for contingent consideration(4,661) —
Principal payments under capital lease obligations—
 (487)
Proceeds from exercised stock options9,774
 9,925
Cash taxes paid in net equity settlement(6,763) (4,567)
Net cash provided by (used in) financing activities504,733
 (28,879)
Effect of exchange rate changes on cash and cash equivalents9,927
 (51)
Net increase in cash and cash equivalents379,888
 59,466
Cash and cash equivalents at beginning of period102,055
 48,132
Cash and cash equivalents at end of period$481,943
 $107,598

June 30, 2023December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents$309,192 $456,661 
Trade accounts receivable, net of allowances of $4,692 and $4,304258,663 263,465 
Inventories, net354,293 324,583 
Prepaid expenses and other current assets129,112 116,789 
Total current assets1,051,260 1,161,498 
Property, plant and equipment, net317,571 311,302 
Right of use asset - operating leases148,651 148,284 
Intangible assets, net1,093,596 1,126,609 
Goodwill1,043,273 1,038,881 
Deferred tax assets, net56,050 45,994 
Other assets67,200 57,190 
Total assets$3,777,601 $3,889,758 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of borrowings under senior credit facility$4,844 $38,125 
Current portion of borrowings under securitization facility90,800 — 
Current portion of lease liability - operating leases14,618 14,624 
Accounts payable, trade99,766 102,100 
Contract liabilities8,275 7,253 
Accrued compensation64,645 78,771 
Accrued expenses and other current liabilities94,548 80,033 
Total current liabilities377,496 320,906 
Long-term borrowings under senior credit facility764,616 733,149 
Long-term borrowings under securitization facility— 104,700 
Long-term convertible securities568,798 567,341 
Lease liability - operating leases159,538 157,420 
Deferred tax liabilities70,653 63,338 
Other liabilities153,340 138,501 
Total liabilities2,094,441 2,085,355 
Stockholders’ equity:
Preferred stock; no par value; 15,000 authorized shares; none outstanding— — 
Common stock; $0.01 par value; 240,000 authorized shares; 90,881 and 90,477 issued at June 30, 2023 and December 31, 2022, respectively909 905 
Additional paid-in capital1,283,675 1,276,977 
Treasury stock, at cost; 9,527 shares and 6,823 shares at June 30, 2023 and December 31, 2022, respectively(513,782)(362,862)
Accumulated other comprehensive income4,830 10,265 
Retained earnings907,528 879,118 
Total stockholders’ equity1,683,160 1,804,403 
Total liabilities and stockholders’ equity$3,777,601 $3,889,758 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

5
Table of Contents

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
 Six Months Ended June 30,
 20232022
OPERATING ACTIVITIES:
Net income$28,410 $77,689 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization61,969 59,336 
Deferred income tax provision1,726 7,542 
Share-based compensation8,891 13,027 
Amortization of debt issuance costs and expenses associated with debt refinancing3,314 3,392 
Non-cash lease expense1,751 1,393 
Loss (gain) on disposal of property and equipment(104)732 
Change in fair value of contingent consideration and others6,081 (5,799)
Changes in assets and liabilities:
Accounts receivable4,826 (9,632)
Inventories(27,555)(17,576)
Prepaid expenses and other current assets(10,512)(4,120)
Other non-current assets(8,184)6,738 
Accounts payable, accrued expenses and other current liabilities(15,899)(14,556)
Contract liabilities724 774 
Other non-current liabilities(1,003)(8,118)
Net cash provided by operating activities54,435 110,822 
INVESTING ACTIVITIES:
Purchases of property and equipment(29,252)(18,732)
Acquired in-process research and development milestone— (4,742)
Net proceeds from swaps designated as net investment hedges— 4,909 
Net cash used in investing activities(29,252)(18,565)
FINANCING ACTIVITIES:
Proceeds from borrowings of long-term indebtedness15,200 23,000 
Payments on debt(29,100)(23,000)
Payment of debt issuance costs(7,578)— 
Purchases of treasury stock(150,000)(125,000)
Proceeds from exercised stock options3,437 1,592 
Cash taxes paid in net equity settlement(5,335)(23,204)
Net cash used in financing activities(173,376)(146,612)
Effect of exchange rate changes on cash and cash equivalents724 (11,941)
Net decrease in cash and cash equivalents(147,469)(66,296)
Cash and cash equivalents at beginning of period456,661 513,448 
Cash and cash equivalents at end of period$309,192 $447,152 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6
Table of Contents
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Six Months Ended June 30, 2023
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 202390,476 $905 (6,823)$(362,862)$1,276,977 $10,265 $879,118 $1,804,403 
Net income— — — — — — 24,226 24,226 
Other comprehensive income (loss), 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, 202390,813 $908 (8,918)$(481,678)$1,245,297 $7,067 $903,344 $1,674,938 
Net income— — — — — — 4,184 4,184 
Other comprehensive 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, 202390,881 $909 (9,527)$(513,782)$1,283,675 $4,830 $907,528 $1,683,160 
Six Months Ended June 30, 2022
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Equity
SharesAmountSharesAmount
Balance, January 1, 202289,600 $896 (4,899)$(234,448)$1,264,943 $(45,155)$698,568 $1,684,804 
Net income— — — — — — 32,901 32,901 
Other comprehensive income (loss), net of tax— — — — — 24,130 — 24,130 
Issuance of common stock through employee stock purchase plan17 — — — 1,078 — — 1,078 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes339 4 14 714 (9,758)— — (9,040)
Share-based compensation— — — — 6,324 — — 6,324 
Accelerated shares repurchased— — (1,938)(129,152)4,152 — — (125,000)
Balance, March 31, 202289,956 $900 (6,823)$(362,886)$1,266,739 $(21,025)$731,469 $1,615,197 
Net income— — — — — — 44,788 44,788 
Other comprehensive loss, net of tax— — — — — 7,810 — 7,810 
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes378 3 — 6 (13,655)— — (13,646)
Share-based compensation— — — — 6,768 — — 6,768 
Balance, June 30, 202290,334 $903 (6,823)$(362,880)$1,259,852 $(13,215)$776,257 $1,660,917 
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
7
Table of Contents
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 SeptemberJune 30, 20172023 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, 20162022 included in the Company’s Annual Report on Form 10-K. The December 31, 20162022 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.GAAP. Operating results for the three-three and nine-monthsix-month periods ended SeptemberJune 30, 20172023 are not necessarily indicative of the results to be expected for the entire year.
The preparation of consolidated financial statements is in conformity with generally accepted accounting principlesGAAP, 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 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 in-process research and development, amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of the equity component of convertible debt instruments, valuation of contingent liabilities, the fair value of debt instruments and loss contingencies. 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.
Amendment
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), and subsequent amendment to the Certificateinitial guidance: 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 Incorporation and Stock Split
On October 25, 2016,reference rate reform. The guidance generally can be applied through December 31, 2024. The Alternative Reference Rates Committee, a group of private-market participants convened by the U.S. Federal Reserve Board of Directors recommended, subject to stockholder approval, an Amendment to the Company’s Certificate of Incorporation (the “Amendment”) to increase the number of authorized shares of common stock from 60.0 million shares to 240.0 million shares with $0.01 per share par value, for the purpose of, among other things, effecting a two-for-one stock split. The stockholders approved the Amendment at its special meeting of stockholders on December 21, 2016, and the Company subsequently filed a certificate of amendment to its Amended and Restated Certificate of Incorporation to effectNew York Federal Reserve, has recommended the increase in the number of authorized shares of common stock and the two-for-one-stock split. Stockholders of record, asuse of the close of market on December 21, 2016, became entitled to receive one additional share of common stock for each share held. The shares were distributed on January 3, 2017. No fractional shares of common stock were issuedSecured Overnight Financing Rate ("SOFR") as a resultmore 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 stock split. The adjusted stock price was reflected onSecuritization Facility and amended the NASDAQ stock market beginning on January 4, 2017.
The shares of common stock retain a par value of $0.01 per share. Accordingly, the stockholders' equity reflects the stock split by reclassifyinginterest rate from "additional paid-in capital"LIBOR to "common stock" an amount equal to the par value of the increased shares resulting from the stock split. All share and per share amounts of common stock contained in the Company's financial statements have been restated for all periods to give retroactive effect to the stock split.
Johnson & Johnson's Codman Neurosurgery Business
On February 14, 2017,SOFR indexed rate. (See Note 6). In March 2023, the Company entered into a binding offer letter (the “Offer Letter”) with DePuy Synthes, Inc., a Delaware corporation (“DePuy Synthes”), a wholly-owned subsidiarybasis swap where the Company receives Term SOFR and pays LIBOR to convert the portfolio of Johnson & Johnson, pursuantinterest rate swaps from LIBOR to SOFR. Integra has elected to adopt the optional expedient under ASC 848, which Integra made a binding offerwill allow the interest rate swap hedging relationship to acquire certain assets, and assume certain liabilities, of Johnson & Johnson’s Codman neurosurgery business (the “Codman Acquisition”). The assets and liabilities subjectcontinue, without de-designation, due to the proposed Codman Acquisition relate to the research, development, manufacture, marketing, distribution and sale of certain products used in connection with neurosurgery procedures. The purchase price for the Codman Acquisition is $1.014 billion, subject to adjustments set forthchange in the Purchase Agreement (as defined below) relatingindexed rate from LIBOR to SOFR.
There are no other recently issued accounting pronouncements that are expected to have any significant effect on the book valueCompany's financial position, results of inventory transferred to the Company at the closing of the Codman Acquisition, the book value of certain inventory retained by DePuy Synthes and the amount of certain prepaid taxes.operations or cash flows.
8
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

2. ACQUISITIONS AND DIVESTITURES
Pursuant to the terms of the Offer Letter, following the conclusion of certain statutory information or consultation processes in connection with the CodmanSurgical Innovation Associates, Inc. Acquisition by the employees of DePuy Synthes and its affiliates in France, Switzerland, and Germany, on May 11, 2017, DePuy Synthes accepted the Company’s offer and countersigned the Asset Purchase Agreement (the “Purchase Agreement”) with respect to the Codman Acquisition, previously executed by the Company.

On October 2, 2017,December 6, 2022, the Company completed its acquisition of Surgical Innovation Associates, Inc. ("SIA") for an acquisition purchase price of $51.5 million (the "SIA Acquisition"). In addition to the Codman Acquisition. See Note 14 - Subsequent Events.purchase price, the acquisition includes two separate contingent considerations payments, which are dependent on 1) achieving certain revenue-based performance milestones in 2023, 2024, and 2025 (up to $50.0 million in additional payments), as well as 2) the approval by the FDA of the Premarket Approval (“PMA”) Application for DuraSorb for certain uses by certain timing targets (up to $40.0 million in additional payments). SIA's core technology, DuraSorb, is a fully resorbable scaffold of a globally accepted polymer, which is cleared for use in hernia repair, abdominal wall, and other soft tissue reinforcement. DuraSorb sales will be reported within Integra’s Tissue Technologies ("TT") segment as part of its Wound Reconstruction and Care franchise.

Assets Acquired and Liabilities HeldAssumed at Fair Value

The SIA Acquisition has been accounted for Saleusing the acquisition method of accounting. This method requires that assets acquired, and liabilities assumed in a business combination to be recognized at their fair values as of the acquisition date.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:

Dollars in thousandsPreliminary ValuationWeighted Average Life
Current assets:
Cash4,438 
Trade accounts receivable, net1,551 
Inventories, net2,900 
Prepaid expenses and other current assets1,654 
Total current assets$10,543 
Intangible assets75,000 14 years
Goodwill41,380 
Total assets acquired$126,923
Current liabilities:
Accounts payable and accrued expenses$2,044 
Total current liabilities$2,044 
Deferred Tax Liability11,325 
Contingent consideration57,607 
Total liabilities assumed70,976
Net assets acquired$55,947

Developed Technology

The estimated fair value of the developed technology was determined using the multi-period excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each product including net revenues, cost of sales, R&D costs, selling and marketing costs, working capital, and contributory asset charges, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of the asset’s life cycle, and competitive trends impacting the asset and the cash flow stream.

The Company considersused a discount rate of 18% 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 liabilitiesincremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to be held for sale when management approves and commits to a formal plan to actively marketprepare the assets and liabilities for sale, the assets and liabilities are available for immediate sale in their present condition, an active program to locate a buyerdiscounted cash flow analysis will not change. For these and other actions required to complete the sale have been initiated, the sale of the assets and liabilities are expected to be completed within one year, the assets and liabilities are being actively marketed for sale at a price that is reasonable in relation to its current fair value and it is unlikely that significant changes will be made to the plan. Upon designation of the assets and liabilities as held for sale, the Company records the assets at the lower of their carrying value or theirreasons, actual results may vary significantly from estimated fair value, less estimated costs to sell. Assets held for sale are not depreciated. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met and gains are not recognized until the date of sale. The Company assesses the fair value of assets held for sale less any costs to sell each reporting period it remains classified as held for sale and reports any reduction in fair value as an adjustment to the carrying value of the assets held for sale.results.
To facilitate the Company’s planned acquisition of the Codman Neurosurgery Business, the Company identified certain assets and liabilities related to the Camino® Intracranial Pressure monitoring product line within its Specialty Surgical Solutions segment as Assets and Liabilities Held for Sale as of June 30, 2017 when all of the criteria above were met. On August 31, 2017, the Company identified additional assets and liabilities related to the Company's U.S. rights to the fixed pressure shunts product line within its Special Surgical Solutions segment as Assets and Liabilities Held for Sale.


Assets and liabilities held for sale consisted of the following as of September 30, 2017 (amounts in thousands):
Goodwill

9
Inventories$7,957
Property, plant and equipment, net883
Goodwill2,861
Total assets held for sale$11,701
  
Deferred revenue$909
Accrued compensation197
Total liabilities held for sale$1,106

Goodwill was allocated to the assets and liabilities held for sale using the relative fair value method. Assets held for sale were included in prepaid expenses and other current assets and liabilities held for sale were included in accrued expenses and other current liabilities in the consolidated balance sheet. The Company recognized no losses in its consolidated statement of operations for the three and nine months ended September 30, 2017.
On September 8, 2017, the Company and certain of its subsidiaries entered into an asset purchase agreement (the “Divestiture Agreement”) with Natus Medical Incorporated (“Natus”), pursuant to which the Company agreed to divest its Camino Intracranial Pressure monitoring and the U.S. rights to its fixed pressure shunts businesses together with certain neurosurgery assets acquired as part of the Codman Acquisition (the “Divestiture”). The Divestiture Agreement was entered into in connection with the review of the Codman Acquisition by the Federal Trade Commission and the antitrust authority of Spain. The Divestiture was completed on October 6, 2017. See Note 14 - Subsequent Events.
Recently Issued Accounting Standards
In May 2014, the FASB issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2017.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The Company will adopt this standard on January 1, 2018. The Company expects to apply the full retrospective method of adoption. The Company is progressing with the implementation and continues to evaluate the impact of the standard’s revenue recognition model on business processes, accounting systems, controls and financial statement disclosures. The Company has reviewed a sample of contracts with customers and does not expect the adoption of Accounting Standard Update ("ASU") 2014-09 to have a material impact on the amount or timing of revenues recognized. That said, the Company’s initial conclusion could change as the implementation is finalized.
In July 2015, the FASB issued Update No. 2015-11, Simplifying the Measurement of Inventory. The amendment requires an entity to measure inventory that is within the scope of this amendment at the lower of cost and net realizable value. Existing impairment models will continue to be used for inventories that are accounted for using the last-in first-out (“LIFO”) method. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years for public business entities. Early adoption was permitted. The Company adopted ASU 2015-11 as of January 1, 2017 on a prospective basis, and there was no significant impact of this guidance on its consolidated financial statements.
In February 2016, the FASB issued Update No. 2016-02, Leases (Topic 842). Under current accounting guidance, an entity is not required to report operating leases on the balance sheet. The amendment requires that lessees recognize virtually all of their leases on the balance sheet by recording a right-of-use asset and lease liability (other than leases that meet the definition of a "short-term lease"). This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2018. The new standard must be adopted using a modified retrospective transition. Early adoption is permitted. The Company is in the process of evaluating the impact of this standard on its financial statements.
In August 2016, the FASB issued Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The guidance addresses the classification of cash flowsallocated goodwill related to debt repayment or extinguishment costs, settlement of zero-coupon debt instruments or debt instruments with coupon rates that are insignificant in relationthe SIA Acquisition to the effective interest rate of the borrowing, contingent consideration payments made after business combination, proceeds from the settlement of insurance claims and corporate-owned life insurance, distribution received from equity method investees and beneficial interest in securitization transaction. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material impact on its consolidated financial statements.
In October 2016, the FASB issued Update No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The guidance requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized as current period income tax expense or benefit and removes the requirement to defer and amortize the consolidated tax consequences of intra-entity transfers. The new standard will be effective for all annual periods beginning after December 15, 2017. The Company does not expect the adoption of ASU 2016-16 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued Update No. 2017-01, Business Combinations. The standard provides guidance for evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities (a “set”) does not qualify to be a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in an identifiable asset or a group of similar identifiable assets, the set of assets and activities is not a business. If the screen is not met, the guidance requires a set of assets and activities to be considered a business and to include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs and removes the evaluation as to whether a market participant could replace the missing elements. The new standard will be effective for all annual periods beginning after December 15, 2017. Early adoption is permitted. The Company elected to early adopt ASU 2017-01 effective January 1, 2017. The implementation of the amended guidance did not have any material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued Update 2017-04, Simplifying the Test for Goodwill Impairment. The standard eliminates the second step in the goodwill impairment test, which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company elected to early adopt ASU 2017-04 effective January 1, 2017 and applied the new guidance in its annual assessment in the third quarter of 2017. The Company performed its annual goodwill impairment assessment as of July 31, 2017. The Company elected to perform a qualitative analysis for its reporting units. The Company determined, after performing the qualitative analysis, that there was no evidence that it is more likely than not that the fair value of any identified reporting unit was less than the carrying amount, and therefore, it was not necessary to perform quantitative analysis for any reporting units.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

In May 2017, the FASB issued ASU 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting. The update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The new standard will be effective for all annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to have a material impact on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update amends the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of evaluating the impact of this standard on its financial statements.
There are no other recently issued accounting pronouncements that are expected to have a material effect on the Company's financial position, results of operations or cash flows.

2. BUSINESS ACQUISITION
TGX Medical
On April 4, 2017, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), by and among the Company, MCF I LP THX Medical System LLC Holdings, Inc., Terragraphix, Inc. and TGX Medical Systems, LLC (collectively, "TGX Medical"). Pursuant to the Purchase Agreement, the Company purchased all issued and outstanding membership interests in TGX Medical for $5.4 million, including a $0.1 million adjustment made in the third quarter of 2017 related to additional closing costs incurred by TGX Medical.
TGX Medical designs, develops and markets software solutions that track surgical instruments from the operating room, through sterilization to storage, which helps ensure that the instruments have been properly cleaned, assembled and maintained. TGX Medical’s customers are located in the U.S. and Canada.
The Company recorded revenue for TGX Medical of approximately $0.2 million and $0.4 million in the condensed consolidated statements of operations and comprehensive income for three and nine months ended September 30, 2017, respectively. 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.
The following summarizes the preliminary allocation of the purchase price as of September 30, 2017 based on the fair value of the assets acquired and liabilities assumed:
 
Preliminary Purchase Price
Allocation
 
 
(Dollars in thousands)

 
Cash and cash equivalents$49
 
Accounts receivables279
 
Property, plant and equipment3
 
Intangible assets: 
Wtd. Avg. Life:

Completed technology4,707
13 Years
Goodwill641
 
Total assets acquired5,679
 
Accounts payable13
 
Accrued expenses and other current liabilities65
 
Other liabilities234
 
Net assets acquired$5,367
 
Goodwill was allocated to the Special Surgical SolutionsTT segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. A key factor that contributes to the recognition of goodwill, and a driver for the Company’s acquisition of SIA, is the attractive growth opportunities presented by the surgical matrix business in the breast reconstruction market. Goodwill recognized as a result of thethis acquisition is not deductiblenon-deductible for income tax purposes.


Contingent Consideration

The Company determines the acquisition date fair value of contingent consideration obligations based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving contingent obligations. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined using the fair value concepts in ASC 820. The resulting most likely payouts are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value will be reflected as income or expense in the consolidated statement of operations. Changes in the fair value of the contingent considerations may result from changes in discount periods and rates and changes in the timing and amount of revenue estimates. Changes in assumptions utilized in the contingent consideration fair value estimates could result in an increase in the contingent consideration obligation and a corresponding charge to operating results.

As part of the SIA Acquisition, the Company is required to pay to the shareholder of SIA up to $90.0 million for two separate payments, which are dependent on 1) achieving certain revenue-based performance milestones in 2023, 2024, and 2025 (up to $50.0 million in additional payments), as well as 2) the approval by the FDA of the PMA for DuraSorb for certain uses by certain timing targets (up to $40.0 million in additional payments). The Company used iterations of the Monte Carlo simulation to calculate the fair value of the contingent consideration for the revenue-based milestone that considered the possible outcomes of scenarios related to each specific milestone for the revenue based performance milestone. The Company used probabilities of achieving the conditions to calculate the fair value of the contingent consideration for the PMA approval milestone. The Company estimated the fair value of the contingent consideration for the revenue based milestone to be $32.6 million at the acquisition date and $25.0 million for the PMA approval milestone as of December 31, 2022. The company recorded a total of $50.1 million in other liabilities as of June 30, 2023 and $12.7 million in accrued expenses and other current liabilities at June 30, 2023 in the consolidated balance sheet of the company.

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.

Sale of non-core traditional wound care business
On August 31, 2022, the Company completed its sale of its non-core traditional wound care ("TWC") business to Gentell, LLC ("Gentell") for $28.8 million, which consists of $27.8 million in cash plus $1.0 million in contingent consideration which may be received upon achieving certain revenue-based performance milestones two years after the closing date. The transaction included the sale of the Company's TWC products, such as sponges, gauze and conforming bandages, and certain advanced wound care dressings, such as supportive, calcium alginate, hydrogel, and foam dressings.
The divestiture did not represent a strategic shift that had a major effect on the Company's operations and financial statements. Goodwill was allocated to the assets and liabilities divested using the relative fair value method of the TWC business to the Company's TT reportable business segment. In connection with the sale, the Company recognized $0.6 million as a gain from the sale of the business in the condensed consolidated statement of operations for the year ended December 31, 2022. The transaction is subject to final working capital adjustments.
In addition to the purchase and sale agreement, the Company also entered into a contract manufacturing agreement with Gentell. Under the terms of the agreement, Gentell received inventory, equipment, and tooling to manufacture certain MediHoney® and TCC-EZ® products on behalf of the Company. On the close date of this transaction, the Company transferred all inventory associated with these products to Gentell and recognized an asset of $11.1 million, as a form of a deposit for the inventory transferred, which based on the expected timing of inventory purchases, was primarily included within prepaid expenses and other current assets in the consolidated balance sheet. This deposit will be utilized by the Company on future orders placed to Gentell for such products. As of June 30, 2023, the Company had a deposit remaining of $6.2 million which is included in prepaid assets and recognized a payable due to Gentell of $0.6 million, which is included in the condensed consolidated balance sheet within accrued expenses and other current liabilities.
10
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3. REVENUES FROM CONTRACTS WITH CUSTOMERS
Derma SciencesSummary of Accounting Policies on Revenue Recognition
On February 24, 2017,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 executedexpects 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 Agreementcontracts, purchase orders, or invoices. The Company has no significant multi-element contracts with customers.
Significant Estimates
Usage-based royalties and Planlicenses are estimated based on the provisions of Merger (the "Merger Agreement") undercontracts 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 Company acquired all of the outstanding shares of Derma Sciences, Inc., a Delaware corporation ("Derma Sciences") for an aggregate purchase price of approximately $210.8 million, including payment of certain of Derma Sciences' closing expenses and settlement of stock-based compensation plans of $4.8 million and $4.3 million, respectively. The purchase price consisted of a cash payment to the former shareholders of Derma Sciences of approximately $201.7 million upon the closing of the transaction.
Derma Sciences is a tissue regeneration company focused on advanced wound and burn care that offers products to help manage chronic and hard-to-heal wounds, especially those resulting from diabetes and poor vascular functioning.following quarter. Historically, such adjustments have not been significant.
The Company recorded revenue for Derma Sciencesestimates 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 approximately $24.1 million and $58.4 million inproduct. Upon the condensed consolidated statements of operations and comprehensive incomeauthorization, a credit will be issued for the three and nine months ended September 30, 2017, respectively. The net income or loss attributable to this acquisition cannot be identified ongoods returned within a stand-alone basis because it has been integrated intoset amount of days from the Company's operations.
The following summarizes the preliminary allocation of the purchase price as of September 30, 2017 based on the fair value of the assets acquired and liabilities assumed:
 
 Preliminary Purchase Price
Allocation
 
 (Dollars in thousands) 
Cash and cash equivalents$16,512
 
Short-term investments19,238
 
Accounts receivable8,949
 
Inventory17,977
 
Prepaid expenses and other current assets4,369
 
Property, plant and equipment4,311
 
Intangible assets: Wtd. Avg. Life:
Customer relationship78,300
14 years
Trademarks/brand names13,500
15 years
Completed technology11,600
14 years
Non-compete agreement280
1 year
Goodwill70,424
 
Deferred tax assets17,865
 
Other assets101
 
Total assets acquired263,426
 
Accounts payable4,560
 
Accrued expenses and other current liabilities7,409
 
Contingent liability37,174
 
Other liabilities3,805
 
     Net assets acquired$210,478
 
Goodwill was allocated to the Orthopedics and Tissue Technologies segment. Goodwillshipment, which is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.generally 90 days.
In the second quarter of 2017,2023, due to the voluntary recall of Primatrix®, Surgimend®, Revize™, and TissueMend™, the Company adjusted its preliminary purchase price allocationrecorded a $12.9 million provision for product returns, as a reduction of other liabilities by $1.7net revenue. Of this amount, $0.7 million becausewas paid out in Q2.
The Company disregards the effects of additional liabilities for sales and use tax, employment tax and unclaimed property. In the third quarter of 2017,a financing component if the Company adjustedexpects, at contract inception, that the purchase priceperiod between the transfer and goodwill by $0.3 million,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 cashrecognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheets.
Other operating revenues may include fees received from escrow relatedunder service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the acquisitionother party. A portion of BioD LLC ("BioD") by Derma Sciences. BioDthe transaction price allocated to the performance obligations to be satisfied in the future periods is a wholly owned subsidiary of Derma Sciences.recognized as contract liability.
11
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following table summarized the changes in the contract asset and liability balances for the six months ended June 30, 2023:
Short-term Investments
Dollars in thousandsTotal
Contract Asset
Contract asset, January 1, 2023$10,122 
Transferred to trade receivable from contract asset included in beginning of the year contract asset(7,743)
Written off from beginning of the year contract asset due to Boston recall(2,379)
Contract asset, net of transferred to trade receivables on contracts during the period9,639 
Contract asset, June 30, 2023$9,639 
Contract Liability
Contract liability, January 1, 2023$16,127 
Recognition of revenue included in beginning of year contract liability$(5,487)
Contract liability, net of revenue recognized on contracts during the period6,172 
Foreign currency translation(15)
Contract liability, June 30, 2023$16,797 
Short-term investments recognized atAt June 30, 2023, the acquisition date of Derma Sciences are investments in equity and debt securities including certificates of deposit purchased with an original maturity greater than three months which are deposited in various U.S. financial institutions and are fully insured by the Federal Deposit Insurance Corporation. The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Securities under this classification are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive income. The estimated fair valueshort-term portion of the available for sale securitiescontract liability of $8.3 million and the long-term portion of $8.5 million is determined based on quoted market prices. The Company evaluates securities with unrealized losses to determine whether such losses, if any, are other than temporary. Short-term investments are classified as Level 1 in fair value hierarchy. Fair values of short-term investments are determined using the unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.
In the second quarter of 2017, the Company sold the acquired short-term investments and recognized a realized loss of $2.3 million included in current liabilities and other expense, netliabilities, respectively, in the consolidated statementbalance sheets.
As of operations.
Deferred Taxes
The acquired deferred taxes of $17.9 million include a deferred tax asset of $39.7 million related to a federal net operating loss whichJune 30, 2023, the Company expectsis expected to utilize against income in future periods, a deferred tax assetrecognize revenue of $15.8 million related to intangibles acquired by Derma Sciences in previous periods, and a deferred tax assetapproximately 49% of $0.7 million related to various deferred items, offset by a deferred tax liability of $38.3 million for new intangibles for which the Company will not receive a tax benefit. In second quarter of 2017, the Company increased the preliminary estimated value of deferred tax liability by $1.5 million to reflect the adjustments to preliminary estimated fair values of assets and liabilities acquired.
United States Food and Drug Administration ("FDA") Untitled Letter
On June 22, 2015, the FDA issued an Untitled Letter (the "Untitled Letter") alleging that BioD morselized amniotic membrane based products do not meet the criteria for regulationunsatisfied (or partially unsatisfied) performance obligations as human cellular tissue-based products (“HCT/Ps”) solely under Section 361 of the Public Health Service Act and that, as a result, BioD would need a biologics license to lawfully market those morselized products. Since the issuance of the Untitled Letter, BioD and now the Company had and plan to continue discussionsrevenue within 12 months, with the FDAremaining balance to communicate its disagreement with the FDA’s assertion that certain products are more than minimally manipulatedbe recognized thereafter.
Shipping and therefore do not meet the requirements for HCT/Ps. To date, the FDA has not changed its position that certain of the acquired morselized products are not eligible for marketing solely under Section 361 of the Public Health Service Act. The Company continues to market these products.

On December 22, 2014, the FDA issued for comment “Draft Guidance for Industry and FDA Staff: Minimal Manipulation of Human Cells, Tissues, and Cellular and Tissue-Based Products.” On October 28, 2015, the FDA issued for comment, "Draft Guidance for Industry and FDA Staff: Homologous Use of Human Cells, Tissues, and Cellular and Tissue-Based Products." The FDA held a public hearing on September 12 and 13, 2016 to obtain input on the Homologous Use draft guidance and the Minimal Manipulation draft guidance, as well as other recently issued guidance documents on HCT/Ps.

If the FDA does allow us to continue to market its morselized products without a 510(k) or biologics license either prior to or after finalization of the draft guidance documents, it may impose conditions on marketing, such as labeling restrictions and compliance with current Good Manufacturing Practices. Compliance with these conditions would require significant additional time and cost investments from us. It also is possible that the FDA will not allow us to market any form of a morselized product without a biologics license even prior to finalization of the draft guidance documents and could require us to recall our morselized products. We continue to market these products. The Company continues to monitor the FDA's position on these products. Any potential action of the FDA could have a financial impact on the sales of BioD’s morselized amniotic tissue-based products. Revenues from BioD morselized amniotic material based products for the three and nine months ended September 30, 2017 were less than 1.0% of consolidated revenues.

Contingent Consideration

Handling Fees
The Company assumed contingent consideration incurred by Derma Sciences relatedelected to its acquisitions of BioDaccount for shipping and the intellectual property relatedhandling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to the Medihoney product. The Company accountedcustomers for the contingent liabilities by recording their fair value on the date of the acquisition based on a discounted cash-flow model. The contingent liabilities recognizedshipping and handling are included as part of the Derma Sciences acquisition relatetransaction price and recognized as revenue when control of underlying products is transferred to the following:customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold.

Product Warranties
i.contractual incentive payments that could be made to former equity owners of BioD if net sales of BioD products exceed a certain amount for the twelve-month periods ending June 30, 2017 and 2018 ("BioD Earnout Payments");
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.
12
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Disaggregated Revenue
ii.a contractual incentive payment that could be made to the former equity owners if there has been no specific enforcement action or notice
The following table presents revenues disaggregated by the FDA against the specific BioD products as a result of the Untitled Letter for a certain period after closing as defined by the agreement ("Product Payment"); and
iii.contractual incentive payments that could be made to the former owner of the intellectual property relating to the Medihoney product line, if net sales of Medihoney products exceed certain amounts defined in the agreement between Derma Sciences and the former owner of the intellectual property of Medihoney for any twelve-month period ("Medihoney Earnout Payments").
At the datemajor sources of revenues for the acquisition, net sales usedthree and six months ended June 30, 2023 and 2022 (dollar amounts in estimating the BioD Earnout Payments isthousands):
Three Months Ended June 30, 2023Three Months Ended June 30, 2022Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Neurosurgery$205,803 $200,295 $398,673 $394,970 
Instruments65,227 57,568 120,493 110,201 
Total Codman Specialty Surgical271,030 257,863 519,166 505,171 
Wound Reconstruction and Care91,118 104,894 192,058 199,524 
Private Label19,119 35,058 50,889 69,758 
Total Tissue Technologies110,237 139,952 242,947 269,282 
Total revenue$381,267 $397,815 $762,113 $774,453 
See Note 15, Segment and Geographical Information, for details of revenues based on the weighted average of different possible scenarios using revenue volatility of 13.5%. The BioD Earnout Payments were valued using a discount rate of 3.0%. The maximum payout related to the BioD Earnout Payments is $26.5 million. The estimated fair value as of February 24, 2017 was $9.1 million. In August 2017, the Company paid $4.8 million for the twelve-month period ending June 30, 2017 componentlocation of the BioD Earnout Payments. As of September 30, 2017, the estimated fair valuecustomer.
4. INVENTORIES
Inventories, net consisted of the remaining portion of the BioD Earnout Payments is $2.1 million.following:
At the date of acquisition, the Company estimated that the probability of the Product Payment was 98.0% and valued it at a discount rate of 2.5%. The maximum payout related to the Product Payment is $29.7 million. The estimated fair value as of February 24, 2017 was $26.8 million.
Dollars in thousandsJune 30, 2023December 31, 2022
Finished goods$174,603 $172,088 
Work in process79,263 70,598 
Raw materials100,427 81,897 
Total inventories, net$354,293 $324,583 
Boston Recall
In the second quarter of 2017,2023, due to the voluntary recall of Primatrix®, Surgimend®, Revize™, and TissueMend™, the Company adjustedrecorded a $24.1 million write off of inventory that was no longer able to be sold.
Subsequent Event
On July 24, 2023, a severe tornado struck the preliminary estimated fair valueLelocle, Switzerland area (the “Lelocle Tornado”) causing significant damage to increasecertain inventory held at one of the Product Payment by $0.9 million relatedCompany’s storage facilities. There wasn’t any damage to additional products that should have been includedIntegra’s manufacturing facility in Switzerland. The extent of damage to the facility is being assessed, however, the Company believes the inventory write-off will not exceed $8 million. The Company maintains insurance coverage for damage to its facilities and inventory, as well as business interruption insurance. The Company is in the preliminary estimate based onprocess of reviewing these coverages with its insurance carriers. The Company believes there will be a recovery under its insurance policies, however no assurance can be given regarding the Merger Agreement. On May 25, 2017,amounts, if any, that will be ultimately recovered or when any such recoveries will be made.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Changes in the Company made full paymentcarrying amount of goodwill for the Product Paymentsix-month period ended June 30, 2023 were as follows:
Dollars in thousandsCodman Specialty
Surgical		Tissue TechnologiesTotal
Goodwill at December 31, 2022$656,219 $382,662 $1,038,881 
SIA Acquisition Working Capital Adjustment— (382)(382)
Foreign currency translation3,015 1,759 4,774 
Goodwill at June 30, 2023$659,234 $384,039 $1,043,273 
The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative analysis. In the second quarter of $26.6 million. The payment was included in cash used in business acquisition, net of cash acquired within investing activities in the condensed consolidated statements of cash flows since the payment was made shortly after the acquisition.
At the date of the acquisition, net sales used in estimating the Medihoney Earnout Payments is based on the weighted average of different possible scenarios using revenue volatility of 27.5%. The Medihoney Earnout Payments were valued using a discount rate of 4.5%. The maximum payout related2023, due to the Medihoney Earnout Payments is $5.0 million. The estimated fair valuevoluntary recall of Primatrix®, Surgimend®, Revize™, and TissueMend™ as of February 24, 2017 and September 30, 2017 was $1.4 million.
These fair value measurements were based on significant inputs not observed inwell as the market and thus represented a Level 3 measurement. The contingent considerations are re-measured to fair value at each reporting date until the contingency is resolved, and those changes in fair value are recognized in earnings. Depending on the expected timing of the estimated payments, the acquisition date fair values and subsequent remeasurement could be different.
Pro Forma Results
The following unaudited pro forma financial information summarizes the results of operations for the three months ended September 30, 2016 and for the nine months ended September 30, 2017 and 2016 as if the acquisitions had been completed as of the beginning of the prior year. The pro forma results are based upon certain assumptions and estimates, and they give effect to actual operating results prior to the acquisition and adjustments to reflect (i) the change in interest expense and intangible asset amortization, (ii) certain external expenses related to the acquisition as if they were incurred on January 1 of the year prior to the acquisition that will not be recurring in the post-acquisition periods, which includes $2.9 million incurred by Derma Sciences prior to acquisition and $12.5 million incurred by Integra, and (iii) income taxes on the aforementioned adjustments at the Company’s statutory rate. No effect has been given to other cost reductions or operating synergies. As a result, these 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.
13
 Three Months Ended September 30, 2016 Nine Months Ended September 30,
  2017 2016
 (In thousands, except per share amounts)
Total revenue$272,427
 $832,710
 $792,672
Net income$18,318
 $24,091
 $32,180
Basic income per share$0.25
 $0.32
 $0.43

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

associated drop in the Company's stock price in Q2, the Company elected to perform a quantitative analysis for its Tissue Technologies reporting unit.
3. INVENTORIES
Inventories, net consistedThe quantitative test estimates the fair value of the following:
 September 30, 2017 December 31, 2016
 (In thousands)
Finished goods$136,729
 $127,973
Work in process47,257
 50,043
Raw materials48,354
 39,247
 $232,340
 $217,263


4. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes inreporting unit using a discounted cash flow model, which incorporates significant estimates and assumptions made by management which, by their nature, are characterized by uncertainty. The quantitative test utilized a long-term growth rate of 2% and a discount rate of 10%. The Company determined, after performing the quantitative analysis, that the fair value of the goodwill of the reporting unit was not less than the carrying amount, of goodwill for the nine-month period ended September 30, 2017 were as follows:
with more than 20% headroom.
 
Specialty
Surgical
Solutions
 
Orthopedics and
Tissue Technologies
 Total
 (In thousands)
Goodwill at December 31, 2016$284,358
 $226,213
 $510,571
Derma Sciences acquisition—
 70,424
 70,424
TGX Medical acquisition641
 —
 641
Transfer to assets held for sale(2,861) —
 (2,861)
Foreign currency translation4,400
 4,768
 9,168
Balance, September 30, 2017$286,538
 $301,405
 $587,943

Other Intangible Assets
The components of the Company’s identifiable intangible assets were as follows:
 June 30, 2023
Dollars in thousandsWeighted
Average
Life		CostAccumulated
Amortization		Net
Completed technology18 years$1,211,660 $(408,428)$803,232 
Customer relationships12 years$193,550 $(148,103)$45,447 
Trademarks/brand names28 years$97,950 $(36,700)$61,250 
Codman tradenameIndefinite$169,279 $— $169,279 
Supplier relationships30 years$30,211 $(17,659)$12,552 
All other11 years$6,064 $(4,228)$1,836 
$1,708,714 $(615,118)$1,093,596 
 December 31, 2022
Dollars in thousandsWeighted
Average
Life		CostAccumulated
Amortization		Net
Completed technology18 years$1,204,325 $(370,968)$833,357 
Customer relationships12 years193,081 (144,040)49,041 
Trademarks/brand names28 years97,265 (34,674)62,591 
Codman tradenameIndefinite166,693 — 166,693 
Supplier relationships30 years30,211 (17,170)13,041 
All other11 years5,957 (4,071)1,886 
$1,697,532 $(570,923)$1,126,609 
Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of goods sold) is expected to be approximately $41.4 million for the remainder of 2023, $82.2 million in 2024, $82.2 million in 2025, $82.0 million in 2026, $80.0 million in 2027, $78.5 million in 2028 and $477.1 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. In the second quarter of 2023, due to the voluntary recall of Primatrix®, Surgimend®, Revize™, and TissueMend™, the Company elected to perform impairment testing on certain definite lived intangibles.
The impairment testing estimates the fair value of the intangibles using an undiscounted cash flow model. The Company determined, after performing the impairment testing, that the fair value of the intangibles was not less that the carrying amount.
6. DEBT
 September 30, 2017
 
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net
 (Dollars in thousands)
Completed technology17 years $492,380
 $(114,996) $377,384
Customer relationships13 years 234,020
 (88,944) 145,076
Trademarks/brand names28 years 105,690
 (22,336) 83,354
Supplier relationships27 years 34,721
 (14,735) 19,986
All other (1)
5 years 11,675
 (3,423) 8,252
   $878,486
 $(244,434) $634,052
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 Term loan A, 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.
14
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 December 31, 2016
 
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net
 (Dollars in thousands)
Completed technology17 years $479,964
 $(94,991) $384,973
Customer relationships12 years 152,335
 (77,005) 75,330
Trademarks/brand names30 years 90,507
 (19,158) 71,349
Supplier relationships27 years 34,721
 (13,664) 21,057
All other (1)
5 years 10,806
 (2,340) 8,466
   $768,333
 $(207,158) $561,175
(1)
At September 30, 2017 and December 31, 2016, all other included in-process research and development ("IPR&D") of $1.0 million in both periods, which was indefinite-lived.

During the third quarter of 2017, the Company recorded an impairment charge of $3.3 million in cost of goods sold related to completed technology assets acquired from Tarsus Medical, Inc. ("Tarsus Technology"), since the underlying product will no longer be sold. Tarsus Technology was included in the Orthopedic and Tissue Technology segment.
Based on quarter-end exchange rates, annual amortization expense (including amounts reported in cost of product revenues, but excluding any possible future amortization associated with acquired in-process research and development) is expected to be approximately $48.4 million in 2017, $49.1 million in 2018, $49.0 million in 2019, $48.9 million in 2020, $47.9 million in 2021, $44.4 million in 2022 and $493.7 million thereafter. Identifiable intangible assets are initially recorded at fair market value at the time of acquisition using an income or cost approach.

5. DEBT
Amended and Restated Senior Credit Agreement

On March 31, 2017, the Company entered into an amendment ("March 2017 Amendment") to its fourth amended and restated Senior Credit Facility agreement with a syndicate of lending banks and Bank of America, N.A., as Administrative Agent. The March 2017 Amendment increased the aggregate principal amount from $1.5 billion to $2.2 billion available to the Company through the following facilities:
i.a $500.0 million Term Loan A facility;
ii.
a $700.0 million Term Loan A-1, which will be available in a single drawing on a delayed basis at the time of closing of the Codman Acquisition (see Note 1 - Basis of Presentation); and
iii.a $1.0 billion revolving credit facility, which includes a $60.0 million sublimit for the issuance of standby letters of credit and a $60.0 million sublimit for swingline loans.

In connection with the March 2017 Amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was increasedmodified to the following:
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
March 31, 2023 through December 31, 20244.50 to 1.00
March 31, 2025 through June 30, 20264.25 to 1.00
September 30, 2026 and the last day of each fiscal quarter thereafter4.00 to 1.00
Fiscal QuarterMaximum Consolidated Total Leverage Ratio
December 31, 2016 through before the first fiscal quarter after the delayed draw date of Term Loan A-14.50 : 1.00
First fiscal quarter ended after the delayed draw date of Term Loan A-1 through September 30, 20185.50 : 1.00
October 1, 2018 through September 30, 20195.00 : 1.00
October 1, 2019 through September 30, 20204.50 : 1.00
October 1, 2020 and thereafter4.00 : 1.00

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

There was no change in the maturity date, which remains at December 7, 2021.
Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at a rate equal to the following:
i.
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 Eurodollar Rate (as defined in the amendment and restatement) in effect from time to time plus the applicable rate (ranging from 1.00% to 2.00%), 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%, or
2.the prime lending rate of Bank of America, N.A., or
3.
the one-month Eurodollar Rate plus 1.00%.
The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness as of such date less cash in excess of $40.0 million that is not subject to any restriction on the use or investment thereof to (b) consolidated EBITDA as(as defined inby the fourth amended Seventh Amended and restated SeniorRestated Credit Facility agreement) atAgreement (the "Credit Agreement")), for the timeperiod of the applicable borrowing.four consecutive fiscal quarters ending on such date).

The Company will pay an annual commitment fee ranging(ranging from 0.15% to 0.35%0.30%), based on the Company's consolidated total leverage ratio, on the amount available for borrowing under the revolving credit facility.

The Senior Credit Facility is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. The Senior Credit Facility is subject to various financial and negative covenants and as of Septemberat June 30, 2017,2023, the Company was in compliance with all such covenants. The Company capitalized $1.1$7.6 million of incrementalin deferred financing costs in 2017 in connection with the modifications tomodification of the Senior Credit Facility.Facility and wrote off $0.2 million of previously capitalized financing costs during the first quarter of 2023.
At SeptemberJune 30, 20172023 and December 31, 2016,2022 there were $671.4 million and $165.0 million outstanding, respectively,was no balance outstanding under the revolving creditportion of the Senior Credit Facility. At June 30, 2023 and December 31, 2022, there was $775.0 million outstanding under the term loan component of the Senior Credit Facility at a weighted average interest rate of 2.9%6.6% and 2.2%5.6%, respectively. At SeptemberThe liability related to the Senior Credit Facility shown on the balance sheet at June 30, 20172023 and December 31, 2016,2022 is reflected net of $5.5 million and $3.7 million, respectively, in deferred financing costs. As of June 30, 2023 and December 31, 2022 there was $500.0$4.8 million outstanding underand $38.1 million of the Term Loan A component of the Senior Credit Facility at a weighted average interest rate of 2.8% and 2.2%,classified as current on the condensed consolidated balance sheet, respectively. At September 30, 2017, there was no outstanding balance under the Term Loan A-1 component of Senior Credit Facility. At September 30, 2017, there was approximately $1.0 billion available for borrowing under the Senior Credit Facility, including the $700.0 million available under the Term Loan A-1 component. On October 2, 2017, the Company drew $700.0 million from the Term Loan A-1 component to fund a portion of the Codman Acquisition. Refer to Note 14 - Subsequent Events.
The fair value of outstanding borrowings of the Senior Credit Facility's Term Loan component at June 30, 2023 was $759.3 million. This 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, 2023 and December 31, 2022 totaled $1.7 million and $1.6 million, respectively. There were no amounts drawn as of June 30, 2023.
15
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
Quarter Ended June 30, 2023Principal Repayment
Dollars in thousands
Remainder of 2023$— 
2024$14,531 
2025$33,906 
2026$38,750 
Thereafter687,813 
$775,000 
Future interest payments on the term loan component of the Senior Credit Facility based on current interest rates are expected to approximate $25.5 million for remainder of 2023, $50.5 million in 2024, $48.7 million in 2025, $46.2 million in 2026, and $52.8 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 Term Loan A componentsSecuritization Facility can be repaid at Septemberany time, no interest has been included in the calculation.
Any outstanding borrowings on the revolving credit component of the Senior Credit Facility is 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"). 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 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 as defined in the indenture; (3) if the Company calls the notes for optional redemption as defined in the indenture; or (4) if specified corporate transactions occur. As of June 30, 20172023, none of these conditions existed with respect to the 2025 Notes and as a result the 2025 Notes are classified as long term.
On December 9, 2020, the Company entered into the First Supplemental Indenture to the original agreement dated as of February 4, 2020 between the Company and Citibank, N.A., as trustee, governing the Company’s outstanding 2025 Notes. The Company irrevocably elected (1) to eliminate the Company’s option to choose physical settlement on any conversion of the 2025 Notes that occurs on or after the date of the First Supplemental Indenture and (2) with respect to any Combination Settlement for a conversion of the 2025 Notes, the Specified Dollar Amount that will be settled in cash per $1,000 principal amount of the 2025 Notes shall be no lower than $1,000.
Holders of the Notes will have the right to require the Company to repurchase for cash all or a portion of their Notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the indenture relating to the Notes). The Company will also be required to increase the conversion rate for holders who convert their Notes in connection with certain fundamental changes occurring prior to the maturity date or following delivery by the Company of a notice of redemption.
In connection with the issuance of the 2025 Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of the 2025 Notes (the “hedge participants”). The cost of the call transactions was approximately $658.7$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, 2023, the carrying amount of the liability was $575.0 million. The fair value of the 2025 Notes at June 30, 2023 was $524.6 million. Factors that the Company considered when estimating the fair value of the 2025 Notes included recent quoted market prices or dealer quotes. The level of the 2025 Notes is considered as Level 1.
16
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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, 2023, the Company was in compliance with the covenants and none of the termination events had occurred.
On May 28, 2021, the Company entered into an amendment (the "May 2021 Amendment") of the Securitization Facility which extended the maturity date from December 21, 2021 to May 28, 2024. 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 April 2023 Amendment and the May 2021 Amendment does not increase the Company’s total indebtedness.
The Securitization Facility is currently indexed to SOFR. At June 30, 2023 and December 31, 2022, the Company had $90.8 million and $490.0$104.7 million, respectively, of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 6.3% and 5.0%, respectively. At June 30, 2023, the total amount outstanding under the Securitization Facility is classified as current on the consolidated balance sheet as the total amount is due on May 28, 2024.
The fair value of the outstanding borrowing of the Securitization Facility at June 30, 2023 was $90.6 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 inputsinputs that reflect unadjusted quoted prices for identical assets or liabilities.

17
Letters of credit outstanding as of September 30, 2017 and December 31, 2016 totaled $0.6 million. There were no amounts drawn as of September 30, 2017.
The Company uses interest rate derivative instruments to manage earnings and cash flow exposure to changes in interest rates of the Term Loan A component of the Senior Credit Facility. At September 30, 2017 and December 31, 2016, the notional amounts related to the Company’s interest rate swaps were $400.0 million and $150.0 million, respectively.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Contractual repayments of the Term Loan A will begin March 31, 2018 and are due as follows:
Year Ended December 31, Principal Repayment
  (In thousands)
2017 —
2018 25,000
2019 25,000
2020 37,500
2021 412,500
  $500,000
The outstanding balance of revolving credit component of the Senior Credit Facility is due on December 7, 2021.
2016 Convertible Senior Notes
On December 15, 2016, the Company extinguished its 1.625% Convertible Senior Notes due in 2016 (the "2016 Convertible Notes") by paying the principal amount of $227.1 million and issued 2.9 million shares of common stock with a fair value of $122.0 million related to excess conversion value. No gain or loss on extinguishment was recognized as a result of the conversion. The Company also received 2.9 million shares of common stock from the exercise of call options with hedge participants with a fair value of $123.1 million at the date of the exercise. The shares of common stock received from the exercise of the call options were held as treasury stock as of December 31, 2016 at a weighted average price of $41.78 for a total of $123.1 million.
The 2016 Convertible Notes were issued on June 15, 2011 with the aggregate principal of $230.0 million and a maturity date of December 15, 2016. The 2016 Convertible Notes bore interest at a rate of 1.625% per annum payable semi-annually in arrears on December 15 and June 15 of each year. The 2016 Convertible Notes were senior, unsecured obligations and were convertible into cash and, if applicable, shares of its common stock based on a conversion rate defined within the note agreement.
In connection with the issuance of the 2016 Convertible Notes, the Company entered into call transactions and warrant transactions, primarily with affiliates of the initial purchasers of such notes (the “hedge participants”). The initial strike price of the call transaction was approximately $28.72 per share, subject to customary anti-dilution adjustments. The initial strike price of the warrant transaction was approximately $35.03 per share, subject to customary anti-dilution adjustments. The strike price of the call transactions and warrant transactions has been adjusted similar to the 2016 Convertible Notes as a result of the spin-off of the Company's spine business in July 2015 to $26.42 per share and $32.22 per share, respectively. The warrants expired on a series of expiration dates from March 2017 to August 2017. For the three and nine months ended September 30, 2017, the hedge participants exercised 2,089,802 and 8,707,202 warrants, respectively and, as a result, the Company issued 946,323 and 2,839,743 shares of common stock for the three and nine months ended September 30, 2017, respectively. The Company has no warrants outstanding as of September 30, 2017.
Convertible Note Interest
The interest expense components of the Company’s convertible notes are as follows (net of capitalized interest amounts):
  Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
 (In thousands)
2016 Notes:    
Amortization of the discount on the liability component (1) $2,132
 $6,300
Cash interest related to the contractual interest coupon (2) 892
 2,671
Total $3,024
 $8,971
(1)The amortization of the discount on the liability component of the 2016 Notes is presented net of capitalized interest of $0.1 million and $0.2 million for the three and nine months ended September 30, 2016, respectively.
(2)The cash interest related to the contractual interest coupon on the 2016 Notes is presented net of a minimal amount and $0.1 million of capitalized interest for the three and nine months ended September 30, 2016, respectively.



INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

6.7. 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 ourthe Company's expected LIBOR-indexed floating-rateSOFR-indexed borrowings. In connection with the March 2023 Amendment to the Senior Credit Facility, the Company amended its interest rate from LIBOR to SOFR-indexed interest. In March 2023, the Company entered into a basis swap where the Company receives Term SOFR and pays LIBOR to convert the portfolio of swaps from LIBOR to SOFR.
The Company held the following interest rate swaps as of SeptemberJune 30, 2017 (amounts2023 and December 31, 2022 (dollar amounts in thousands):
June 30, 2023June 30, 2023
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month Term SOFR Loan150,000 December 13, 2017July 1, 2019June 30, 20242.423 %4,259 
1-month Term SOFR Loan200,000 December 13, 2017January 1, 2018December 31, 20242.313 %8,200 
1-month Term SOFR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.220 %2,320 
1-month Term SOFR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.199 %2,364 
1-month Term SOFR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.209 %2,334 
1-month Term SOFR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.885 %4,844 
1-month Term SOFR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.867 %4,841 
1-month Term SOFR Loan575,000 December 15, 2020July 31, 2025December 31, 20271.415 %24,174 
1-month Term SOFR Loan125,000 December 15, 2020July 1, 2025December 31, 20271.404 %5,502 
Basis Swap (1)
—March 31, 2023March 24, 2023December 31, 2027N/A(1,937)
$1,475,000 $56,901 
(1) The notional of the basis swap amortizes to match the total notional of the interest rate swap portfolio over time

18
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Hedged Item Current Notional Amount Designation Date Effective Date Termination Date Fixed Interest Rate Floating Rate Estimated Fair Value
              Assets (Liabilities)
Term Loan A $50,000
 June 22, 2016 December 31, 2016 June 30, 2019 1.062% 3-month BBA LIBOR $540
Term Loan A 50,000
 June 22, 2016 December 31, 2016 June 30, 2019 1.062% 3-month BBA LIBOR 525
Term Loan A 50,000
 July 12, 2016 December 31, 2016 June 30, 2019 0.825% 1-month USD LIBOR 654
Term Loan A 50,000
 February 6, 2017 June 30, 2017 June 30, 2020 1.834% 3-month USD LIBOR (68)
Term Loan A 100,000
 February 6, 2017 June 30, 2017 June 30, 2020 1.652% 1-month USD LIBOR 120
Term Loan A 100,000
 March 27, 2017 December 31, 2017 June 30, 2021 1.971% 1-month USD LIBOR (476)
Total interested rate derivatives designated as cash flow hedge $400,000
           $1,295
December 31, 2022December 31, 2022
Hedged ItemNotional AmountDesignation DateEffective DateTermination DateFixed Interest RateEstimated Fair Value
Asset (Liability)
1-month USD LIBOR Loan150,000 December 13, 2017July 1, 2019June 30, 20242.423 %5,012 
1-month USD LIBOR Loan200,000 December 13, 2017January 1, 2018December 31, 20242.313 %8,380 
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.220 %1,831 
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.199 %1,905 
1-month USD LIBOR Loan75,000 October 10, 2018July 1, 2020June 30, 20253.209 %1,970 
1-month USD LIBOR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.885 %4,252 
1-month USD LIBOR Loan100,000 December 18, 2018December 30, 2022December 31, 20272.867 %4,153 
1-month USD LIBOR Loan575,000 December 15, 2020July 31, 2025December 31, 20271.415 %23,742 
1-month USD LIBOR Loan125,000 December 15, 2020July 1, 2025December 31, 20271.404 %5,467 
$1,475,000 $56,712 
The Company has designated these derivative instruments as cash flow hedges. The Company recordsassesses the effective portioneffectiveness of these derivative instruments and has recorded the changechanges in the fair value of athe derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive income (“AOCI”), net of tax, until the hedged item affected earnings, at which point the effective portion of any gain or loss iswas 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.
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 recordsassesses the effective portioneffectiveness of any changethe contracts that are designated as hedging instruments. The changes in the fair value of foreign currency cash flow hedges are recorded in AOCI, net of tax, untiltax. Those amounts are subsequently reclassified to earnings from AOCI as impacted by the hedged item affects earnings. Oncewhen the related hedged item affects earnings, the Company reclassifies the effective portion of any related unrealized gain or loss on the foreign currency cash flow hedge to 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 program depends, in part, on forecasts of certain activity denominated in Euros. The Company may experience unanticipatedanticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activityactivities during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect its earnings and cash flows.
Cross-Currency Rate Swaps
On September 26, 2022, the Company amended the CHF-denominated intercompany loan to extend the termination date to September 2023 and as a result, the Company early terminated the cross-currency swap designated as cash flow hedge of an intercompany loan with aggregate notional amount of 50.0 million. Simultaneously, the Company entered into a cross-currency swap agreement to convert a notional amount of CHF 48.5 million equivalent to 49.1 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.
19
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
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 and receive interest in U.S. dollars. Upon the maturity of these contracts, the Company will pay the principal amount of the loans in Swiss Francs and receive U.S. dollars from the counterparties.
The Company held the following cross-currency rate swaps as of June 30, 2023 and December 31, 2022 (dollar amounts in thousands):
June 30, 2023December 31, 2022June 30, 2023December 31, 2022
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay CHFDecember 21, 2020December 22, 20253.00%CHF377,591 374,137 (16,217)(4,241)
Receive U.S.$3.98%$418,066 420,001 
Pay CHFSeptember 28, 2022September 29, 20231.95%CHF48,532 48,532 (5,131)(3,528)
Receive U.S.$5.32%$49,142 49,142 
Total$(21,348)$(7,769)
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, 2023 the Company recorded losses of $8.5 million and $12.0 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, 2022, the Company recorded gains of $19.3 million and $25.8 million, respectively, in other income, net related to change in fair value related to the foreign currency rate translation to offset the gain or losses recognized on the intercompany loans.
For the three and six months ended June 30, 2023, the Company recorded losses of $12.9 million and $10.7 million in AOCI, respectively, related to change in fair value of the cross-currency swaps. For the three and six months ended June 30, 2022, the Company recorded a loss of $21.1 million and a gain of $21.5 million in AOCI, respectively, related to change in fair value of the cross-currency swaps.
For the three and six months ended June 30, 2023, the Company recorded gains 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. For the three and six months ended June 30, 2022, the Company recorded gains of $2.0 million and $3.8 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, 2023 within the next twelve months is $2.0 million. As of June 30, 2023, 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 October 1, 2018 and December 16, 2020, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries.
20
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company held the following cross-currency rate swaps designated as net investment hedges as of June 30, 2023 and December 31, 2022, respectively (dollar amounts in thousands):
June 30, 2023December 31, 2022June 30, 2023December 31, 2022
Effective DateTermination DateFixed RateAggregate Notional AmountFair Value
Asset (Liability)
Pay EUROctober 3, 2018September 30, 2023—%EUR51,760 51,760 3,612 4,713 
Receive U.S.$2.57%$60,000 60,000 
Pay EUROctober 3, 2018September 30, 2025—%EUR38,820 38,820 3,272 4,307 
Receive U.S.$2.19%$45,000 45,000 
Pay CHFMay 26, 2022December 16, 2028—%CHF288,210 288,210 (26,854)(14,663)
Receive U.S.$1.94%$300,000 300,000 
Total$(19,970)$(5,643)
The cross-currency 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 AOCI. For the three and six months ended June 30, 2023, the Company recorded losses of $11.1 million and $10.1 million, respectively, in AOCI related to the change in fair value of the cross-currency swaps. For the three and six months ended June 30, 2022, the Company recorded gains of $10.8 million and $12.1 million in AOCI, respectively, related to change in fair value of the cross-currency swaps.
For the three and six months ended June 30, 2023, the Company recorded gains of $2.1 million and $4.2 million, respectively, in interest income 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, 2022, the Company recorded gains of $1.0 million and $2.3 million, respectively, in interest income included in the consolidated statements of operations related to the interest rate differential of the cross-currency swaps.
The estimated gain that is expected to be reclassified to interest income from AOCI as of June 30, 2023 within the next twelve months is $10.6 million.
Foreign Currency Forward Contract
The Company has entered into a hedge for forecasted intercompany purchases denominated in foreign currencies through the use of forward contracts designated as cash flow hedges. To the extent these forward contracts meet hedge accounting criteria, changes in their fair value are not included in accumulated comprehensive loss. These changes in fair value will be recognized into earnings as a component of cost of sales when the forecasted-transaction occurs.
During the first half of 2023, the Company entered into Foreign Currency Forward Contracts to mitigate the risk of foreign currency on intercompany purchases in CHF. These contracts typically settle at various dates within twelve months of execution. As of June 30, 2023 the notional amount of Foreign Currency Forward Contracts was $12.6 million. During the three and six months ended June 30, 2023 the Company recorded gains of $0.3 million and $0.2 million, respectively in AOCI related to the change in fair value of the Foreign Currency Forward Contracts.
For the three and six months ended June 30, 2023 the company recorded a gain of $0.4 million in cost of goods sold included in the consolidated statements of operations related to the Foreign Currency Forward Contracts.
Counterparty Credit Risk
The Company manages its concentration of counterparty credit risk on its derivative instruments by limiting acceptable counterparties to a group of major financial institutions with investment grade credit ratings, and by actively monitoring their credit ratings and outstanding positions on an ongoing basis. Therefore, the Company considers the credit risk of the counterparties to be low. Furthermore, none of the Company’s derivative transactions isare subject to collateral or other security arrangements, and none contain provisions that depend upon the Company’s credit ratings from any credit rating agency.
21
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Fair Value of Derivative Instruments
The Company has classified all of its derivative instruments within Level 2 of the fair value hierarchy because observable inputs are available for substantially the full term of the derivative instruments. The fair value of the foreign currency forward exchange contracts related to inventory purchases is determined by comparing the forward rate as of the period end and the settlement rate specified in each contract. The fair valuevalues of the interest rate swaps wasand cross-currency swaps were developed using a market approach based on publicly available market yield curves and the terms of the related swap. The Company performs ongoing assessments of counterparty credit risk.
The following table summarizes the fair value and presentation for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
Fair Value as of
Location on Balance Sheet (1):
June 30, 2023December 31, 2022
Dollars in thousands
Derivatives designated as hedges — Assets:
Prepaid expenses and other current assets
Cash Flow Hedges
Interest rate swap(2)
$20,200 $16,682 
Cross-currency swap3,148 4,497 
Net Investment Hedges
Cross-currency swap10,552 11,653 
Other assets
Cash Flow Hedges
Interest rate swap(2)
38,638 40,030 
Cross-currency swap— — 
Net Investment Hedges
Cross-currency swap2,278 3,311 
Total derivatives designated as hedges — Assets$74,816 $76,173 
Derivatives designated as hedges — Liabilities:
Accrued expenses and other current liabilities
Cash Flow Hedges
Interest rate swap(2)
$675 $— 
Cross-currency swap5,131 3,528 
Foreign currency forward contracts123 
Net Investment Hedges
Cross-currency swap— — 
Other liabilities
Cash Flow Hedges
Interest rate swap(2)
1,262 — 
Cross-currency swap19,365 8,738 
Net Investment Hedges
Cross-currency swap32,799 20,608 
Total derivatives designated as hedges — Liabilities$59,355 $32,874 
(1) The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months.
(2) At June 30, 2023 and December 31, 2022, the total notional amounts related to the Company’s interest rate swaps were both $1.5 billion, respectively.
22
  Fair Value as of
Location on Balance Sheet (1):
 September 30, 2017 December 31, 2016
  (In thousands)
Derivatives designated as hedges — Assets:    
Interest rate swap — Prepaid expenses and other current assets (2)
 $825
 $242
Interest rate swap — Other assets (2)
 $1,654
 1,629
  $2,479
 $1,871
Derivatives designated as hedges — Liabilities:    
Interest rate swap — Accrued expenses and other current liabilities (2)
 $1,184
 $—
(1)
The Company classifies derivative assets and liabilities as non-current based on the cash flows expected to be incurred within the following 12 months.
(2)
At September 30, 2017 and December 31, 2016, the notional amounts related to the Company’s interest rate swaps were $400.0 million and $150.0 million, respectively. There is no expected reduction in this notional amount in the next twelve months.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following presents the effect of derivative instruments designated as cash flow hedges and net investment hedges on the accompanying condensed consolidated statement of operations during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Dollars in thousandsBalance in AOCI
Beginning of
Quarter		Amount of
Gain (Loss)
Recognized in
AOCI		Amount of Gain (Loss)
Reclassified from
AOCI into
Earnings		Balance in AOCI
End of Quarter		Location in
Statements of
Operations
Three Months Ended June 30, 2023
Cash Flow Hedges
Interest rate swap$42,678 $18,694 $4,471 $56,901 Interest expense
Cross-currency swap(14,576)(12,873)(8,524)(18,925)Other income, net
Foreign Currency Forward Contract(69)304 358 (123)Cost of Sales
Net Investment Hedges
Cross-currency swap(8,060)(11,067)2,112 (21,239)Interest income
$19,973 $(4,942)$(1,583)$16,614 
Three Months Ended June 30, 2022
Cash Flow Hedges
Interest rate swap$2,932 $20,116 $(3,891)$26,939 Interest expense
Cross-currency swap(17,703)21,136 21,268 (17,835)Other income, net
Net Investment Hedges
Cross-currency swap(2,332)10,816 978 7,506 Interest income
$(17,103)$52,068 $18,355 $16,610 
Dollars in thousandsBalance in AOCI
Beginning of
Year		Amount of
Gain (Loss)
Recognized in
AOCI		Amount of Gain (Loss)
Reclassified from
AOCI into
Earnings		Balance in AOCI
End of Quarter		Location in
Statements of
Operations
Six Months Ended June 30, 2023
Cash Flow Hedges
Interest rate swap$56,712 $8,160 $7,971 $56,901 Interest expense
Cross-currency swap(20,271)(10,682)(12,028)(18,925)Other income (expense),net
Foreign Currency Forward Contract— 235 358 (123)
Net Investment Hedges
Cross-currency swap(6,914)(10,117)4,208 (21,239)Interest income
$29,527 $(12,404)$509 $16,614 
Six Months Ended June 30, 2022
Cash Flow Hedges
Interest rate swap$(43,956)$61,790 $(9,105)$26,939 Interest expense
Cross-currency swap(9,688)21,452 29,599 (17,835)Other income (expense), net
Net Investment Hedges
Cross-currency swap(2,321)12,125 2,298 7,506 Interest income
$(55,965)$95,367 $22,792 $16,610 
Derivative Instruments not designated hedges:
 
Balance in AOCI
Beginning of
Quarter
 
Amount of
Gain
Recognized in
AOCI-
Effective Portion
 
Amount of Loss
Reclassified from
AOCI into
Earnings-Effective
Portion
 
Balance in AOCI
End of Quarter
 
Location in
Statements of
Operations
 (In thousands)
Three Months Ended September 30, 2017         
Interest rate swap$935
 $297
 $(63) $1,295
 Interest (expense)
 $935
 $297
 $(63) $1,295
  
Three Months Ended September 30, 2016         
Interest rate swap$(602) $618
 $—
 $16
 Interest (expense)
 $(602) $618
 $—
 $16
  
          
 
Balance in AOCI
Beginning of
Year
 
Amount of
(Loss) Gain
Recognized in
AOCI-
Effective Portion
 
Amount of Loss
Reclassified from
AOCI into
Earnings-Effective
Portion
 
Balance in AOCI
End of Quarter
 
Location in
Statements of
Operations
 (In thousands)
Nine Months Ended September 30, 2017         
Interest rate swap$1,871
 $(618) $(42) $1,295
 Interest (expense)
 $1,871
 $(618) $(42) $1,295
  
          
Nine Months Ended September 30, 2016         
Interest rate swap$—
 $16
 —
 $16
 Interest (expense)
 $—
 $16
 $—
 $16
  

During the second quarter of 2021, the Company entered into a foreign currency swap, with a notional amount of $7.3 million to mitigate the risk from fluctuations in foreign currency exchange rates associated with an intercompany loan denominated in JPY. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another currency at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company recognized nosubsequently paid down a portion of this swap, bringing the notional amount down to $6.4 million.
23
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The following table summarizes the gains or losses resulting from ineffectiveness(losses) of cash flowderivative instruments not designated as hedges duringon the three and nine months ended September 30, 2017 and 2016. The Company expects a minimal amountcondensed consolidated statements of pre-tax income, recordedwhich was included in AOCI related to interest rate hedges to be reclassified to earnings in the next twelve months.other income:

Dollars in thousandsThree Months Ended June 30,Six Months Ended June 30,
2023202220232022
Foreign currency swaps588 460 643 820 
Total$588 $460 $643 $820 

7.8. STOCK-BASED COMPENSATION
As of SeptemberJune 30, 2017,2023, the Company had stock options, restricted stock awards, performance stock units,awards, contract stock awards and restricted stock unit awards outstanding under two plans, the 2001 Equity Incentive Plan (the “2001 Plan”)Integra LifeSciences Holdings Corporation Fifth Amended and theRestated 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, the “Plans”Plan”).
Stock options issued under the Plans2003 Plan become exercisable over specified periods, generally within three to four years from the date of grant for officers and employees, and within aone year from date of grant for directors andwhich generally expire eight years from the grant date for employees, and from eightsix to ten years for directors and certain executive officers.officers, except in certain instances that result in accelerated vesting due to death, disability, retirement age or change in-control provisions within their grant agreements. The Company values stock option grants using the binomial distribution model. Restricted stock issued under the Plans vests over specified periods, generally three years after the date of grant. The vesting of performance stock issued under the Plans is subject to service and performance conditions.

Stock Options

As of SeptemberJune 30, 2017,2023, there were approximately $4.6$5.0 million of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately three years. There were 186,853151,293 stock options granted during the ninesix months ended SeptemberJune 30, 2017.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


2023. For the six months ended June 30, 2023, the weighted average grant date fair value for stock options granted was $21.58 per option.
Awards of Restricted Stock and Performance Stock

Performance stock and restricted stock awards generally have requisite service periods of three years. years, except in certain instances that result in accelerated vesting due to death, disability, retirement age provision or change in-control provisions in their grant agreements. Performance stock units are subject to graded vesting conditions andbased on revenue goals of the Company expenses their fair value over the requisite service period.Company. The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period. As of SeptemberJune 30, 2017,2023, there werewas approximately $23.0$43.3 million of total unrecognized compensation costs related to these unvested awards. The Company expects to recognize these costs over a weighted-average period of approximately two years. The Company granted 347,590397,664 restricted stock awards and 133,333161,218 performance sharesstock awards during the ninesix months ended SeptemberJune 30, 2017.
The Company has no formal policy related to2023. For the repurchase of sharessix months ended June 30, 2023, the weighted average grant date fair value for the purpose of satisfying stock-based compensation obligations.restricted stock awards and performance stock units granted was $52.92 and $52.87 per award, respectively.
The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which provides eligible employees with the opportunity to acquire shares of common stock at periodic intervals by means of accumulated payroll deductions. The ESPP is a non-compensatory plan based on its terms.

9. RETIREMENT PLANS
8.The Company maintains defined benefit pension plans that cover certain employees in France, Japan, Germany and Switzerland.
Net periodic benefit costs for the Company’s defined benefit pension plans for the three and six months ended June 30, 2023 were $0.3 million and $0.6 million. The components of the net periodic benefit costs other than the service cost component of $0.5 million and $1.1 million for the three and six months ended June 30, 2023 are included in other income, net in the consolidated statements of operations.
Net periodic benefit costs for the Company’s defined benefit pension plans for the three and six months ended June 30, 2022 were $0.3 million and $0.5 million. The components of the net periodic benefit costs other than the service cost component of $0.6 million and $1.3 million for the three and six months ended June 30, 2022 are included in other income, net in the consolidated statements of operations.
24
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The estimated fair values of plan assets were $38.0 million and $38.1 million as of June 30, 2023 and December 31, 2022, respectively. The net plan assets of the pension plans are invested in common trusts as of June 30, 2023 and December 31, 2022. Common trusts are classified as Level 2 in the fair value hierarchy. The fair value of common trusts is valued at the net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts. The investment strategy of the Company's defined benefit plans is both to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within an appropriate risk profile.
Deferred Compensation Plan
The Company maintains a Deferred Compensation Plan in which certain employees of the Company may defer the payment and taxation of up to 75% of their base salary and up to 100% of bonus amounts and other eligible cash compensation.
This deferred compensation is invested in funds offered under this plan and is valued based on Level 1 measurements in the fair value hierarchy. Assets of the Company's deferred compensation plan are included in other current assets and recorded at fair value based on their quoted market prices. The fair value of these assets were $5.4 million and $4.7 million as of June 30, 2023 and December 31, 2022, respectively. Offsetting liabilities relating to the deferred compensation plan are included in Other liabilities.
10. LEASES AND RELATED PARTY LEASES
The Company leases administrative, manufacturing, research and distribution facilities and vehicles through operating lease agreements. The Company has no finance leases as of June 30, 2023. Many of the Company's leases include both lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area or other maintenance costs). For vehicles, the Company has elected the practical expedient to group lease and non-lease components.
Most facility leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion, therefore, the majority of renewals to extend the lease terms are not included in the Right of Use ("ROU") assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates renewal options and when they are reasonably certain of exercise, the renewal period is included in the lease term.
As most of the Company's leases do not provide an implicit rate, the Company uses a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.
Total operating lease expense for the six months ended June 30, 2023 and June 30, 2022 was $11.8 million and $10.2 million respectively, which includes $0.1 million, in related party operating lease expense.
Supplemental balance sheet information related to operating leases were as follows:
Dollars in thousands, except lease term and discount rateJune 30, 2023December 31, 2022
ROU assets$148,651 $148,284 
Current lease liabilities14,618 14,624 
Non-current lease liabilities159,538 157,420 
Total lease liabilities$174,156 $172,044 
Weighted average remaining lease term (in years):
Leased facilities16.9 years16.9 years
Leased vehicles2.0 years2.0 years
Weighted average discount rate:
Leased facilities5.4 %5.4 %
Leased vehicles2.7 %2.7 %
25
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
Supplemental cash flow information related to leases for the six months ended June 30, 2023 and 2022 were as follows:
Dollars in thousandsJune 30, 2023June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$9,505 $8,798 
ROU assets obtained in exchange for lease liabilities:
Operating leases$7,582 $64,489 
Future minimum lease payments under operating leases at June 30, 2023 were as follows:
Dollars in thousandsRelated PartiesThird PartiesTotal
Remainder of 2023$148 $10,697 $10,845 
2024296 21,099 21,395 
2025296 19,859 20,155 
2026296 17,128 17,424 
2027296 16,849 17,145 
2028296 14,636 14,932 
Thereafter246 160,238 160,484 
Total minimum lease payments$1,874 $260,506 $262,380 
Less: Imputed interest88,224 
Total lease liabilities174,156 
Less: Current lease liabilities14,618 
Long-term lease liabilities159,538 
There were no future minimum lease payments under finance leases at June 30, 2023.
Related Party Leases
The Company leases its manufacturing facility in Plainsboro, New Jersey, from a general partnership that is 50% owned by a principal stockholder of the Company. The term of the current lease agreement is through October 31, 2029 at an annual rate of approximately $0.3 million per year. The current lease agreement also provides (i) a 5-year renewal option for the Company to extend the lease from November 1, 2029 through October 31, 2034 at the fair market rental rate of the premises, and (ii) another 5-year renewal option to extend the lease from November 1, 2034 through October 31, 2039 at the fair market rental rate of the premises.
11. TREASURY STOCK

On October 25, 2016, the Board of Directors terminated its October 2014 authorization for the repurchase of its outstanding common stock and authorized management to repurchase up to $150.0 million of its outstanding common stock through December 2018. Shares may be repurchased either in the open market or in privately negotiated transactions. As of SeptemberJune 30, 2017, there remained $150.0 million available for repurchase under this authorization.

As part of the conversion of the 2016 Convertible Notes, the Company received 2.9 million shares of common stock from the exercise of call options with hedge participants. The shares of common stock received from the exercise of the call options are held as treasury stock,2023 and December 31, 2022, there were 2.99.5 million and 6.8 million shares of treasury stock outstanding as of September 30, 2017 and December 31, 2016, with a cost of $121.8$513.8 million and $123.1$362.9 million, respectively, at a weighted average of $41.77 and $41.78cost per share of $53.93 and $53.18, respectively.

26
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
There were no cash treasuryNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
On January 26, 2023, the Company entered into a $150 million accelerated share repurchase ("2023 ASR") and received 2.1 million shares of the Company common stock repurchasesat inception of the 2023 ASR, which represented approximately 80% of the expected total shares under the 2023 ASR. The settlement of the ASR agreement was completed in two separate transactions on April 26, 2023 and May 4, 2023, where the Company received an additional 0.30 million and 0.31 million shares respectively, determined using the volume-weighted average price of the Company's common stock during the nine months ended September 30, 2017term of the 2023 ASR.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “Act”) was signed into law. The Act implements a new excise tax of 1% on the net share repurchases made by the Company effective for share repurchases performed January 1, 2023, or 2016.after. The Company accrued $1.2 million regarding the excise tax the first half of 2023 related to the ASR mentioned above.

On April 26, 2022, the Board of Directors authorized the Company to repurchase up to $225 million of the Company’s common stock. On July 18, 2023, the Board of Directors authorized a new $225 million share repurchase program, replacing the existing $225 million program authorized in April 2022, and of which $75 million remained authorized at the time of its replacement. The program authorized in July 2023 allows the Company to repurchase its shares opportunistically from time to time. The Company may utilize various methods to effect any repurchases, including open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, including accelerated share repurchases, or a combination of the foregoing, some of which may be effected through Rule 10b5-1 plans. The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price, and such repurchases may be discontinued at any time.
On January 12, 2022, the Company entered into a $125 million accelerated share repurchase ("2022 ASR") and received 1.48 million shares of Company common stock at inception of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR. On March 24, 2022, the early exercise provision under the 2022 ASR was exercised by 2022 ASR counterparty. Upon settlement on March 24, 2022, the Company received an additional 0.46 million shares determined using the volume-weighted average price of the Company's common stock during the term of the 2022 ASR.
9.
12. INCOME TAXES
The following table provides a summary of the Company's effective tax rate:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Reported tax rate(9.4)%13.2 %15.5 %14.5 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Reported tax rate2.3% 19.4% (27.6)% 15.7%

The Company’s effective income tax rates for the three months ended SeptemberJune 30, 20172023 and 2016 were 2.3%2022 were (9.4)% and 19.4%13.2%, respectively. For the three months ended SeptemberJune 30, 2017,2023, the primary drivers of the lower tax rate are lowerrelate to a reduction to book income before income taxes compared toand a $1.1 million benefit associated with the same period in 2016, the jurisdictional mix of income before tax in U.S.-based operations relative to foreign operations, offset by a decrease of $0.4 million in excess tax benefits from stock-based compensation compared to the same period in 2016. Federal R&D credit.
The change in jurisdictional mix of income primarily results from significant acquisition and integration costs incurred in the U.S. in 2017. The tax rate for the three months ended September 30, 2016 included a benefit of $0.2 million related to the release of uncertain tax positions.

The Company'sCompany’s effective income tax rates for the ninesix months ended SeptemberJune 30, 2017 2023 and 20162022 were (27.6)%15.5% and 15.7%14.5%, respectively. For the ninesix months ended SeptemberJune 30, 2017,2023, the primary drivers of the lower tax rate arerelate to a reduction to book income and a $1.1 million benefit associated with the Federal R&D credit. The lower income before income taxes comparedrate from the six months ended June 30, 2022 was primarily due to the same period in 2016, the jurisdictional mix of income before tax in U.S.-based operations relativea $5.7 million benefit related to foreign operations, and an increase of $3.7 million in excess tax benefits from stock-based compensationstock compensation.
Changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate. Various governments, both U.S. and non-U.S., are increasingly focused on tax reform and revenue-raising legislation. Further, legislation in foreign jurisdictions may be enacted, in response to the base erosion and profit-sharing project begun by the Organization for Economic Cooperation and Development ("OECD"). The OECD recently finalized major reform of the nine months ended Septemberinternational tax system with respect to a global minimum tax rate. Such changes in U.S. and non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate.
As of June 30, 2017.2023, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested unless there is a manner under which to remit the earnings with no material tax cost. Material taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. The change in jurisdictional mix of income results primarily from significant acquisitionCompany will repatriate foreign earnings when there is no need for reinvestment overseas and integration costs incurred inthere is no material cost to bring the U.S. in 2017.earnings back to the United States. Reinvestment considerations would include future acquisitions, transactions, and capital expenditure plans.

27



INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10.13. NET INCOME PER SHARE
Basic and diluted net income per share was as follows:
 Three Months Ended June 30,Six Months Ended June 30,
 Dollars in thousands, except per share amounts2023202220232022
Basic net income per share:
Net income$4,184 $44,788 $28,410 $77,689 
Weighted average common shares outstanding80,966 83,168 81,418 83,400 
Basic net income per common share$0.05 $0.54 $0.35 $0.93 
Diluted net income per share:
Net income$4,184 $44,788 $28,410 $77,689 
Weighted average common shares outstanding — Basic80,966 83,168 81,418 83,400 
Effect of dilutive securities:
Stock options and restricted stock185 454 321 579 
Weighted average common shares for diluted earnings per share81,151 83,622 81,739 83,979 
Diluted net income per common share$0.05 $0.54 $0.35 $0.93 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands, except per share amounts)
Basic net income per share:       
Net income$3,159
 $20,144
 $20,388
 $46,316
Weighted average common shares outstanding78,186
 74,534
 76,387
 74,286
Basic net income per common share$0.04
 $0.27
 $0.27
 $0.62
        
Diluted net income per share:       
Net income$3,159
 $20,144
 $20,388
 $46,316
        
Weighted average common shares outstanding — Basic78,186
 74,534
 76,387
 74,286
Effect of dilutive securities:       
2016 Convertible notes—
 3,176
 —
 2,256
Warrants158
 2,012
 1,295
 974
Stock options and restricted stock1,111
 1,310
 1,291
 1,288
Weighted average common shares for diluted earnings per share79,455
 81,032
 78,973
 78,804
        
Diluted net income per common share$0.04
 $0.25
 $0.26
 $0.59

Shares of commonCommon stock of approximately 0.30.6 million and 0.2 million shares at June 30, 2023, and 0.4 million at September 30, 2017 and 2016, respectively,2022, respectively that are issuable through the exercise of dilutive securities were not included in the computation of diluted net income per share because their effect would have been antidilutive.anti-dilutive.

14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income for the six months ended June 30, 2023 and 2022 was as follows:
 Three Months Ended June 30,Six Months Ended June 30,
Dollars in thousands2023202220232022
Net income$4,184 $44,788 $28,410 $77,689 
Foreign currency translation adjustment133 (18,067)4,209 (23,749)
Change in unrealized loss/(gain) on derivatives, net of tax(2,601)25,922 (9,978)55,744 
Pension liability adjustment, net of tax231 (45)334 (54)
Comprehensive income, net$1,947 $52,598 $22,975 $109,630 
Changes in accumulated other comprehensive income by component between December 31, 2022 and June 30, 2023 are presented in the table below, net of tax:
Dollars in thousandsGains and Losses on DerivativesDefined Benefit Pension ItemsForeign Currency ItemsTotal
Balance at January 1, 2023$22,817 $9,322 $(21,874)$10,265 
Other comprehensive gain (loss)(9,565)334 4,209 (5,022)
Less: Amounts reclassified from accumulated other comprehensive income, net413 — — 413 
Net current-period other comprehensive gain (loss)(9,978)334 4,209 (5,435)
Balance at June 30, 2023$12,839 $9,656 $(17,665)$4,830 
For the three and ninesix months ended SeptemberJune 30, 20172023, the Company reclassified a gain of $9.4 million and 2016 the potential excess conversion value on warrants was included in the Company's dilutive share calculation because the average stock price for the threea loss of $9.0 million from accumulated other comprehensive income to other income, net and nine months ended September 30, 2017 and 2016 exceeded the conversion price.interest income, respectively.

28
For the three and nine months ended September 30, 2016 the potential excess conversion value on the 2016 Notes were included in the Company's dilutive share calculation because the average stock price for the three and nine months ended September 30, 2016 exceeded the conversion price.

Restricted and performance units that entitle the holders to approximately 0.5 million shares of common stock are included in the basic and diluted weighted average shares outstanding calculation because no further consideration is due related to the issuance of the underlying common shares.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

11. COMPREHENSIVE INCOME
Comprehensive income was as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
Net income$3,159
 $20,144
 $20,388
 $46,316
Foreign currency translation adjustment10,175
 2,914
 33,724
 7,589
Change in unrealized gain (loss) on derivatives, net of tax207
 354
 (331) 9
Pension liability adjustment, net of tax(7) (2) (22) (6)
Comprehensive income, net$13,534
 $23,410
 $53,759
 $53,908

Changes in Accumulated Other Comprehensive Income by component between December 31, 2016 and September 30, 2017 are presented in the table below, net of tax:
  Cash Flow Hedges Defined Benefit Pension Items Foreign Currency Items Short-term Investment Total
  (In thousands)
Beginning balance $1,071
 $(36) $(58,189) —
 $(57,154)
Other comprehensive (loss) income (290) (22) 33,724
 (3,019) 30,393
Amounts reclassified from accumulated other comprehensive income (41) —
 —
 3,019
 2,978
Net current-period other comprehensive (loss) income (331) (22) 33,724
 —
 33,371
Ending balance $740
 $(58) $(24,465) $—
 $(23,783)

For the nine months ended September 30, 2017, the Company reclassified a minimal amount and $3 million from AOCI to interest expense and other expenses, respectively.

12.15. SEGMENT AND GEOGRAPHIC INFORMATION

The Company internally manages two global reportable segments and reports the results of its businesses to its chief operating decision maker. The two reportable segments and their activities are described below.

•The Codman Specialty Surgical Solutions segment includes (i) the Neurosurgery business, which sells a full line of products for neurosurgery and neuro critical care such as tissue ablation equipment, dural repair products, cerebral spinal fluid management devices, intracranial monitoring equipment, and cranial stabilization equipment and (ii) the precision tools and instrumentsInstruments business, which sells more than 60,00040,000 instrument patterns and surgical and lighting products to hospitals, surgery centers, and dental, podiatry, and veterinary offices.
•The Orthopedics and Tissue TechnologiesTT segment includes such offerings as skin and wound repair, advanced wound care, amniotic tissue, bone and joint fixation implants in the upper and lower extremities,plastics & surgical reconstruction products, bone grafts, and nerve and tendon repair.

repair products.
The Corporate and other category includes (i) various legal,executive, finance, human resource, information systems executive, and human resourcelegal functions, (ii) brand management, and (iii) share-based compensation costs.

The operating results of the various reportable segments as presented are not comparable to one another because (i) certain operating segments are more dependent than others on corporate functions for unallocated general and administrative and/or operational manufacturing functions, and (ii) the Company does not allocate certain manufacturing costs and general and administrative costs to the operating segment results. Net sales and profit by each reportable segment for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 are as follows:
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Three Months Ended June 30,Six Months Ended June 30,
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Dollars in thousandsDollars in thousands2023202220232022
Segment Net Sales       Segment Net Sales
Specialty Surgical Solutions$164,760
 $159,409
 $480,907
 $468,767
Orthopedics and Tissue Technologies114,074
 90,923
 338,727
 267,644
Codman Specialty SurgicalCodman Specialty Surgical$271,030 $257,863 $519,166 $505,171 
Tissue Technologies
Tissue Technologies
110,237 139,952 242,947 269,282 
Total revenues$278,834
 $250,332
 $819,634
 $736,411
Total revenues$381,267 $397,815 $762,113 $774,453 
Segment Profit       Segment Profit
Specialty Surgical Solutions$68,289
 $67,148
 $198,242
 $188,126
Orthopedics and Tissue Technologies30,411
 27,727
 88,500
 74,027
Codman Specialty SurgicalCodman Specialty Surgical$116,341 $92,196 $227,274 $202,356 
Tissue Technologies
Tissue Technologies
8,062 61,626 60,343115,519 
Segment profit98,700
 94,875
 286,742
 262,153
Segment profit124,403 153,822 287,617 317,875 
Amortization(5,456) (3,467)
 (14,976)
 (10,410)
Amortization(3,026)(3,304)(6,134)(7,198)
Corporate and other(82,602) (61,313) (234,180)
 (177,173)Corporate and other(108,873)(90,651)(232,597)(204,646)
Operating income$10,642
 $30,095
 $37,586
 $74,570
Operating income$12,504 $59,867 $48,886 $106,031 
The Company does not allocate any assets to the reportable segments. No asset information is reported to the chief operating decision maker and disclosed in the financial information for each segment.

The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
 Three Months Ended June 30,Six Months Ended June 30,
Dollars in thousands2023202220232022
United States$276,782 $287,347 $547,784 $550,698 
Europe37,452 46,862 78,516 90,606 
Asia Pacific47,706 43,365 98,179 91,082 
Rest of World19,327 20,241 37,634 42,067 
Total Revenues$381,267 $397,815 $762,113 $774,453 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
United States$213,685
 $194,346
 $634,047
 $567,103
Europe32,609
 28,553
 93,924
 89,623
Rest of World32,540
 27,433
 91,663
 79,685
Total Revenues$278,834
 $250,332
 $819,634
 $736,411

13.16. COMMITMENTS AND CONTINGENCIES
In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company has agreed to pay royalties on sales of certain products that it sells. The royalty payments that the Company made under these agreements were not significant for any of the periods presented.
29
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Company is subject to various claims, lawsuits and proceedings in the ordinary course of the Company's business, including claims by current or former employees, distributors and competitors and with respect to its products and product liability claims, lawsuits and proceedings, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material, adverse effect on ourthe Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.
TEI, acquired by Integra on July 17, 2015, manufactures a bovine-derived surgical mesh product for Boston Scientific Corporation ("BSC") and has been named as a defendant in lawsuits under a broad range of products liability theories, many of which have not been served on TEI. As of September 30, 2017, only ten active cases remained against TEI. Pursuant to an indemnification agreement with BSC (i) BSC is managing the litigation; and (ii) TEI has in place a product liability insurance policy, of which it must exhaust $3.0 million before BSC’s indemnity begins to cover relevant claims (and of which only a small portion has been utilized to date and against which the insurer has reserved the entire $3.0 million). Because the thrust of products liability litigation focuses on synthetic surgical mesh products, counsel is filing motions to dismiss on behalf of TEI in many cases. In addition, Integra has certain protections in the merger agreements with TEI which would indemnify it for approximately $30.0 million for the first fifteen months after closing and between $20.0 and $30.0 million for the remainder of the three-year period after closing for losses relating to a variety of matters, including half of certain products liability claims (including those related to the product it manufactures for BSC) not covered by insurance. As of October 26, 2017, no indemnification payments were received nor owed in relation to the lawsuits.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees associatedexpected to be incurred in connection with loss contingencies as those fees are incurred withby outside counsel as a selling, general and administrative expense in the consolidated statements of operations.period cost.
Contingent Consideration
The Company determined the fair value of contingent consideration during the nine-monthsix month period ended SeptemberJune 30, 20172023 and 2016June 30, 2022 to reflect the change in estimate, additions, payments, transfers and the time value of money during the period.
A reconciliation of the opening balances to the closing balances of these Level 3 measurements for the ninesix months ended SeptemberJune 30, 20172023 and 2016June 30, 2022 is as follows (in thousands):
Six Months Ended June 30, 2023Contingent Consideration Liability Related to Acquisition of:
ArkisLocation in Financial StatementsDerma SciencesACellSurgical Innovations Associates, Inc. (FN 2)Location in Financial Statements
Short-termLong-termLong-termLong-termShort-termLong-term
Balance as of January 1, 2023$2,845 $10,050 $230 $3,700 $— $57,607 
Transfers— — — — 12,500 (12,500)
Change in fair value of contingent consideration liabilities1,544 1,537 Research and development— (2,200)200 5,000 Selling, general and administrative
Balance as of June 30, 20234,389 11,587 230 1,500 12,700 50,107 
Nine Months Ended September 30, 2017 
Contingent Considerations Liabilities Related to Acquisition of Derma Sciences (See Note 2)
 Contingent Consideration Liability Related to Acquisition of Confluent Surgical, Inc. Location in Financial Statements
  Short-term Long-term Short-term Long-term  
Balance as of January 1, 2017 $—
 $—
 $—
 $22,036
 
Additions from acquisition of Derma Sciences 33,707
 3,467
 —
 —
  
Transfers from long-term to current portion 2,193
 (2,193) 21,312
 (21,312)  
Payments (31,346) 
 —
 —
  
(Gain) loss from change in fair value of contingent consideration liabilities (2,421) 82
 —
 148
 Selling, general and administrative
Balance as of September 30, 2017 $2,133
 $1,356
 $21,312
 $872
 
Six Months Ended June 30, 2022Contingent Consideration Liability Related to Acquisition of:
ArkisLocation in Financial StatementsDerma SciencesACell Inc.Location in Financial Statements
Short-termLong-termLong-termShort-termLong-term
Balance as of January 1, 2022$3,691 $11,408 $230 $— $21,800 
Transfers— — — 4,885 (4,885)
Change in fair value of contingent consideration liabilities(155)(1,978)Research and development— (4,885)1,219 Selling, general and administrative
Balance as of June 30, 2022$3,536 $9,430 $230 $— $18,134 
30
Nine Months Ended September 30, 2016 Contingent Consideration Liability Related to Acquisition of Confluent Surgical, Inc. Location in Financial Statements
  Long-term  
Balance as of January 1, 2016 $21,831
  
Loss from change in fair value of contingent consideration liabilities 74
 Selling, general and administrative
Balance as of September 30, 2016 $21,905
  
On January 15, 2014, the Company acquired all outstanding shares of Confluent Surgical, Inc., ("Confluent Surgical"). The purchase price includes contingent consideration. The potential maximum undiscounted contingent consideration of $30.0 million consists of $25.0 million upon obtaining certain U.S. governmental approvals and $5.0 million upon obtaining certain European governmental approvals, both related to the completion of the transition of the Confluent Surgical business. The fair values of contingent consideration related to the acquisition of Confluent Surgical were estimated using a discounted cash flow model using discount rate of 2.2%.

The Company assesses these assumptions on an ongoing basis as additional information affecting the assumptions is obtained. The contingent consideration balance was included in accrued expenses and other current liabilities and other liabilities at September 30, 2017 and in other liabilities at September 30, 2016.

Supply Agreement Liability and Above Market Supply Agreement Liability
On January 15, 2014, the Company entered into a transitional supply agreement with Covidien Group S.a.r.l ("Covidien"). This agreement contains financial incentives to Covidien for the timely supply of products each fiscal quarter through the third anniversary of the agreement. The prices paid under the supply agreement are essentially flat through the third anniversary of the agreement, and then increase significantly in each of the following three years.
The Company determined the fair value of its supply agreement liability and above market supply agreement liability with Covidien during the nine-month period ended September 30, 2017 and 2016 to reflect the payments, change in estimate and the time value of money during the period.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Arkis BioSciences Inc.
A reconciliationAs part of the opening balancesacquisition of Arkis BioSciences Inc. ("Arkis"), the Company is required to pay the closing balancesformer shareholders of these Level 3 measurements is as follows (in thousands):
Nine Months Ended September 30, 2017 Supply Agreement Liability - Short-term Above Market Supply Agreement Liability - Short-term Above Market Supply Agreement Liability - Long-term Location in Financial Statements
Balance as of January 1, 2017 $166
 $—
 $2,648
 
Payments (166) 
 (415)  
Transfer from long-term to current portion —
 3,216
 (3,216)  
Loss from increase in fair value —
 (352) 1,040
 Selling, general and administrative
Balance as of September 30, 2017 $—
 $2,864
 $57
 
Nine Months Ended September 30, 2016 Supply Agreement Liability - Short-term Supply Agreement Liability - Long-term Above Market Supply Agreement Liability - Long-term Location in Financial Statements
Balance as of January 1, 2016 $1,991
 $161
 $931
  
Payments (1,500)   —
  
Transfer from long-term to current portion 161
 (161) —
  
Loss from increase in fair value 13
 —
 1,009
 Selling, general and administrative
Other —
 —
 681
 Goodwill
Balance as of September 30, 2016 $665
 $—
 $2,621
  
The fair valuesArkis up to $25.5 million based on the timing of supply agreement liabilitycertain development milestones of $10.0 million and above market supply agreement liability were estimated using a discounted cash flow model using a discount ratecommercial sales milestones of 12.0%.$15.5 million, respectively. The Company assesses these assumptions on an ongoing basisused a probability weighted income approach to calculate the fair value of the contingent consideration that considered the possible outcomes of scenarios related to each specified milestone. The Company estimated the fair value of the contingent consideration to be $13.1 million at the acquisition date. The estimated fair value as additional information impacting the assumptions is obtained.of June 30, 2023 and June 30, 2022 was $16.0 million and $13.0 million, respectively. The supply agreement liability - short-termCompany recorded $11.6 million and above market supply agreement liability - short-term were included$9.4 million in other liabilities at June 30, 2023 and June 30, 2022, respectively, and $4.4 million and $3.5 million in accrued expenses and other current liabilities at June 30, 2023 and June 30, 2022, respectively, in the consolidated balance sheet of the Company.
Derma Sciences
The Company assumed contingent consideration incurred by Derma Sciences, Inc. ("Derma Sciences") related to its acquisitions of BioD and the supplyintellectual property related to Medihoney products. The Company accounted for the contingent liabilities by recording their fair value on the date of the acquisition based on a probability weighted income approach. The Company has already paid $33.3 million related to the aforementioned contingent liabilities. One contingent milestone remains which relates to net sales of Medihoney™ products exceeding certain amounts defined in the agreement - long-termbetween the Company and above market supply agreement liability - long-term were included Derma Sciences. The potential maximum undiscounted payment amounts to $3.0 million. The estimated fair value as of June 30, 2023 and June 30, 2022 was $0.2 million.

ACell Inc.
As part of the ACell Acquisition, the Company is required to make payments to the former shareholders of ACell up to $100 million based on the achievement by the Company of certain revenue-based performance milestones in 2023 and 2025. The Company used iterations of the Monte Carlo simulation to calculate the fair value of the contingent consideration that considered the possible outcomes of scenarios related to each specific milestone. The Company estimated the fair value of the contingent consideration to be $23.9 million at the acquisition date. The estimated fair value as of June 30, 2023 was $1.5 million. The Company recorded $1.5 million and $18.1 million in other liabilities at SeptemberJune 30, 20172023 and December 31, 2016.

There are no transfers between level 1, 2 or 3 duringJune 30, 2022, respectively, and $0.0 million in accrued expenses and other current liabilities at June 30, 2022 in the nine months ended September 30, 2017 and 2016. Ifconsolidated balance sheets of the Company's estimate regardingCompany. The change in the fair value of itsthe contingent consideration liabilities, supply agreement liability and above market supply agreement liability are inaccurate, a future adjustment to these estimated fair values may be required which could change significantly.

BioD

On April 7, 2017, the Company's indirect wholly-owned subsidiary, BioD filed an action in the Superior Court of New Jersey, Chancery Division, Middlesex County seeking a declaration that the resignation of Russell Olsen, the former CEO of BioD,obligation was “for Good Reason” (as defined in Olsen’s employment agreement); a finding that Olsen breached the implied covenant of good faith and fair dealing, committed legal fraud, equitable fraud and negligent misrepresentation; and an award of damages for such actions, including a return of severance fees paid to Olsen. BioD was acquired in August 2016 by Derma Sciences, which Integra subsequently acquired in February 2017. After receiving a job offer from Integra that Olsen believed materially diminished his title and authority, on February 24, 2017 Olsen indicated his intention to terminate his position with BioD for Good Reason, as otherwise permitted by his employment agreement with BioD. Shortly thereafter, Cynthia Weatherly (as representative of the former equity owners of BioD) claimed in a letter to Derma Sciences that Olsen’s resignation was a “termination Without Cause” (as also defined in Olsen’s employment agreement), which would arguably trigger an acceleration of the earn out under a merger agreement between Derma Sciences, BioD and other parties (the "BioD Merger Agreement"), which was entered into in July 2016, and requireprimarily as a result of the acceleration the payment of $26.5 million by BioD. As previously disclosed and described in Note 2 - Business Acquisition, to the Company's consolidated financial statements for the three and nine months ended September 30, 2017, Integra assumed this contingent liability in connection with its acquisition of Derma Sciences. The action for a declaratory judgment was filed to clarify that Olsen’s termination was for Good Reason and not Without Cause. If the employment agreement was terminated for Good Reason, then the Company believes that the earn out provision under the BioD Merger Agreement should not be accelerated and the likelihood of loss is remote.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


14. SUBSEQUENT EVENTS
Johnson & Johnson's Codman Neurosurgery Business
On October 2, 2017, upon the terms and subject to the conditions set forth in the Purchase Agreement, the Codman Acquisition was completed. Under the terms of the Purchase Agreement, the Company paid an aggregate purchase price of $1.014 billion, subject to adjustments set forth in the Purchase Agreement relating to the book value of inventory transferred to the Company at the closing of the Codman Acquisition, the book value of certain inventory retained by DePuy Synthes will be transferred to the Company in the future along with certain prepaid taxes.
To facilitate the completion of the Codman Acquisition, the Company drew $700.0 million from the Term Loan A-1 compnent of the Senior Credit Facility and used cash available as of September 30, 2017.
The Codman Acquisition will be accounted for using the acquisition method of business combination under ASC 805, Business Combinations. The initial accounting for the business combination is incomplete due to the timing of the acquisition, therefore, the Company is unable to disclose certain information required by ASC 805. The Company will provide preliminary purchase price allocation information in the Company's Annual Report on Form 10-K for year ending December 31, 2017
Divestiture to Natus
On October 6, 2017, upon the terms and subject to the conditions set forth in the Divestiture Agreement (see Note 1 - Basis of Presentation), the Divestiture was completed and Natus paid an aggregate purchase price of $46.4 million. The assets sold to Natus pursuant to the Divestiture Agreement are related to the Company’s intracranial pressure monitoring and U.S. fixed pressure valve shunt systems businesses along with certain assets related to the Codman U.S. dural graft implant, external ventricular drainage catheter and cerebrospinal fluid collection systems businesses that the Company purchased from DePuy Synthes on October 2, 2017.
A portion of the proceeds from the Divestiture of $36.4 million were used to settle a portion of the revolving credit component of the Senior Credit Facility.
Cross-Currency Rate Swap
On October 2, 2017, the Company entered into cross currency swap agreements to convert a notional amount of $300.0 million equivalent to 291.2 million of Swiss Franc ("CHF") denominated intercompany loans into U.S. dollars. The CHF denominated intercompany loans were the result of the purchase of intellectual property by a subsidiary in Switzerland as part of the Codman Acquisition. The objective of these cross-currency swaps is to reduce volatility of earnings and cash flows associated with changes in the foreign currency exchange rate. Under the terms of these contracts, which have been designated as cash flow hedges, the Company will make interest payments in Swiss Francstiming and receive interest in U.S. dollars. Upon the maturity of these contracts, the Company will pay the principal amount of the loans in Swiss Francs and receive U.S. dollars from the counterparties.revenue estimates.
The following table summarizes the cross-currency swaps entered on October 2, 2017:
31
  Effective Date Termination Date Fixed Rate Aggregate Notional Amount
        (amounts in thousands)
Pay CHF October 2, 2017 October 2, 2020 1.75% CHF97,065
Receive U.S.$  4.38% $100,000
          
Pay CHF October 2, 2017 October 2, 2021 1.85% CHF48,532
Receive U.S.$  4.46% $50,000
          
Pay CHF October 2, 2017 October 2, 2022 1.95% CHF145,598
Receive U.S.$  4.52% $150,000

Table of Contents"

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of ourthe Company's financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 20162022 included in our Annual Report on Form 10-K.
We have made statements in this report whichthat constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations and current expectations or forecasts of future results, are forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company. OurCompany and other matters that may cause our actual results, could differperformance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Our forward-looking statements may include statements related to our growth and growth strategies, developments in the markets for our products and services, financial results, development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of the Coronavirus pandemic on our business, results of operations, and/or financial condition, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts.
materially from those anticipated inIn some cases, these forward-looking statements as a result of many factors, including but not limited to those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017, and in this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
You can identify these forward-looking statementsmay be identified by forward-looking words such as “believe,” “may,” “might,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar words and expressions in this report. Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding our ability to drive long-term shareholder value, development and future launches of products and continued or future acceptance of products and services in our segments; our ability to navigate and mitigate any on-going or future impact associated with economic disruptions, including supply chain constraints and inflation; expected timing for completion of research studies relating to our products; market positioning and performance of our products; divestitures and the potential benefits thereof; the costs and benefits of integrating previous acquisitions; anticipated timing for Food and Drug Administration (“FDA”) in the U.S., as well as for non-U.S. regulatory approval of new products; statements regarding the issues causing the voluntary removal of the Company’s CereLink ICP Monitor System and the Company’s voluntary recall of all products manufactured at its Boston facility; the potential effects of the process deviations identified at the Boston facility; the anticipated impact of the voluntary removal and recall and manufacturing stoppage on the Company’s business; the Company’s ability to address in a timely manner the product-related issues discussed herein and re-initiate sales of Cerelink and resume manufacturing activities at its Boston facility; our future financial performance; increased presence in new markets, including markets outside the U.S.; changes in the market and our market share; acquisitions and investment initiatives, including the timing of regulatory approvals as well as integration of acquired companies into our operations; the resolution of tax matters; the effectiveness of our development activities in reducing patient care costs and hospital stay lengths; our approach towards cost containment; our expectations regarding healthcare costs; general economic conditions; and the potential impact of our compliance with governmental regulations and accounting guidance.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, financial condition, and/or cash flows. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022. As forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. One must carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties, known and unknown, including, among others, those discussed in the sections entitled “Government Regulation and Compliance” within “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.
32
GENERAL
Integra is a worldwideglobal leader in medical technology focused onregenerative tissue technologies and neurological solutions dedicated to limiting uncertainty for surgeonsclinicians so that they can concentratefocus on providing the best patient care. Founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue, Integra provides customers with clinically relevant, innovativeLifeSciences Holdings Corporation common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” Integra has developed numerous product lines from this technology for applications ranging from burn and cost-effective products that improve the quality of life for patients. We focus on cranial procedures, small bone and joint reconstruction,deep tissue wounds to the repair of dura mater in the brain, as well as nerves and reconstructiontendons. We have expanded our base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care through global acquisitions and product development to meet the evolving needs of soft tissue,our customers and instruments for surgery.enhance patient care.
We manufacture and sell ourmedical technologies and products in two reportable business segments —segments: Codman Specialty Surgical Solutions and Orthopedics and Tissue Technologies. Our Specialty Surgical Solutions products offer specialty surgical implants and instrumentation for a broad range of specialties. This product category includes products and solutions for dural repair, precision tools and instruments, tissue ablation, and neuro critical care including market-leading product portfolios used in neurosurgery operating suites and critical care units. Our Orthopedics("CSS") and Tissue Technologies products offer a unique combination of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, alongside small bone fixation and joint replacement hardware products for both upper extremities and lower extremities. This product category also includes private-label sales of a broad set("TT"). The CSS segment, which represents approximately two-thirds of our regenerative medicine technologies.
total revenue, consists of market-leading technologies and instrumentation used for a wide range of specialties, such as neurosurgery, neurocritical care and otolaryngology. We manufacture manyare the world leader in neurosurgery and one of the top three providers in instruments used in precision, specialty, and general surgical procedures. Our TT segment generates about one-third of our products in plantsoverall revenue and focuses on three main areas: complex wound surgery, surgical reconstruction, and peripheral nerve repair.
We have key manufacturing and research facilities located in the United States,California, Indiana, Maryland, Massachusetts, New Jersey, Ohio, Puerto Rico, Tennessee, Utah, France, Germany, Ireland Canada, China and Mexico. Switzerland. We also source most of our handheld surgical instruments and specialty metal and pyrocarbon implants, and dural sealant products through specialized third-party vendors.
We have several sales channels in the United States. Specialty Surgical SolutionsIntegra is committed to restoring patients’ lives through technologies and products are sold through a combination of directly employed sales representatives, distributorsthat transform surgical, neurologic and wholesalers, depending on the customer call point. Orthopedics and Tissue Technologies products are sold through directly employed sales representatives and specialty distributors focused on their respective surgical specialties. We sell in the international markets through a combination of direct sales organizations and distributors.
We also market certain products through strategic partners in the United States.
regenerative care. Our objectivemission is to become a multi-billion dollar diversified global medical technology company that helps patients by limiting uncertainty for medical professionalsinnovate treatment pathways to advance patient outcomes and is a high-quality investment for shareholders. We will achieve these goals by delivering on our brand promises to our customers so they can concentrate on providingset new standards of care. In connection with the best care for their patients and by becoming a company recognized as a leader by our customers worldwide in specialty surgical applications, regenerative technologies and extremities orthopedics. Our strategy is built around three pillars - execute, optimize, and accelerate growth. These three pillars supportcompletion of our strategic initiativesrefresh, we refocused our strategies around five pillars. Of these five pillars, we have identified three core growth drivers, innovating for outcomes, growing internationally, and broadening our impact on care pathways, which are enabled by two key levers, driving operational and customer excellence and cultivating a high-performance culture. As outlined in greater detail below, we believe these five pillars will enable us to deliver onrealize and advance our commitments through improved planning and communication, optimizing our infrastructure, and growing byintegrated growth strategy:
Innovating for Outcomes. An important part of Integra’s growth strategy is introducing new products to strengthen and expand our portfolio. Additionally, we seek clinical evidence to support regulatory approval and strong reimbursement of our product portfolio around the world, including new indications for existing technologies. On December 6, 2022, we completed the acquisition of Surgical Innovation Associates, Inc. (“SIA”), which develops, markets and sells DuraSorb, a resorbable synthetic matrix for plastic and reconstructive surgery. This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S. market where SIA is pursuing pre-market approval for use in implant-based breast reconstruction ("IBBR"). As part of our commitment to implant-based breast reconstruction strategy and innovating new treatment pathways, in June 2023 we completed enrollment in the DuraSorb U.S. investigational device exemption (IDE) clinical study for two-stage breast reconstruction. We also continued to advance the development of pioneering neurosurgical technologies with the expansion of our product offerings. In early 2023, the CUSA® Clarity Bone Tip was launched in U.S., which is used when controlled fragmentation, emulsification and aspiration of bone is necessary. This follows the CUSA® Clarity extended laparoscopic tip, launched in the U.S. in late 2022 to enhance the benefits of ultrasonic ablation to minimally invasive laparoscopic liver surgery.
Growing International. Over the years, we have been significantly expanding our global footprint through internal development, geographicinvestments in our commercial organization, expansion and strategic acquisitions.development of international markets and new product introductions. Several new products were introduced in 2023, including MicroMatrix® and Certas Plus® Programmable Valve which were launched in Europe, and CUSA Clarity Laparoscopic ("Lap") tip which was launched in Australia, New Zealand, Japan, Canada, South Africa and Israel. In addition, DuraGen Secure received approval in Japan, while DuraGen Plus was approved in China.
We aimBroadening Impact on Care Pathways. Integra seeks ways to achieve growth in our revenues while maintaining strong financial results. While we pay attention to any meaningful trend in our financial results, we pay particular attention to measurements that are indicative of long-term profitable growth. These measurements include (1) revenue growth (including organic growthdevelop products and acquisitions), (2) gross margins on total revenues, (3) operating margins (which we aim to expand as we leverage our existing infrastructure), (4) earnings before interest, taxes, depreciation, and amortization, (5) earnings per diluted share of common stock, and (6) operating cash flows.
We believe that we are particularly effective in the following aspects of our business:
Regenerative Technology Platform. We have developed numerous product lines through our proprietary collagen and polyethylene glycol technologies that are sold through allimpact the lives of our sales channels.

Diversificationpatients, starting with the journey that a patient takes from diagnosis and Platform Synergies. The selling platforms of Specialty Surgical Solutionstreatment planning to surgery and Orthopedics and Tissue Technologies each contribute a different strength to our core business. Specialty Surgical Solutions provides us with a strong presencepostoperative care. Integra is well-established in acute care in the hospital with market-leading productssetting and comprehensive solutionsplans to leverage that strong position to grow in this segment and shape treatment pathways into preoperative care and additional sites of care.
Driving Operations and Customer Excellence. Integra has been making investments to build more responsive and scalable processes, enhance the reliability of our supply chain, and drive productivity initiatives to further supply and lower costs. Additionally, we continue to invest in technologies, systems and processes to enhance the customer experience. In 2022, certain transactional back-office finance and customer service activities were outsourced to enhance customer quality, build scale for surgical specialties, such as neurosurgery, as wellfuture growth, and capture cost efficiencies.
Cultivating a High-Performance Culture. Creating a culture focused on empowerment and agility and building a diverse and inclusive workplace are cornerstones of our people strategy. These efforts resulted in Integra being named in several best workplace lists globally in 2022, including Integra China being recognized as a strong capacityGreat Place to generate cash flows. Orthopedics and Tissue Technologies enables us to grow our top line by continuing to introduce new, differentiated productsWork in fast-growing markets, such as small joint replacement and advanced wound care, as well as to increase gross margins. We have unique synergies between these platforms, such as our regenerative technology, instrument sourcing capabilities, and enterprise contract management.Greater China.
33
Specialized Sales Footprint. Our medical technology investment and manufacturing strategy provide us with a specialized set of customer call-points and synergies. We have market-leading products across our portfolio providing both scale and depth in solutions for a broad set of clinical needs across many departments in healthcare systems. We also have clinical expertise across all our channels in the United States, and an opportunity to expand and leverage this expertise in markets worldwide. In response to our customers’ needs for clinical and technical solutions across multiple departments and clinical areas,Additionally, we have developedbeen making great strides in advancing our environmental, social and deployedgovernance ("ESG") agenda to drive sustainability across the organization and recently published our enterprise selling team to bring unique clinical solutions for the most difficult healthcare issuesfirst ESG report in our key accounts across multiple clinical sites and multi-hospital integrated delivery networks.
Ability to Change and Adapt. Our corporate culture is what enables us to adapt and evolve. We have demonstrated that we can quickly and profitably integrate new products and businesses. This core strength has made it possible for us to grow over the years, and is key to our ability to grow into a multi-billion-dollar company.
Acquisitions
Derma Sciences
On February 24, 2017, the Company executed the Agreement and Plan of Merger (the "Merger Agreement") under which the Company acquired all the outstanding shares of Derma Sciences, Inc., a Delaware corporation ("Derma Sciences") for an aggregate purchase price of approximately $210.8 million including payment of certain of Derma Sciences' closing expenses and settlement of stock-based compensation plans of $4.8 million and $4.3 million, respectively. The purchase price consisted of a cash payment to the former shareholders of Derma Sciences of approximately $201.7 million upon the closing of the transaction.
Derma Sciences is a tissue regeneration company focused on advanced wound and burn care that offers products to help manage chronic and hard-to-heal wounds, especially those resulting from diabetes and poor vascular functioning.
TGX Medical
On April 4, 2017, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement"), by and among the Company, MCF I LP THX Medical System LLC Holdings, Inc., Terragraphix, Inc. and TGX Medical Systems, LLC (collectively, "TGX Medical"). Pursuant to the Purchase Agreement, the Company purchased all issued and outstanding membership interests in TGX Medical for $5.4 million, including a $0.1 million adjustment made in the third quarter of 2017 related to additional closing costs incurred by TGX Medical.
TGX Medical designs, develops and markets software solutions that track surgical instruments from the operating room, sterilization, to storage, which helps ensure that the instruments have been properly cleaned, assembled and maintained. TGX Medical’s customers are located in the U.S. and Canada.
Johnson & Johnson's Codman Neurosurgery Business
On May 11, 2017, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with DePuy Synthes, Inc., a Delaware corporation (“DePuy Synthes”), a wholly-owned subsidiary of Johnson & Johnson, pursuant to which the Company agreed to acquire certain assets, and assume certain liabilities, of Johnson & Johnson’s Codman neurosurgery business (the “Codman Acquisition”). The assets and liabilities subject to the Codman Acquisition relate to the research, development, manufacturing, marketing, distribution and sale of certain products used in connection with neurosurgery procedures.
On October 2, 2017, upon the terms and subject to the conditions set forth in the Purchase Agreement, the Codman Acquisition was completed. Under the terms of the Purchase Agreement, the Company paid an aggregate purchase price of $1.014 billion, subject to adjustments set forth in the Purchase Agreement relating to the book value of inventory transferred to us at the closing of the Codman Acquisition, the book value of certain inventory retained by DePuy Synthes that will be transferred to the Company in the future along with certain prepaid taxes.
To facilitate the completion of the Codman Acquisition, the Company drew $700.0 million from the Term Loan A-1 component of the Senior Credit Facility and cash available as of September 30, 2017.



Divestitures
On September 8, 2017, the Company and certain of its subsidiaries entered into an asset purchase agreement (the “Divestiture Agreement”) with Natus Medical Incorporated (“Natus”), pursuant to which the Company agreed to divest its Camino Intracranial Pressure monitoring and the U.S. rights to the fixed pressure shunts businesses together with certain of the neurosurgery assets that will be acquired as part of the Codman Acquisition (the “Divestiture”). The Divestiture Agreement was entered in connection with the review of the Codman Acquisition by the Federal Trade Commission and the antitrust authority of Spain. The Divestiture was conditioned upon completion of the Codman Acquisition.
On October 6, 2017, upon the terms and subject to the conditions set forth in the Divestiture Agreement (see Note 1 - Basis of Presentation), the Divestiture was completed and Natus paid an aggregate purchase price of $46.4 million. The assets sold to Natus pursuant to the Divestiture Agreement are related to the Company’s intracranial pressure monitoring and the U.S. rights to the fixed pressure valve shunt systems businesses along with certain assets related to the Codman U.S. rights to the dural graft implant, external ventricular drainage catheter and cerebrospinal fluid collection systems businesses that the Company purchased from DePuy Synthes on October 2, 2017.

late 2022.
Clinical and Product Development Activities

Integra continues to invest in collecting clinical evidence to support our existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions.
After finalizingIn 2022, we made progress to several enhancements to our multi-centerCUSA Clarity Tissue Ablation System. The extended laparoscopic tip was launched in the U.S. to enhance laparoscopic liver procedures. In addition, a single-sided bone tip received 510(k) clearance. In early 2023, we had our commercial launch with initial surgeries successfully completed. We continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece and integrated electrosurgical capabilities.
In 2023, we continued to advance the early-stage technology platforms we acquired in 2019. Through the acquisition of Arkis Biosciences, Inc. ("Arkis") we added a platform technology, CerebroFlo® external ventricular drainage ("EVD"), catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation. The CerebroFlo EVD Catheter has demonstrated an average of 99% less thrombus accumulation onto its surface, in vitro, compared to a market leading EVD catheter. Our work to combine our bactiseal antimicrobial technology with the Endexo anti-occlusive technology obtained through our 2019 acquisition of Arkis continues to progress for both a silicone-based hydrocephalus and EVD project.
In 2023, we continued to advance our innovation from the Rebound Therapeutics Corporation ("Rebound Therapeutics"), which was acquired in 2019. Rebound Therapeutics specializes in single-use medical device, known as Aurora Surgiscope, which is the only tubular retractor system designed for cranial surgery with an integrated access channel, camera and lighting. In the third quarter of 2021, we conducted a limited clinical trial evaluating the safety and effectivenesslaunch of the INTEGRA Dermal Regeneration TemplateAurora Surgiscope for use in minimally invasive neurosurgery as well as initiated a registry called MIRROR to collect data on early surgical intervention using this same technology platform for blood evacuation. In 2022, we launched the treatmentAurora® Evacuator with Coagulation device in the U.S., designed to be used in conjunction with our Aurora Surgiscope to safely address and evacuate fluid in the brain. 
We are focused on the development of diabetic foot ulcers ("DFU")core clinical applications in 2015,our electromechanical technologies portfolio. In June 2022, we launched the Neutus® EVD system, our first EVD in China. The Neutus EVD system is manufactured in China by Shanghai Haoju Medical Technology Co., Ltd. under an exclusive distribution arrangement. The device is used in the management of CSF and is highly complementary to our Bactiseal® catheter and advanced intercranial pressure monitoring products. In 2021, we launched our CereLink ICP Monitor System in the U.S. and Europe direct markets and continued the global rollout in the first half of 2022. Refer below to the information appearing in the "FDA Matters" section for additional information on the voluntary recall of the CereLink ICP Monitor System.
Within our TT segment, in 2022, we launched NeuraGen 3D Nerve Guide Matrix, a resorbable implant for repair of peripheral nerve discontinuities and engineered to create an optimized environment for nerve regeneration. In the third quarter of 2021, we filed the resulting dataPMA application for a specific indication for SurgiMend in the use of post-mastectomy breast reconstruction, for which we hope to obtain FDA approval in 2024. On December 6, 2022, we completed the acquisition of SIA, which develops, markets and sells DuraSorb®, a resorbable synthetic matrix for plastic and reconstructive surgery. This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S. market where SIA is pursuing pre-market approval for use in IBBR.
FDA Matters
On August 18, 2022, we, after consultation with the FDA and received PMA approvalother regulatory authorities outside of the United States, initiated an immediate voluntary global product removal of all CereLink intracranial pressure monitors as a result of customer reports about monitors whose pressure readings were out of range. We believe that the out-of-range readings are principally caused by electrical interference from the external environment and/or interference from a component on January 7, 2016. The Company started commercializing the resulting DFU product, Omnigraft,circuit board of the monitor. These out-of-range readings have occurred at a low incidence rate and at a limited number of sites; however, out of an abundance of caution, we removed all CereLink monitors from the field.
We are continuing our work to remedy the observed issue and currently anticipate resuming shipments of the CereLink monitors beginning late in 2016. Additionally,the third quarter of 2023. Based on the outlook for returning the product to market and feedback from customers, we finalized patient follow-uprecorded a $1.9 million provision for product returns, as a reduction of net revenue, and a $0.8 million rework accrual in cost of goods sold in 2022. In the first half of 2023 we recorded an additional $0.8 million in provision for product returns as a post-approval study forreduction of net revenue, and no additional rework costs.
On March 7, 2019, TEI Biosciences, Inc. ("TEI"), one of our DuraSeal Exact Spine Sealant System,wholly-owned subsidiaries, received a Warning Letter (the “2019 Warning Letter”), dated March 6, 2019, from the FDA. The 2019 Warning Letter related to quality systems issues at TEI's manufacturing facility located in Boston, Massachusetts. The letter resulted from an inspection held at that facility in October and November 2018 and did not identify any new observations that were not already provided in the Form 483 that followed the inspection. We submitted our initial response to the study results2019 Warning Letter on March 28, 2019 and provide regular progress reports to the FDA inas to its corrective actions. On October 2016. The study showed28, 2021, the continued safetyFDA initiated an inspection of the facility and effectivenessat the
34
conclusion of the inspection issued an FDA Form 483 on November 12, 2021 (the "2021 Form 483"). We provided an initial response to the inspection observations and will continue to provide responses to the FDA. On March 1, 2023, the FDA commenced an inspection of the Boston facility, and issued an FDA Form 483 at the conclusion of this approved medical device, and we expect that this study will satisfyinspection (the “2023 Form 483”). On July 19, 2023, TEI received a Warning Letter, dated July 17, 2023, from the post-approval commitmentFDA related to this product. We continue to investquality system issues at the TEI Boston facility (the “2023 Warning Letter”). The 2023 Warning Letter did not identify any new observations that had not already been provided in additional clinical studies to support market access and promotion of existing products, and to pursue new product indications, such as breast reconstruction.the 2023 Form 483. The Company continuessubmitted an initial response to invest in product development such as long-term research programsthe 2023 Form 483 to evaluate products as well as next generation nerve product.

FDA Untitled Letter

On June 22, 2015, the FDA issued an Untitled Letter (the "Untitled Letter") alleging that BioD LLC's ("BioD") morselized amniotic membrane based productsand is in the process of preparing a written response to the 2023 Warning Letter. We are committed to resolving the matters identified in the Warning Letters and Form 483s and are continuing our significant efforts to remediate the observations. Although the Warning Letters and the Form 483s do not meetrestrict our ability to manufacture or ship products or require the criteria for regulation as human cellular tissue-basedrecall of any products, (“HCT/Ps”) solely under Section 361 of the Public Health Service Act and that, as a result, BioD would need a biologics license to lawfully market those morselized products (BioD is a wholly owned subsidiary of Derma Sciences). Since the issuance of the Untitled Letter, BioD and now the Company had and plan to continue discussionsin May 2023, after consultation with the FDA, the Company initiated a voluntary recall of products manufactured in the Boston facility distributed between March 1, 2018 and May 22, 2023, and extended the temporary halt of manufacturing at the facility to communicateimplement additional detection and quality controls. Following implementation of such controls, the Company expects to resume manufacturing at its disagreement withBoston facility by late in the FDA’s assertion that certainfourth quarter of 2023. Additionally, the Warning Letters do not restrict the Company’s ability to seek FDA 510(k) clearance of products, but premarket approval applications for Class III devices to which the quality system regulation violations are more than minimally manipulated. To date,reasonably related will not be approved until the FDA has not changed its position that certain of the acquired morselized products are not eligible for marketing solely under Section 361 of the Public Health Service Act.violations have been addressed. The Company continues to market theseBoston facility manufactures extracellular bovine matrix products.

On December 22, 2014, the FDA issued for comment “Draft Guidance for Industry and FDA Staff: Minimal Manipulation of Human Cells, Tissues, and Cellular and Tissue-Based Products.” On October 28, 2015, the FDA issued for comment, "Draft Guidance for Industry and FDA Staff: Homologous Use of Human Cells, Tissues, and Cellular and Tissue-Based Products." The FDA held a public hearing on September 12 and 13, 2016 to obtain input on the Homologous Use draft guidance and the Minimal Manipulation draft guidance, as well as other recently issued guidance documents on HCT/Ps.

If the FDA does allow us to continue to market its morselized products without a 510(k) or biologics license either prior to or after finalization of the draft guidance documents, it may impose conditions on marketing, such as labeling restrictions and compliance with current Good Manufacturing Practices. Compliance with these conditions would require significant additional time and cost investments from us. It also is possible We cannot give any assurances that the FDA will not allow usbe satisfied with our response to market any form of a morselized product without a biologics license even priorthe issues identified by the FDA or as to finalizationthe expected date of the draft guidance documentsresolution of such issues. Until the issues cited by the FDA are resolved to the FDA’s satisfaction, the FDA may initiate additional regulatory action without further notice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and could require us to recallselling our morselized products. We continue to market these products. The Company continues to monitor the FDA's position on these products. Any potential action of the FDAproducts and could have a material adverse effect on our business, financial impact oncondition and results of operations.
Revenues of products manufactured in the sales of BioD’s morselized amniotic tissue-based products. Revenues from BioD morselized amniotic membrane based productsBoston facility for the three and nine monthsyear ended September 30, 2017December 31, 2022 were less than 1.0%approximately 5.3% of consolidated revenues. In the second quarter of 2023, due to the voluntary recall of Primatrix®, Surgimend®, Revize™, and TissueMend™, the Company recorded a $12.9 million provision for product returns, as a reduction of net revenue. Of this amount, $0.7 million was paid out in Q2. The Company also recorded a $24.1 million write off of inventory that was no longer able to be sold.

Optimization and Integration Activities

As a result of our ongoing acquisition strategy and significant growth in recent years, we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products. These efforts are expected to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain. In support of our continued focus on product margins during 2022, we closed a manufacturing facility located in France and transferred production to our existing Switzerland facility. In 2022, we outsourced certain transactional back-office finance and customer service activities to enhance customer quality, build scale for future growth, and capture cost efficiencies.
RESULTS OF OPERATIONS
Executive Summary
Net income for the three months ended SeptemberJune 30, 20172023 was $3.2$4.2 million, or $0.04$0.05 per diluted share, as compared to $20.1$44.8 million or $0.25$0.54 per diluted share for the three months ended SeptemberJune 30, 2016.
Net2022. The decrease in net income for the ninethree months ended SeptemberJune 30, 20172023, was $20.4 million, or $0.26 per diluted share, as compared to $46.3 million or $0.59 per diluted share for the nine months ended September 30, 2016.
Net income for the nine months ended September 30, 2017 decreasedprimarily driven by impacts from the same period last year, primarily resulting from higher acquisition-related expensesBoston recall of $51.9our TEI products, including inventory write-offs of $24.1 million and offset by growth in botha provision for product returns of our Orthopedics and Tissue Technologies and Specialty Surgical Solutions segments. The results also reflect strong growth in our regenerative technology franchise.$12.9 million.
35
Special Charges
Income before taxes includes the following special charges:charges:
Three Months Ended June 30,Six Months Ended June 30,
Dollars in thousands2023202220232022
Acquisition, divestiture and integration-related charges$3,448 $(6,284)$12,224 $(5,710)
Structural optimization charges4,794 8,172 9,129 14,492 
EU medical device regulation9,278 10,249 20,682 19,762 
Boston recall expenses(1)
28,051 — 28,051 — 
Total$45,571 $12,137 $70,086 $28,544 
(1) This includes inventory write-offs and idle capacity charges.
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
Global ERP implementation charges$—
 $3,366
 $3,261
 $12,386
Structural optimization charges1,944
 1,993
 5,336
 5,540
Certain employee severance charges—
 153
 125
 1,420
Discontinued product lines charges—
 —
 1,025
 —
Acquisition-related charges24,904
 4,935
 68,919
 16,996
Convertible debt non-cash interest—
 2,132
 —
 6,300
Hurricane Maria related1,261
 —
 1,261
 —
  Total$28,109
 $12,579
 $79,927
 $42,642

The items reported above are reflected in the condensed consolidated statements of operations as follows:
Three Months Ended June 30,Six Months Ended June 30, 2023
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Dollars in thousandsDollars in thousands2023202220232022
Cost of goods sold$4,141
 $5,662
 $9,567
 $16,479
Cost of goods sold$33,148 $5,131 $39,214 $9,661 
Research and development—
 200
 —
 200
Research and development4,212 5,538 8,431 9,805 
Selling, general and administrative23,968
 4,585
 68,097
 19,663
Selling, general and administrative8,338 2,661 23,069 11,563 
Interest expense—
 2,132
 —
 6,300
Other expense—
 —
 2,263
 —
Total from continuing operations$28,109
 $12,579
 $79,927
 $42,642
Other incomeOther income(127)(1,193)(628)$(2,485)
Total Total$45,571 $12,137 $70,086 $28,544 
We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, divestiture, integration and restructuring activities, and for which the amounts are non-cash in nature, orand for which the amounts are not expected to recur at the same magnitude. We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future. In 2010, we began investing significant resources in the global implementation of a single enterprise resource planning ("ERP") system. We began capitalizing certain costs for the project starting in 2011 and continued to do so during 2017. We expect the additional capital and integration expenses associated with our current ERP system to decrease in 2017 as the project is substantially complete. We expect additional capital and integration expenses in 2017 associated with the integration of the Derma Sciences and Codman neurosurgery businesses. In September 2017, Hurricane Maria caused disruption and minor damage to our operations in our facility in Añasco, Puerto Rico. We incurred expenses to restore the facility to its normal operations.
We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this

information useful in assessing comparability of our operating performance from period to period, assessingagainst the business model objectives that management has established, and comparing our performance against other companies in our industry. We provide this information to investors so that they can analyze our operating results in the same way that management does and to use this information in their assessment of our core business and valuation of Integra.
Update on Remediation Activities
We had an FDA warning letter related to TEI, acquired by Integra on July 17, 2015. TEI received a Warning Letter from the FDA dated May 29, 2015 for promoting the product SurgiMend for breast surgery applications that were not cleared in the 510(k) process and do not have a PMA approval for the indication. The FDA requested that TEI immediately cease all activities that resulted in misbranding or adulteration of the product in commercial distribution. The FDA also required TEI to cease all violations regarding promotion of the productfor an indication that was not cleared or approved. TEI responded to the FDA with a corrective action plan and took action to address the issues prior to the completion of the acquisition. The FDA warning letter was lifted on August 31, 2017.
Revenues and Gross Margin on Product Revenues
OurThe Company's revenues and gross margin on product revenues were as follows:
 Three Months Ended June 30,Six Months Ended June 30,
Dollars in thousands2023202220232022
Segment Net Sales
Codman Specialty Surgical$271,030$257,863$519,166$505,171
Tissue Technologies110,237139,952242,947269,282
Total revenues$381,267$397,815$762,113774,453
Cost of goods sold174,241148,404322,216290,973
Gross margin on total revenues$207,026$249,411$439,897$483,480
Gross margin as a percentage of total revenues54.3 %62.7 %57.7 %62.4 %
36
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Segment Net Sales(Dollars in thousands)
Specialty Surgical Solutions$164,760
 $159,409
 $480,907
 $468,767
Orthopedics & Tissue Technologies114,074
 90,923
 338,727
 267,644
Total revenue278,834
 250,332
 819,634
 736,411
Cost of goods sold101,757
 89,329
 287,340
 263,667
Gross margin on total revenues$177,077
 $161,003
 $532,294
 $472,744
Gross margin as a percentage of total revenues63.5% 64.3% 64.9% 64.2%


Three Months Ended SeptemberJune 30, 20172023 as Compared to Three Months Ended SeptemberJune 30, 20162022
Revenues and Gross Margin
For the three months ended SeptemberJune 30, 2017,2023, total revenues increaseddecreased by $28.5$16.5 million to $278.8$381.3 million from $250.3$397.8 million for the same period in 2016. Revenues for the quarter were negatively impacted by approximately $7.02022, inclusive of an unfavorable foreign currency impact of $1.7 million dueon revenues, as well as a $3.2 million decrease that impacts both domestic and international revenues related to the hurricanes in Texas, Florida and Puerto Rico.
Specialty Surgical Solutions revenues were $164.8 million,divestiture of the TWC business. This also includes an increase of 3.4%$2.4 million related to the SIA acquisition. Excluding the impacts of these items, domestic revenues decreased by $12.2 million, or 4.3% as compared to the prior year period. International revenues decreased by $1.8 million or 1.7% as compared to the prior period. The decrease in domestic revenues was primarily driven by decreases related to the Boston recall, offset by increases in our Instruments portfolio. The decrease in international revenues was primarily driven by decreases related to the Boston recall, offset by increases in the neurosurgery and instruments portfolio.
In the CSS segment, revenues were $271.0 million which was an increase of $13.2 million, or 5.1% as compared to the prior-year period, inclusive of a $1.7 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign exchange, Neurosurgery portfolio grew low single digits primarily due to sales in Dural Access and Programmable Valves. Sales in our instruments portfolio increased low-double digits as compared to the same period in the prior year.
In the TT segment, revenues were $110.2 million which was a decrease of $29.7 million, or 21.2% from the prior-year period. The increase resultedperiod, with no meaningful impact from double-digit growth in our tissue ablation franchise, includingforeign currency on revenue, as well as a $3.2 million decrease that impacts both domestic and international revenues related to the continued launchdivestiture of our CUSA Clarity product. Our dural repair products and precision tools and instruments product lines both increased in the low single digits for the quarter. Our dural repair growth was lower than expected based on competitive pressures, which resulted in lower pricing.
Orthopedics and Tissue Technologies revenues were $114.1 million,TWC business. This also includes an increase of 25.5% from$2.4 million related to the prior-year period. Revenue fromSIA acquisition. Excluding the Derma Sciences acquisitionimpact of these items, the primary driver of the decrease was $24.1related to the Boston recall.
Gross Margin
Gross margin was $207.0 million for the three months ended SeptemberJune 30, 2017. Revenues2023, a decrease of $42.4 million from our regenerative technologies products grew during the quarter, driven by Integra Skin and PriMatrix, and offset by the declines in our SurgiMend portfolio. Disruption to operations in our Puerto Rico facility drove our private label business to decline double-digits in the third quarter of 2017, while we experienced strong growth in our ankle and shoulder portfolios, which together grew 30% compared to the same period last year.
Gross margin increased to $177.1$249.4 million for the three-monthsame period ended September 30, 2017, an increase of $16.1 million from $161.0 million for the same period last year.in 2022. Gross margin as a percentage of total revenue decreased to 63.5% revenues was 54.3% for the third quarter of 2017 from 64.3% forthree months ended June 30, 2023 and 62.7% for the samesame period last year. Thein 2022. This decrease in gross margin percentage resultedis primarily from salesthe result of Derma Sciences productsexpenses associated with lower margins than the company average. The decrease also results from the impairment charge of $3.3 million related to the completed technology assets acquired from Tarsus Medical, Inc., since the underlying product will no longer be sold.Boston recall.

Operating Expenses
We expect our consolidated gross margin percentage for the full year 2017 to be approximately 63.0%, which includes the impact of the Codman Acquisition. We expect no significant change in gross margin percentage in 2017 compared to 2016, as gross margins from products acquired in the Derma Sciences transaction are expected to offset the margins from the growth in our regenerative business.
Operating Expenses
The following is a summary of operating expenses as a percent of total revenues:
 Three Months Ended June 30,
 20232022
Research and development7.0 %6.4 %
Selling, general and administrative43.3 %40.4 %
Intangible asset amortization0.8 %0.8 %
Total operating expenses51.1 %47.6 %
 Three Months Ended September 30,
 2017
2016
Research and development5.4%
6.0%
Selling, general and administrative52.3%
44.9%
Intangible asset amortization2.0%
1.4%
  Total operating expenses59.7%
52.3%

Total operating expenses, which consist of research and development, expenses, selling, general and administrative, expenses, and amortization expense,expenses, increased $35.5by $5.0 million, or 27.1%,2.6% to $166.4$194.5 million in the three months ended SeptemberJune 30, 2017,2023, compared to $130.9$189.5 millionin the same period last year.in 2022. The increase in operating expenses compared to the prior year is primarily a result of the SIA acquisition combined with higher spend in selling activities as a percentage of revenue.

Research and Development
Research and development expenses infor the third quarter of 2017 decreasedthree months ended June 30, 2023 increased by $0.1$1.0 million to $15.0 millionas compared to $15.1 million in the same period lastin the prior year. We expect full-year 2017This increase in spending on researchresulted from additional spending related to the SIA acquisition, new product development and development to be approximately 6.0% of total revenues.clinical studies.

Selling, General and Administrative
Selling, general and administrative expenses incosts for the third quarter of 2017three months ended June 30, 2023 increased by $33.6$4.3 million to $145.9 million compared to $112.3 million in the same period last year. Selling and marketing expenses increased by $13.8 million compared to last year resulting primarily from selling and marketing expenses of Derma Sciences of approximately $8.0 million and additional investments in adding direct sales representatives and distributors. We also paid higher commissions resulting from the increase in revenues. General and administrative costs increased by $19.8 million, resulting from the increase in acquisition-related expenses of $20.0 million, offset by lower ERP implementation costs. We expect full-year selling, general and administrative expenses to be approximately 52.0% to 53.0% of revenue in 2017, resulting from acquisition and integration-related costs and additional investments in our commercial channels.

Amortization expense as a percentage of revenues in the third quarter of 2017 increased compared to the same period last year. This increase was related primarily to the intangible assets recognized from the Derma Sciences acquisition in the first quarterprior year driven primarily due to increased costs associated with SIA acquisition and costs associated with higher spend in commercial selling activities.
Intangible Asset Amortization
Amortization expense (excluding amounts reported in cost of 2017.product revenues for technology-based intangible assets) for the three months ended June 30, 2023 was $3.0 million compared to $3.3 million for the same period in the prior year.
37
Non-Operating Income and Expenses
The following is a summary of non-operating income and expenses:
Three Months Ended June 30,
Three Months Ended September 30,
2017 2016
(In thousands)
Dollars in thousandsDollars in thousands20232022
Interest income$89
 $2
Interest income$3,939 $1,965 
Interest expense(6,761) (6,295)Interest expense(12,464)(12,236)
Other (expense) income, net(735) 1,192
Other income, netOther income, net(155)1,979 
Total non-operating income and expenseTotal non-operating income and expense$(8,680)$(8,292)
Interest Income and Interest Expense
Interest expense inincome for the three months ended SeptemberJune 30, 20172023 increased by $0.5$2.0 million primarily due to the higher outstanding balance on our Senior Credit Facility for the periodas compared to the same period in 2016, offset by the settlement of our 2016 Convertible Notes in December 2016. Our reportedprior year due to higher interest expense for the three-month period ended September 30, 2016 included non-cash interest related to the accounting for convertible securities of $2.1 million.rates.
Interest income was negligibleExpense
Interest expense for the three months ended SeptemberJune 30, 2017 and 2016.2023 increased by $0.2 million as compared to the same period in the prior year.
Other (Expenses) Income, net
Other (expenses) income, net for the three months ended SeptemberJune 30, 2017 and 2016 includes2023 decreased by $2.1 million compared to the impact of transactional foreign exchange gains and losses.same period in the prior year. The decrease is primarily driven by lower Transition Service Agreement ("TSA") income from our recent divestitures.
Income Taxes
 Three Months Ended June 30,
Dollars in thousands20232022
Income before income taxes$3,824 $51,575 
Income tax (benefit) expense(360)6,787 
Effective tax rate(9.4)%13.2 %
 Three Months Ended September 30,
 2017 2016
 (In thousands)
Income before income taxes$3,235
 $24,994
Income tax expense76
 4,850
Effective tax rate2.3% 19.4%

The Company’sOur effective income tax rates for the three months ended SeptemberJune 30, 20172023 and 20162022 were 2.3%(9.4)% and 19.4%13.2%, respectively.
For the three months ended SeptemberJune 30, 2017,2023, the primary drivers of the lower tax rate are lowerrelate to a reduction to book income before income taxes compared toand a $1.1 million benefit associated with the same period in 2016, the jurisdictional mix of income before tax in U.S.-based operations relative to foreign operations, offset by a decrease of $0.4 million in excess tax benefits from stock-based compensation compared to the same period in 2016. The change in jurisdictional mix of income results primarily from significant acquisition and integration costs incurred in the U.S. in 2017. The tax rate for the three months ended September 30, 2016 included $0.2 million related to the release of uncertain tax positions.

Including the impact of Codman Acquisition in the fourth quarter of 2017, the Company expects its effective income tax rate for the full year to be approximately a benefit of 65.7%, mainly from lower income before taxes resulting from acquisition-related expenses and from benefits from stock-based compensation, Federal research credit benefits, and the jurisdictional mix of pretax income in U.S.-based operations relative to foreign operations. This estimate could be revised in the future as additional information is presented to the Company.

R&D credit.
The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities. We consider these factors and others, including ourthe Company's history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis.

Additionally, changes to income tax laws and regulations, in any of the tax jurisdictions in which we operate, could impact the effective tax rate. Various governments, both U.S. and non-U.S., are increasingly focused on tax reform and revenue-raising legislation. Further, legislation in foreign jurisdictions may be enacted, in response to the base erosion and profit-shifting project begun by the Organization for Economic Cooperation and Development ("OECD"). The OECD recently finalized major reform of the international tax system with respect to implementing a global minimum tax rate. Such changes in U.S. and non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate.
While it is often difficult to predict the final outcome or the timing of the resolution of anya particular matter with the various Federal,federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of anya particular issue would usually require the use of cash. FavorableA favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. TheOur tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.

38
On March 29, 2017, the United Kingdom ("UK") provided formal notice







NineSix Months Ended SeptemberJune 30, 20172023 as Compared to NineSix Months Ended SeptemberJune 30, 2016

2022
Revenues and Gross Margin
For the ninesix months ended SeptemberJune 30, 2017,2023, total revenues decreased by $12.3 million to $762.1 million from $774.5 million for the same period in 2022, inclusive of an unfavorable foreign currency impact of $8.7 million on revenues, as well as a $7.7 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business. This also includes an increase of $4.2 million related to the SIA acquisition. Excluding the impacts of these items, domestic revenues decreased by $5.4 million, or 1.0% as compared to the prior year period. International revenues increased by $83.2$5.3 million or 2.4% as compared to $819.6 million from $736.4 million during the prior-yearprior period. The decrease in domestic revenues was primarily driven by decreases related to the Boston recall, offset by increases in our Instruments portfolio. The decrease in international revenues was primarily driven by decreases related to the Boston recall, offset by increases in the neurosurgery and instruments portfolio.
Specialty Surgical SolutionsIn the CSS Segment segment revenues were $480.9$519.2 million an increase of 2.6% $14.0 million, or 2.8% from the prior period, inclusive of a $8.1M unfavorable foreign currency impact on revenue. Excluding the impact of foreign exchange, Neurosurgery portfolio grew low single digits primarily due to sales in Dural Access and Programmable Valves. Sales in our instruments portfolio increased low-double digits as compared to the same period in the prior year.
In the Tissue Technologies segment revenues were $242.9 million, a decrease of $26.3 million, or 9.8% from the prior-year period. The increase resulted from low-single digit growth in our dural repair and precision tools and instrument products. Together, our tissue ablation and neuro critical care revenues grew in the low single-digits. Our DuraGen, DuraSeal, next generation Mayfield 2 cranial stabilization device and MicroFrance products contributed to the increase. Our dural repair franchise did not grow at the rate we expected becauseperiod, inclusive of thea $0.6 million unfavorable foreign currency impact of increased competition for our dural sealant product.
Orthopedics and Tissue Technologies revenues were $338.7 million, an increase of 26.6% from the prior-year period. Revenue from Derma Sciences acquisition was $58.4 million for the nine months ended September 30, 2017. Sales from our regenerative technologies products excluding revenues from Derma Sciences grew mid-single digits, including strength in skin productson revenue, as well as a result of strong demand from$7.7 million decrease that impacts both domestic and international markets. Our upper extremities products grew double-digits, driven by strength in our shoulder products. The increases were offset by declining sales in both lower extremities and SurgiMend.revenues related to the divestiture of the TWC business. This also includes an increase of $4.2 million related to the SIA acquisition. Excluding the impact of these items, the primary diver of the decrease was related to the Boston recall.
Gross Margin
Gross margin increased to $532.3was $439.9 million for the nine-month periodsix months ended SeptemberJune 30, 2017, up2023, a decrease of $43.6 million from $472.7$483.5 million for the same period last year. Gross margin as a percentage of total revenue increaseddecreased to 64.9%57.7% for the year to date periodsix months ended June 30, 2023 from 64.2% for62.4% in the samesame period last year. The increasedecrease in gross margin percentage resulted from an increase in sales of higher margin products such as dural repair, skin and wound products, and lower effect of purchase price adjustments from acquisitions, offset by sales in Derma Scienceswas due to expenses associated with lower margins than the Company's average and an impairment charge of $3.3 million related to the completed technology assets acquired from Tarsus Medical, Inc., since the underlying product will no longer be sold.Boston recall.
Operating Expenses
The following is a summary of operating expenses as a percent of total revenues:
Nine Months Ended September 30, Six Months Ended June 30,
2017 2016 20232022
Research and development5.6% 6.0%Research and development7.0 %6.4 %
Selling, general and administrative52.9% 46.6%Selling, general and administrative43.5 %41.4 %
Intangible asset amortization1.8% 1.4%Intangible asset amortization0.8 %0.9 %
Total operating expenses60.3% 54.0%Total operating expenses51.3 %48.7 %
Total operating expenses, which consist of research and development expenses, selling, general and administrative expenses, research and development expenses, and amortization expense,expenses, increased $96.5by $13.6 million, or 24.2%,3.6% to $494.7$391.0 million forin the first ninesix months of 2017,ended June 30, 2023, compared to $398.2$377.4 million in the same period last year.in 2022.
Research and Development
Research and development expenses for the six months ended June 30, 2023 increased by $3.6 million as compared to the same period in the first nine months of 2017 increased approximately $2.0 million and decreased as a percentage of sales from 6.0% to 5.6%.prior year. This increase in spending resulted from additional spending onrelated to the SIA acquisition, new product development and clinical studies.
Selling, General and Administrative
Selling, general and administrative expensescosts increased by $11.0 million as compared to the same period in the first nineprior year driven primarily due to increased selling costs associated with SIA acquisition and costs associated with higher spend in commercial selling activities.
Intangible Asset Amortization
Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) for the six months of 2017 increased by $89.9 million to $433.5ended June 30, 2023 was $6.1 million compared to $343.5$7.2 million infor the same period lastin prior year. Selling and marketing expenses increased by $35.5
We expect total annual amortization expense to be approximately $41.4 million resulting primarily from selling and marketing expensesfor the remainder of Derma Sciences of approximately $22.4 million and additional spending on new product launches and the addition of new sales representatives. General and administrative costs increased by $54.5 million resulting from the increase in acquisition-related expenses of $51.9 million offset by lower ERP implementation costs.
Amortization expense in the first nine months of 2017 increased by $4.6 million to $15.0 million, compared to $10.42023, $82.2 million in the same period last year. Amortization expense2024, $82.2 million in the first nine months2025, $82.0 million in 2026, $80.0 million in 2027, $78.5 million in 2028 and $477.1 million thereafter.
39



Non-Operating Income and Expenses
The following is a summary of non-operating income and expenses:
Six Months Ended June 30,
Nine Months Ended September 30,
2017 2016
(In thousands)
Dollars in thousandsDollars in thousands20232022
Interest income$160
 $14
Interest income$8,046 $3,342 
Interest expense(18,073) (19,255)Interest expense(24,564)(23,891)
Other expense, net(3,691) (398)
Other income, netOther income, net1,234 5,408 
Total non-operating income and expenseTotal non-operating income and expense$(15,284)$(15,141)
Interest Income and Interest Expense
Interest expense inInterest income for the nine-month periodsix months ended SeptemberJune 30, 2017 decreased2023 increased by $1.2$4.7 million primarily resulting from the settlement of our 2016 Convertible Notes in December 2016 offset by increased borrowings and higher effective borrowing rates on our Senior Credit Facilityas compared to the prior year. Our reportedsame period last year due to higher interest rates.
Interest Expense
Interest expense for the nine-month periodsix months ended SeptemberJune 30, 2016 includes non-cash interest related2023 increased by $0.7 million as compared to the accounting for convertible securities of $6.3 million.
Interest income was negligible for the nine months ended September 30, 2017 and 2016.same period last year.
Other Expense,Income, net
Other expense,income, net for the ninesix months ended SeptemberJune 30, 2017 includes a $2.32023, decreased by $4.2 million loss on sale of short term investments. Other expense for the nine months ended September 30, 2017 and 2016 includes the impact of transactional foreign exchange gains and losses.primarily due to lower Transition Service Agreement ("TSA") income from our recent divestitures.
Income Taxes
 Six Months Ended June 30,
Dollars in thousands20232022
Income before income taxes$33,602 $90,890 
Income tax (benefit) expense5,192 13,201 
Effective tax rate15.5 %14.5 %
 Nine Months Ended September 30,
 2017 2016
 (In thousands)
Income before income taxes$15,982
 $54,931
Income tax (benefit) expense(4,406) 8,615
Effective tax rate(27.6)% 15.7%

The Company'sCompany’s effective income tax rates for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 were (27.6)%15.5% and 15.7%14.5%, respectively. Inrespectively.
For the ninesix months ended SeptemberJune 30, 2017,2023, the primary drivers of the lower tax rate arerelate to a reduction to book income and a $1.1 million benefit associated with the Federal R&D credit. The lower income before taxes comparedrate from the six months ended June 30, 2022 was primarily due to the same period in 2016, the jurisdictional mix of income before tax in U.S.-based operations relativea $5.7 million benefit related to foreign operations, and an increase in excess tax benefits of $3.7 million from stock-based compensation for the nine months ended September 30, 2017. The change in jurisdictional mix of income primarily results from significant acquisition and integration costs incurred in the U.S. in 2017.stock compensation.


Including the impact of the Codman Acquisition in the fourth quarter of 2017, the Company expects its effective income tax rate for the full year to be approximately a benefit of 65.7%, mainly from lower income before taxes resulting from acquisition-related expenses and benefits from stock-based compensation, Federal research credit benefits, and the jurisdictional mix of pretax income in U.S.-based operations relative to foreign operations. This estimate could be revised in the future as additional information is presented to the Company.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with the various taxing authorities. We consider these factors and others, including our history of generating taxable earnings, in assessing our ability to realize deferred tax assets on a quarterly basis.

While it is often difficult to predict the final outcome or the timing of resolution of any particular matter with the various Federal, state and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. The tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items it expects to pay in the coming year which are classified as current income taxes payable.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS
We attribute revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Dollars in thousandsDollars in thousands2023202220232022
United States$213,685
 $194,346
 $634,047
 $567,103
United States$276,782 $287,347 $547,784 $550,698 
Europe32,609
 28,553
 93,924
 89,623
Europe37,452 46,862 78,516 90,606 
Asia PacificAsia Pacific47,706 43,365 98,179 91,082 
Rest of World32,540
 27,433
 91,663
 79,685
Rest of World19,327 20,241 37,634 42,067 
Total Revenues$278,834
 $250,332
 $819,634
 $736,411
Total Revenues$381,267 $397,815 $762,113 $774,453 
We generate significant revenues outside the United States,U.S., a portion of which are U.S. dollar-denominated transactions conducted with customers whothat generate revenue in currencies other than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar and the currencies in which those customers do business could have an impact on the demand for our products in foreign countries. Local economic conditions, regulatory compliance or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the United States.U.S.
40
Domestic revenues increased to $213.7decreased by $10.6 million or 76.6% of total revenues, for the three months ended SeptemberJune 30, 2017 from $194.32023 compared to the same period last year. European sales decreased by $9.4 million or 77.6% of total revenues, for the three months ended SeptemberJune 30, 2016. The Derma Sciences acquisition accounted for $19.32023 compared to the same period last year. Sales to customers in Asia Pacific increased by $4.3 million of the increase for the three months ended SeptemberJune 30, 2017. International revenues increased2023. Sales to $65.1 million from $56.0 millioncustomers in the prior-year period. The Derma Sciences acquisition accounted for $4.8 millionthe Rest of the increaseWorld for the three months ended SeptemberJune 30, 2017. Foreign exchange fluctuations had a favorable impact of $1.72023 decreased by $0.9 million on revenues for the three months ended September 30, 2017 compared to the same period last year. The international revenues were impacted by $1.7 million of unfavorable foreign exchange impact, with the larger impact in 2016.Europe. The decrease in global revenues is primarily the result of the Boston recall which affected both Domestic and International markets. Sales in Japan and China led to continued growth in our Asia Pacific market.
Domestic revenues increased to $634.0decreased by $2.9 million or 77.4% of total revenues, for the ninesix months ended SeptemberJune 30, 2017 from $567.1 million, or 77.0% of total revenues, for the nine months ended September 30, 2016. The Derma Sciences acquisition accounted for $46.9 million of the increase for the nine months ended September 30, 2017. International revenues increased to $185.6 million from $169.3 million in the prior-year period. The Derma Sciences acquisition accounted for $11.5 million of the increase for the nine months ended September 30, 2017. Foreign exchange fluctuations had an unfavorable impact of $0.8 million on revenues for the nine months ended September 30, 20172023 compared to the same period last year. European sales decreased by $12.1 million for the six months ended June 30, 2023 compared to the same period last year. Sales to customers in 2016.Asia Pacific increased by $7.1 million million for the six months ended June 30, 2023. Sales to customers in the Rest of World for the six months ended June 30, 2023 decreased by $4.4 million million compared to the same period last year.


LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company's working capital as of June 30, 2023 and December 31, 2022 was $673.8 million and $840.6 million, respectively. Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.
Cash and Marketable Securities
WeThe Company had cash and cash equivalents totaling approximately $481.9$309.2 million and $102.1$456.7 million at SeptemberJune 30, 20172023 and December 31, 2016,2022 respectively, which are valued based on Level 1 measurements in the fair value hierarchy. At SeptemberJune 30, 2017,2023, our non-U.S. subsidiaries held approximately $133.7$267.1 million of cash and cash equivalents that are available for use outside the United States. If cashU.S. The Company asserts that it has the ability and cash equivalents held by our non-U.S. subsidiaries were repatriatedintends to indefinitely reinvest the United States, or used forundistributed earnings from its foreign operations certain amounts could be subjectunless there is no material tax cost to tax inremit the United States forearnings into the incremental amount in excess of the foreign tax paid.U.S..
Cash Flows
 Nine Months Ended September 30,
 2017 2016
 (In thousands)
Net cash provided by operating activities$102,995
 $109,876
Net cash used in investing activities(237,767) (21,480)
Net cash provided by (used in) financing activities504,733
 (28,879)
Effect of exchange rate fluctuations on cash9,927
 (51)

In 2017, we anticipate that our principal uses of cash will include approximately $50.0 to $55.0 million of capital expenditures primarily for support and maintenance in our existing plants, facility automation, our enterprise resource planning system implementation, and additions to our instrument kits used in sales of orthopedic products. On October 2, 2017, the Codman Acquisition was completed. The Company paid an aggregate purchase price of $1.014 billion, subject to certain adjustments under the Purchase Agreement. To facilitate the completion of the Codman Acquisition, the Company drew $326.4 million from the revolving component of the Senior Credit Facility on September 29, 2017 and $700.0 million from the Term Loan A-1 component of the Senior Credit Facility on October 2, 2017.
 Six Months Ended June 30,
Dollars in thousands20232022
Net cash provided by operating activities$54,435 $110,822 
Net cash used in investing activities(29,252)(18,565)
Net cash used in financing activities(173,376)(146,612)
Effect of exchange rate fluctuations on cash724 (11,941)
Cash Flows Provided by Operating Activities
We generated operating cash flows of $103.0 million and $109.9 million for the nine months ended September 30, 2017 and 2016, respectively.
Operating cash flows for the ninesix months ended SeptemberJune 30, 20172023 decreased compared to the same period in 2016. Net income decreased compared to the same period of the prior year. Net income after non-cash adjustments decreased cash flows for the nine months ended September 30, 2017 by approximately $17.1$56.4 million compared to the same period in 2016, which resulted2022. Within operating cash flows, net income less non-cash adjustments decreased for the six months ended June 30, 2023 by approximately $45.3 million as compared to the same period in 2022 primarily fromdue to lower revenues and margins and higher selling expenses.
The changes in assets and liabilities for the increasesix months ended June 30, 2023, net of business acquisitions, decreased cash flows by $57.6 million, mainly attributable to increases in depreciationinventory and amortization, non-cash impairment charges, share-based compensation expenses and realized loss on sale of short-term investmentsother current assets, offset by non-cash interest expense from convertible debt, which was settledincreases in December 2016. Net changes in working capital were minimal for the nine months ended September 30, 2017. Among the changes in working capital, accounts receivable used $9.9 million of cash, inventory used $0.9 million of cash, prepaidaccrued expenses and other current liabilities due to reduced payments processed in the quarter.
The changes in assets used $14.7and liabilities for the six months ended June 30, 2022, net of business acquisitions, decreased cash flows by $46.5 million, of cashprimarily due to increases in inventory to support increased sales and decreases in accounts payable, accrued expenses and other current liabilities provided $24.0 million of cash, deferred revenue provided $1.4 million of cash, and other non-current liabilities provided $2.4 million of cash. Increasesdue to increased payments processed in accounts receivables and inventories are consistent with the increase in revenue.
Operating cash flow for the nine months ended September 30, 2016 increased compared to the same period in 2015. Net income increased compared to the same period of the prior year. Net income after non-cash adjustments increased cash flows for the nine months ended September 30, 2016 by approximately $35.1 million compared to the same period in 2015, which resulted primarily from the $35.6 million expense relating to the adjustment of the valuation allowance recorded as a result of the spin-off of our spine business in July 2015 offset by the increase in depreciation and amortization. Changes in working capital decreased cash flows for the nine months ended September 30, 2016 by approximately $8.9 million. Among the changes in working capital, accounts receivable used $8.1 million of cash, inventory used $9.1 million of cash, prepaid expenses and other current assets provided $1.1 million of cash and accounts payable, and accrued expenses and other current liabilities provided $5.8 million of cash. Increases in accounts receivables and inventories are consistent with the increase in revenue.quarter.
Cash Flows Used in Investing Activities
During the ninesix months ended SeptemberJune 30, 2017,2023, we paid $29.8$29.3 million for capital expenditures mostto support operations improvement initiatives at a number of which were directed to the expansion of aour manufacturing facilityfacilities and commercial expansion. We also used $225.6 million for the acquisition of Derma Sciences and TGX Medical, net of cash acquired. The payment for Derma Sciences includes a $210.5 million initial payment plus a $26.6 million payment for the BioD Product Payment in May 2017. We received $17.0 million from the sale of short-term investments acquired from Derma Sciences. In the third quarter of 2017, we received $0.3 million in cash from escrow related to the acquisition of BioD by Derma Sciences.other information technology investments.
During the ninesix months ended SeptemberJune 30, 2016,2022, we paid $26.1$18.7 million for capital expenditures mostto support operations improvement initiatives at a number of which were directedour manufacturing facilities and other information technology investments as well as the final $4.7 million payment related to the implementationfinal developmental milestone for Rebound Therapeutics Corporation. This was partially offset by $4.9 million proceeds on cross-currency swaps.
41
Cash Flows Provided by (Used in)Used in Financing Activities
Our principal sourceUses of cash from financing activities in the ninesix months ended SeptemberJune 30, 2017 was $571.42023 related to the repurchase of treasury stock of $150.0 million in borrowingsunder the 2023 accelerated share repurchase agreement, repayments of $29.1 million under our Senior Credit Facility used to acquire Derma Sciences and to fund a portionSecuritization Facility. We also had $7.6 million in payment of debt issuance costs. In addition, the Codman AcquisitionCompany had $5.3 million in cash taxes paid for net equity settlements.
Sources of cash from financing activities for the six months ended June 30, 2023 were $15.2 million borrowing under our Senior Credit Facility and Securitization Facility and $3.4 million proceeds that we received from the exercise of stock options of $9.8 million, offset by repayments of $65.0 million on the revolving portion of our Senior Credit Facility and $6.8 million cash taxes paid in net equity settlement. In the third quarter of 2017, we paid $4.8 million related to the BioD Earnout Payments.options.
Our principal sourceUses of cash from financing activities in the ninesix months ended SeptemberJune 30, 2016 was a $15.02022 related to the repurchase of treasury stock of $125.0 million under the 2022 accelerated share repurchase agreement, repayments of $23.0 million under our Senior Credit Facility and Securitization Facility. In addition, we had $23.2 million in cash taxes paid for net equity settlements.
Sources of cash from financing activities for the six months ended June 30, 2022 were $23.0 million borrowing under our Senior Credit Facility for general operating purposes and proceeds that we received from stock option exercises of $9.9 million, offset by repayments of $48.8 million on the revolving portion of our Senior CreditSecuritization Facility and $4.6$1.6 million cash taxes paid in net equity settlement.



Upcoming Debt Maturities
The first quarterly installmentproceeds from the exercise of the Company's Term Loan A component of its Senior Credit Facility is due on March 31, 2018. We recorded $18.8 million of the Term Loan A component of the Senior Credit Facility as a current liability in the Company's consolidated balance sheets. There are no other upcoming debt maturities in the next twelve months.stock options.
Amended and Restated Senior Credit Agreement, Convertible DebtSenior Notes, Securitization and Related Hedging Activities
See Note 5 -6. Debt, to the current period’s condensed consolidated financial statementsNotes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a discussion of our (i) amendedAmended and restatedRestated Senior Credit Agreement, the 2025 Notes and (ii) convertible debtSecuritization Facility and relatedNote 7, Derivative Instruments, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for discussion of our hedging activities.

We are forecasting that sales and earnings for the next twelve months will be sufficient to remain in compliance with our financial covenants under the terms of the March 2023 Amendment to the Senior Credit Facility.
Share Repurchase Plan

On October 25, 2016, our Board of Directors terminatedJanuary 26, 2023, the Company entered into a $150 million accelerated share repurchase authorization dated October 28, 2014, which authorized management to purchase up to $75.0("2023 ASR") and received 2.1 million shares of outstandingthe Company common stock prior at inception of the 2023 ASR, which represented approximately 80% of the expected total shares under the 2023 ASR. The settlement of the ASR agreement was completed in two separate transactions on April 26, 2023 and May 4, 2023, where the Company received an additional 0.30 million and 0.31 million shares respectively, determined using the volume-weighted average price of the Company's common stock during the term of the 2023 ASR.
On January 12, 2022, we entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.48 million shares of our common stock at inception of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR. On March 24, 2022, the early exercise provision under the 2022 ASR was exercised by 2022 ASR counterparty. Upon settlement of the 2022 ASR on March 24, 2022, we received an additional 0.46 million shares determined using the volume-weighted average price of our common stock during the term of the 2022 ASR.
See Note 11. Treasury Stock, to the endNotes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of 2016, and authorized new repurchases of up to $150.0 million of outstanding common stock through December 2018. Shares may be repurchased either in the open market or in privately negotiated transactions.

The Company has not repurchased any shares of common stock under these authorizations through September 30, 2017.this Quarterly Report) for further details.
Dividend Policy
We have not paid any cash dividends on our common stock since our formation. Our Senior Credit Facility limits the amount of dividends that we may pay. Any future determinations to pay cash dividends on our common stock will be at the discretion of ourthe Board of Directors and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board of Directors.Board.
Capital Resources
We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the foreseeable future. The Company considersOur future capital requirements will depend on many factors, including the portiongrowth of our business, the Senior Credit Facility payable withintiming and introduction of new products and investments, strategic plans and acquisitions, among others. Additional sources of liquidity available to us include short term borrowings and the next twelve-month periodissuance of $18.8 million as a current liability.

long term debt and equity securities.
Off-Balance Sheet Arrangements
There were no off-balanceWe do not have any off–balance sheet financing arrangements during the ninesix months ended SeptemberJune 30, 20172023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

42
Contractual Obligations and Commitments
We will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to fund acquisitions. As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.
Our primary obligations include principal and interest payments on revolving portion and Term Loan component of the Senior Credit Facility, Securitization Facility and Convertible Securities. See Note 6. Debt, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details. We also lease some of our manufacturing facilities and office buildings which have future minimum lease payments associated. See Note 10. Leases and Related Party Leases,to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a schedule of our future minimum lease payments. Amounts related to our other obligations, including employment agreements and purchase obligations were not material.
The Company has contingent consideration obligation related to prior and current year acquisitions and future pension contribution obligations. See Note 9. Retirement Plans, and Note 16. Commitments and Contingencies, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details. The associated obligations are not fixed. We also have a liability for uncertain tax benefits including interest and penalties. We cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

OTHER MATTERS
Critical Accounting Estimates
We based the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in conformity with GAAP. The preparation of these financial statements requires us 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. The critical accounting estimates includeddiscussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, have2022 did not materially changed.change in the three months ended June 30, 2023.
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 1 -1. Basis of Presentation, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report), and is applicable to the current period’s condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes.


Foreign Currency Exchange and Other Rate Risks
We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, British pounds, Swiss francs, Canadian dollars, Japanese yen, Mexican pesos, Brazilian reais, Australian dollars and Chinese yuan. We manage the foreign currency exposure centrally, on a combined basis, which allows us to net exposures and to take advantage of any natural offsets. To mitigate the impact of currency fluctuations on transactions denominated in nonfunctional currencies, we periodically enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. We temporarily record realized and unrealized gains and losses on these contracts that qualify as cash flow hedges in other comprehensive income, and then recognize them in other income or expense when the hedged item affects net earnings.
From time to time, we enter into foreign currency forward exchange contracts with terms of up to 12 months to manage currency exposures for transactions denominated in a currency other than an entity’s functional currency. As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 7. Derivative Instruments, to Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for further information.
43
We maintain written policies and procedures governing our risk management activities. With respect to cash flow hedges,derivatives, changes in cash flows attributable to hedged transactionsitems are generally expected to be completely offset by changes in the fair value of hedge instruments. Consequently, foreign currency exchange contracts would not subject us to material risk resulting fromdue to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged.
The results of operations discussed herein have not been materially affected by inflation.
Interest Rate Risk
Cash and Cash Equivalents - We are exposed to the risk of interest rate fluctuations on the interest income earned on our cash and cash equivalents. A hypothetical 100 basis pointpoints movement in interest rates applicable to our cash and cash equivalents outstanding at SeptemberJune 30, 20172023 would increaseimpact interest income by approximately $4.8$3.1 million on an annual basis. No significant decrease in interest income would be expected as our cash balances are earning interest at rates of approximately one basis point.basis. We are subject to foreign currency exchange risk with respect to cash balances maintained in foreign currencies.
Senior Credit FacilityDebt - Our interest rate risk relates primarily to U.S. dollar LIBOR-indexedSOFR-indexed borrowings. We have used anuse interest rate swap derivative instrumentinstruments to manage our earnings and cash flow exposure to changes in interest rates. ThisThese interest rate swap fixesswaps fix the interest rate on a portion of our expected LIBOR-indexedSOFR-indexed floating-rate borrowings beginning various dates starting on December 31, 2016.
borrowings. These interest rate swaps were designated as cash flow hedges as of June 30, 2023. The total notional amounts related to the Company’s interest rate swaps were $1.5 billion with $775.0 million effective as of June 30, 2023. Based on our outstanding borrowings at SeptemberJune 30, 2017,2023, a one-percentage point increase100 basis points change in interest rates would affecthave impacted interest expense on the unhedged portion of the debt by $7.7$0.9 million on an annualized basis. A one-percentage point decrease inSee Note 7. Derivative Instruments, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for further information regarding interest rates would affect interest expense on the debt by $7.7 million on an annualized basis.rate swaps.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has designed our disclosure controls and procedures to provide reasonable assurance of achieving the desired control objectives.
As required by Exchange Act Rule 13a-15(b), we have carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of SeptemberJune 30, 2017.2023. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 20172023 to provide such reasonable assurance.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As previously disclosed, the Company is in the process of a multi-year implementation of a global enterprise resource planning system. In response to business integration activities, the Company haswe have and will continue to further align and streamline the design and operation of the financial control environment to be responsive to the changing business model.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
Various lawsuits, claimsInformation pertaining to legal proceedings can be found in Note 16, Commitments and proceedings are pending or have been settled by us; the most significant of which are described below.
The Company is subject to various claims, lawsuits and proceedings in the ordinary course of the Company's business, including claims by current or former employees, distributors and competitors and with respect to its products and product liability claims, lawsuits and proceedings, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on our financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

TEI

TEI, acquired by Integra on July 17, 2015, manufactures a bovine-derived surgical mesh product for Boston Scientific Corporation ("BSC”) and has been named as a defendant in lawsuits under a broad range of products liability theories, many of which have not been served on TEI. As of September 30, 2017, only ten cases remained against TEI. Pursuant to an indemnification agreement with BSC (i) BSC is managing the litigation; (ii) TEI has in place a products liability insurance policy, of which it must exhaust $3.0 million before BSC’s indemnity begins to cover relevant claims (and of which only a small portion has been utilized to date and against which the insurer has reserved the entire $3.0 million). Because the thrust of products liability litigation focuses on synthetic surgical mesh products, counsel is filing motions to dismiss on behalf of TEI in many cases. In addition, Integra has certain protections in the merger agreements with TEI which would indemnify it for approximately $30.0 million for the first fifteen months after closing and between $20.0 and $30.0 million for the remainder of the three-year period after closing for losses relating to a variety of matters, including half of certain products liability claims (including those related to the product it manufactures for BSC) not covered by insurance. As of October 26, 2017, no indemnification payments were received nor owed in relation to the lawsuits for the initial indemnification time period, which covered the first fifteen months after closing.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost.

BioD

On April 7, 2017, the Company's indirect wholly-owned subsidiary, BioD filed an action in the Superior Court of New Jersey, Chancery Division, Middlesex County seeking a declaration that the resignation of Russell Olsen, the former CEO of BioD, was “for Good Reason” (as defined in Olsen’s employment agreement); a finding that Olsen breached the implied covenant of good faith and fair dealing, committed legal fraud, equitable fraud and negligent misrepresentation; and an award of damages for such actions, including a return of severance fees paid to Olsen. BioD was acquired in August 2016 by Derma Sciences, which Integra subsequently acquired in February 2017. After receiving a job offer from Integra that Olsen believed materially diminished his title and authority, on February 24, 2017 Olsen indicated his intention to terminate his position with BioD for Good Reason, as otherwise permitted by his employment agreement with BioD. Shortly thereafter, Cynthia Weatherly (as representative of the former equity owners of BioD) claimed in a letter to Derma Sciences that Olsen’s resignation was a “termination Without Cause” (as also defined in Olsen’s employment agreement), which would arguably trigger an acceleration of the earn out under a merger agreement between Derma Sciences, BioD and other parties (the "BioD Merger Agreement"), which was entered into in July 2016, and require as a result of the acceleration the payment of $26.5 million by BioD. As previously disclosed and described in Note 2 - Business AcquisitionContingencies, to the Company's consolidated financial statements for the three and nine months ended September 30, 2017, Integra assumedNotes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this contingent liability in connection with its acquisition of Derma Sciences. The action for a declaratory judgment was filed to clarify that Olsen’s termination was for Good Reason and not Without Cause. If the employment agreementQuarterly Report).

was terminated for Good Reason, then the Company believes that the earn out provision under the BioD Merger Agreement should not be accelerated.

ITEM 1A. RISK FACTORS

The Risk FactorsThere have been no material changes in our risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022 and Quarterly Report on Form 10-Q forsubsequent periodic reports filed with the quarterly periods ended March 31, 2017Securities and June 30, 2017 have not materially changed except the following:

If any of our manufacturing facilities were damaged and/or our manufacturing or business processes interrupted, we could experience lost revenues and our business could be seriously harmed.
Damage to our manufacturing, development and/or research facilities because of fire, extreme weather conditions, natural disaster, power loss, communications failure, unauthorized entry or other events, such as a flu or other health epidemic, could significantly disrupt our operations, the operations of suppliers and critical infrastructure and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace the damaged facilities. In particular, our San Diego, California facility is susceptible to earthquake damage, wildfire damage and power losses from electrical shortages as are other businesses in Southern California. Our Añasco, Puerto Rico plant, where we manufacture collagen, silicone and our private-label products, is vulnerable to hurricane, storm, earthquake and wind damage. In September 2017, Hurricane Maria caused catastrophic damage and disruptionExchange Commission pursuant to the infrastructure in Puerto Rico, including power, communications, water supply and transportation and to the operationsSecurities Exchange Act of suppliers and service providers, some1934, as amended (the "Exchange Act").
44
Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances, and we may not be able to renew or obtain such insurance in the future on acceptable terms with adequate coverage or at reasonable costs. While we believe that our exposure to significant losses from such circumstances could be partially mitigated by our ability to manufacture, store, and distribute some of our products at other facilities, the losses could have a material adverse effect on our business for an undetermined period of time before the transition is complete and operations resume without significant disruption.
In addition, certain of our surgical instruments have some manufacturing processes performed by third parties in Pakistan, and we purchase a much smaller amount of instruments directly from vendors there. Pakistan is subject to political instability and unrest. Such instability could interrupt our ability to sell surgical instruments to our customers and could have a material adverse effect on our revenues and earnings. While we have developed a relationship with an alternative provider of these services in another country, and continue to work to develop other providers in other countries, we cannot guarantee that we will be completely successful in establishing all of these relationships. Even if we are successful in establishing all of these alternative relationships, we cannot guarantee that we will be able to do so at the same level of costs or that we will be able to pass along additional costs to our customers.
Further, we manufacture certain products in Europe and our European headquarters is located in France, which has experienced labor strikes and acts of terrorism. Thus far, strikes and acts of terrorism have not had a material impact on our business; however, if either were to occur, there is no assurance that they would not disrupt our business, and any such disruption could have a material adverse effect on our business.
An experienced third party hosts and maintains the enterprise business system used to support certain of our transaction processing for accounting and financial reporting, supply chain and manufacturing. Currently, we have developed a comprehensive disaster recovery plan for the Company’s infrastructure. As we have not fully tested the plan, we have adopted alternative solutions to mitigate business risk, including backup equipment, power and communications. We also implemented a comprehensive backup and recovery process for our key software applications. Our global production and distribution operations are dependent on the effective management of information flow between facilities. An interruption of the support provided by our enterprise business systems could have a material adverse effect on the business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were noThe following table provides information about purchases by the Company during the quarter ended June 30, 2023 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act. Subject to applicable law, share repurchases may be made from time to time in open market transactions, privately negotiated transactions including accelerated share repurchase agreements, or pursuant to instruments and plans complying with Rule 10b5-1 under the Exchange Act, among other types of ourtransactions and arrangements.
Issuer purchases of equity securities
PeriodTotal number of shares purchased by monthAverage price paid per shareTotal number of shares purchased by month as part of publicly announced repurchase programsApproximate dollar value of shares that may yet be purchased under the plans or program
04/01/23 - 04/30/23303,129 $55.32 303,129 $75,000,000 
05/01/23 - 05/31/23305,888 50.20 305,888 75,000,000 
06/01/23 - 06/30/23— — — 75,000,000 
609,017 $52.75 609,017 
On January 26, 2023, the Company entered into a $150 million accelerated share repurchase ("2023 ASR") and received 2.1 million shares of the Company common stock at inception of the 2023 ASR, which represented approximately 80% of the expected total shares under the 2023 ASR. The settlement of the ASR agreement was completed in two separate transactions on April 26, 2023 and May 4, 2023, where the Company received an additional 0.30 million and 0.31 million shares respectively, determined using the volume-weighted average price of the Company's common stock during the term of the 2023 ASR.
See Note 11, Treasury Stock, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for additional information regarding our share repurchase program duringand the three and nine months ended September 30, 2017.2023 ASR.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans
On October 24, 2017,During the Company entered into the Third Amended and Restated Employment Agreement with Peter J. Arduini, President and Chief Executive Officerquarter ended June 30, 2023, none of the Company (the “Agreement”). The Agreement will become effective January 1, 2018 and will amend and restate the Second Amended and Restated Employment Agreement between the Company and Mr. Arduini, dated June 16, 2014, that is scheduled to expire on December 31, 2017.

Unless earlier terminated, the term of the Agreement will terminate on December 31, 2020. In the event that a change in control of the Company occurs prior to the expiration of the term, the employment period will instead continue through the later of December 31, 2020,Company’s directors or the second anniversary of the consummation of the change in control.

Under the Agreement, Mr. Arduini is entitled to receive an annual base salary of $911,622.27. Commencing with calendar year 2018, Mr. Arduini will also be eligible for an annual bonus opportunity targeted at 120% of his annual base salary. Mr. Arduini’s bonus opportunity will range from 50% of his target annual bonus opportunity (if threshold performance goals are achieved) to a maximum of 200% of his target annual bonus opportunity. Mr. Arduini’s base salary is subject to annual review and may be increased at the discretion of the Company.

The Agreement provides that Mr. Arduini is eligible to receive a discretionary annual equity award, with the amount, form and mix of such award to be determined by the Company’s Compensation Committee in its discretion after giving consideration to annual equity-based awards granted to chief executive officers in the Company’s peer group. Any annual equity awards will be granted pursuant to award agreements on forms substantially similar to the applicable form attached to the Agreement, which include provisions for accelerated time-vesting in connection with Mr. Arduini’s retirement. The Agreement also provides that each current and future equity award held by Mr. Arduini that provides for double trigger accelerated vesting will provide for accelerated vesting upon a qualifying termination that occurs onadopted or within 24 months following a change in control. In addition, Mr. Arduini’s stock options will remain exercisable for up to two years following a qualifying terminationterminated any contract, instruction or such longer period of time provided in the applicable option agreement.

The Agreement contains non-compete and non-solicitation covenants that extend for 18 months following a termination of Mr. Arduini’s employment (or 12 months in the event of a termination due to the expiration of the employment term). Further, the Company will reimburse Mr. Arduini for up to $15,000 in legal fees and expenses incurred in connection with the drafting, review and negotiation of the Agreement and any related agreements.

Under the Agreement, if Mr. Arduini’s employment is terminated outside the context of a change in control by the Company other than for “cause,” death or “disability,” or by Mr. Arduini for “good reason” (each, as defined in the Agreement), then, in addition to accrued amounts, Mr. Arduini will be entitled to the following payments and benefits:

A lump sum payment equal to 2.99 times Mr. Arduini’s annual base salary;
Company-subsidized healthcare continuation coverage for Mr. Arduini and his dependents for up to 18 months after his termination date; and
Company-paid life and disability insurance premiums for Mr. Arduini for up to 18 months after his termination date.

If Mr. Arduini’s employment is terminated by the Company within 24 months following a change in control by the Company other than for cause, death or disability, or by Mr. Arduini for good reason, then Mr. Arduini will be entitled to receive the same payments and benefits as in the non-change in control context, except: (i) the lump sum cash payment will instead equal 2.99 times the sum of Mr. Arduini’s annual base salary and target bonus and (ii) Mr. Arduini will receive a pro-rata portion of his annual bonuswritten plan for the yearpurchase or sale of termination, determined based on actual performance.Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

45
If Mr. Arduini’s employment is terminated due to his death, then his estate will receive (i) a lump sum cash payment equal to Mr. Arduini’s annual base salary, and (ii) Company-subsidized healthcare continuation coverage for up to 12 months after his termination date.
Table of Contents"

Mr. Arduini’s right to receive the severance payments pursuant to the Agreement (other than upon his death) is contingent on Mr. Arduini’s executing a general release of claims against the Company (provided that the Company also executes a general release of claims against Mr. Arduini). In addition, to the extent that any payment or benefit received in connection with a change in control would be subject to an excise tax under Section 4999 of the Internal Revenue Code, such payments and/or benefits will

be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to Mr. Arduini than receiving the full amount of such payments.

The foregoing description of the Agreement is not complete and is subject to and qualified in its entirety by the terms of the Agreement, a copy of which is filed herewith as Exhibit 10.1 and incorporated herein by reference.


ITEM 6. EXHIBITS
Exhibits
Exhibits
*2.1
3.1(a)
*#10.13.1(b)
3.1(c)
3.1(d)
3.2
3.3
*31.1
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2
*32.1
*32.2
*†101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*†101.SCHXBRL Taxonomy Extension Schema Document
*†101.CALXBRL Taxonomy Extension Calculation Linkbase Document
*†101.DEFXBRL Definition Linkbase Document
*†101.LABXBRL Taxonomy Extension Labels Linkbase Document
*†101.PREXBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith
#104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Filed herewith
#Indicates a management contract or compensatory plan or arrangement.
†The financial information of Integra LifeSciences Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 filed on July 27, 2023 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, is furnished electronically herewith.

46
† The financial information


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:October 26, 2017July 27, 2023/s/ Peter J. ArduiniJan De Witte
Peter J. ArduiniJan De Witte
President and Chief Executive Officer
(Principal Executive Officer)
Date:October 26, 2017/s/ Glenn G. Coleman
Date:July 27, 2023Glenn G. Coleman/s/ Lea Knight
CorporateLea Knight
Executive Vice President and Chief Financial Officer


Table of Contents

(Principal Financial Officer)
ExhibitsDate:July 27, 2023/s/ Jeffrey A. Mosebrook
Jeffrey A. Mosebrook
*2.1
Asset Purchase Agreement, dated September 8, 2017, between the Company and certain of its subsidiaries and Natus Medical Incorporated
*#10.1
Third Amended and Restated Employment Agreement between the Company and Peter J. Arduini
*31.1
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*†101.INSXBRL Instance Document
*†101.SCHXBRL Taxonomy Extension Schema Document
*†101.CALXBRL Taxonomy Extension Calculation Linkbase Document
*†101.DEFXBRL Definition Linkbase Document
*†101.LABXBRL Taxonomy Extension Labels Linkbase Document
*†101.PREXBRL Taxonomy Extension Presentation Linkbase Document
Senior Vice President, Finance
*Filed herewith
#Indicates a management contract or compensatory plan or arrangement.(Principal Accounting Officer)

† The financial information of Integra LifeSciences Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 filed on October 26, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, is furnished electronically herewith.






44
47