QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) | (I.R.S. EMPLOYER IDENTIFICATION NO.) | |||
, | (ZIP CODE) | |||
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |
TITLE OF EACH CLASS | TRADING SYMBOL | NAME OF EACH EXCHANGE ON WHICH REGISTERED |
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
Page Number | |
EX-101 INSTANCE DOCUMENT | |
EX-101 SCHEMA DOCUMENT | |
EX-101 CALCULATION LINKBASE DOCUMENT | |
EX-101 DEFINITION LINKBASE DOCUMENT | |
EX-101 LABELS LINKBASE DOCUMENT | |
EX-101 PRESENTATION LINKBASE DOCUMENT |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Total revenue, net | $ | $ | $ | $ | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of goods sold | |||||||||||||||
Research and development | |||||||||||||||
In-process research and development | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Intangible asset amortization | |||||||||||||||
Total costs and expenses | |||||||||||||||
Operating income (loss) | ( | ) | |||||||||||||
Interest income | |||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other income, net | |||||||||||||||
Income (loss) before income taxes | ( | ) | |||||||||||||
Provision (benefit) for income taxes | ( | ) | ( | ) | ( | ) | |||||||||
Net income (loss) | $ | ( | ) | $ | $ | $ | |||||||||
Net income (loss) per share | |||||||||||||||
Basic | $ | ( | ) | $ | $ | $ | |||||||||
Diluted | $ | ( | ) | $ | $ | $ | |||||||||
Weighted average common shares outstanding (See Note 13): | |||||||||||||||
Basic | |||||||||||||||
Diluted | |||||||||||||||
Comprehensive income (loss) (See Note 14) | $ | ( | ) | $ | $ | ( | ) | $ |
September 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Trade accounts receivable, net of allowances of $4,006 and $3,719 | |||||||
Inventories, net | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Right of use asset - operating leases | — | ||||||
Intangible assets, net | |||||||
Goodwill | |||||||
Deferred tax assets, net | |||||||
Other assets | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current portion of borrowings under senior credit facility | $ | $ | |||||
Current portion of lease liability - operating leases | — | ||||||
Accounts payable, trade | |||||||
Contract liabilities | |||||||
Accrued compensation | |||||||
Accrued expenses and other current liabilities | |||||||
Total current liabilities | |||||||
Long-term borrowings under senior credit facility | |||||||
Long-term borrowings under securitization facility | |||||||
Lease liability - operating leases | — | ||||||
Deferred tax liabilities | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Refer to Note 16) | |||||||
Stockholders’ equity: | |||||||
Preferred stock; no par value; 15,000 authorized shares; none outstanding | |||||||
Common stock; $0.01 par value; 240,000 authorized shares; 88,689 and 88,044 issued at September 30, 2019 and December 31, 2018, respectively | |||||||
Additional paid-in capital | |||||||
Treasury stock, at cost; 2,869 shares and 2,881 shares at September 30, 2019 and December 31, 2018, respectively | ( | ) | ( | ) | |||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Retained earnings | |||||||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
OPERATING ACTIVITIES: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Non-cash in-process research and development expense | |||||||
Non-cash impairment charges | |||||||
Deferred income tax | ( | ) | |||||
Amortization of debt issuance costs | |||||||
Loss on disposal of property and equipment | |||||||
Change in fair value of contingent consideration and other | |||||||
Share-based compensation | |||||||
Changes in assets and liabilities, net of business acquisitions: | |||||||
Accounts receivable | ( | ) | |||||
Inventories | ( | ) | ( | ) | |||
Prepaid expenses and other current assets | ( | ) | |||||
Other non-current assets | ( | ) | |||||
Accounts payable, accrued expenses and other current liabilities | |||||||
Contract liabilities | ( | ) | ( | ) | |||
Other non-current liabilities | |||||||
Net cash provided by operating activities | |||||||
INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | ( | ) | ( | ) | |||
Proceeds from note receivable | |||||||
Proceeds from sale of property and equipment | |||||||
Cash (paid) provided for business acquisitions, net of cash acquired | ( | ) | |||||
Acquired in-process research and development | ( | ) | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
FINANCING ACTIVITIES: | |||||||
Proceeds from borrowings of long-term indebtedness | |||||||
Payments on debt | ( | ) | ( | ) | |||
Payment of debt issuance costs | ( | ) | |||||
Proceeds from the issuance of common stock, net of issuance costs | |||||||
Net cash paid for financing liabilities from business acquisitions | ( | ) | |||||
Proceeds from exercised stock options | |||||||
Cash taxes paid in net equity settlement | ( | ) | ( | ) | |||
Net cash (used in) / provided by financing activities | ( | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | |||
Net increase in cash and cash equivalents | |||||||
Cash and cash equivalents at beginning of period | |||||||
Cash and cash equivalents at end of period | $ | $ |
Three Months Ended September 30, 2019 | |||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Balance, June 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Net loss | — | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||||
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes | — | — | — | ||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Balance, September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Nine Months Ended September 30, 2019 | |||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Balance, December 31, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Net income | — | $ | — | — | — | — | — | ||||||||||||||||||||||
Other comprehensive loss, net of tax | — | $ | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes | $ | — | — | ||||||||||||||||||||||||||
Share-based compensation | — | $ | — | — | — | — | — | ||||||||||||||||||||||
Balance, September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Three Months Ended September 30, 2018 | |||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Balance, June 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Net income | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||
Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes | ( | ) | ( | ) | — | — | ( | ) | |||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Balance, September 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Nine Months Ended September 30, 2018 | |||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Net income | — | — | — | $ | — | — | $ | — | |||||||||||||||||||||
Adoption of Update No. 2014-09 | — | — | — | — | — | — | |||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||
Issuance of common stock | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock through employee stock purchase plan | — | — | — | — | — | — | |||||||||||||||||||||||
Issuance of common stock for vesting of share based awards, net of shares withheld for taxes | ( | ) | — | — | ( | ) | |||||||||||||||||||||||
Equity offering | — | — | — | — | |||||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||
Balance, September 30, 2018 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ |
Preliminary Valuation as of September 30, 2019 | Weighted Average Life | ||||
(Dollars in thousands) | |||||
Cash | $ | ||||
Other current assets | |||||
Property, plant and equipment | |||||
Intangible assets: | |||||
CerebroFlo developed technology | |||||
Enabling technology license | |||||
Goodwill | |||||
Total assets acquired | |||||
Accounts payable, accrued expenses and other liabilities | |||||
Contingent consideration | |||||
Deferred tax liabilities, net | |||||
Net assets acquired | $ |
Contract Asset | |||
Contract asset, January 1, 2019 | $ | ||
Transferred to trade receivable of contract asset included in beginning of the year contract asset | ( | ) | |
Contract asset, net of transferred to trade receivables on contracts during the period | |||
Contract asset, September 30, 2019 | $ | ||
Contract Liability | |||
Contract liability, January 1, 2019 | $ | ||
Recognition of revenue included in beginning of year contract liability | ( | ) | |
Contract liability, net of revenue recognized on contracts during the period | |||
Foreign currency translation | ( | ) | |
Contract liability, September 30, 2019 | $ |
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | ||||||||||
(amounts in thousands) | |||||||||||||
Neurosurgery | $ | $ | $ | $ | |||||||||
Precision Tools and Instruments | |||||||||||||
Total Codman Specialty Surgical | |||||||||||||
Wound Reconstruction and Care | |||||||||||||
Extremity Orthopedics | |||||||||||||
Private Label | |||||||||||||
Total Orthopedics and Tissue Technologies | |||||||||||||
Total revenue | $ | $ | $ | $ |
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||
As Reported | Excluding Impact of Topic 606 | As Reported | Excluding Impact of Topic 606 | |||||||||
(Amounts in thousands) | ||||||||||||
Statement of Operations | ||||||||||||
Total revenue, net | $ | $ | $ | $ | ||||||||
Cost of goods sold | ||||||||||||
Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||
Net income |
September 30, 2019 | December 31, 2018 | ||||||
(In thousands) | |||||||
Finished goods | $ | $ | |||||
Work in process | |||||||
Raw materials | |||||||
$ | $ |
Codman Specialty Surgical | Orthopedics and Tissue Technologies | Total | |||||||||
(In thousands) | |||||||||||
Goodwill at December 31, 2018 | $ | $ | $ | ||||||||
Arkis Acquisition | |||||||||||
Foreign currency translation | ( | ) | ( | ) | ( | ) | |||||
Goodwill at September 30, 2019 | $ | $ | $ |
September 30, 2019 | |||||||||||||
Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
(Dollars in thousands) | |||||||||||||
Completed technology | $ | $ | ( | ) | $ | ||||||||
Customer relationships | ( | ) | |||||||||||
Trademarks/brand names | ( | ) | |||||||||||
Codman tradename | Indefinite | — | |||||||||||
Supplier relationships | ( | ) | |||||||||||
All other | ( | ) | |||||||||||
$ | $ | ( | ) | $ |
December 31, 2018 | |||||||||||||
Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
(Dollars in thousands) | |||||||||||||
Completed technology | $ | $ | ( | ) | $ | ||||||||
Customer relationships | ( | ) | |||||||||||
Trademarks/brand names | ( | ) | |||||||||||
Codman tradename | Indefinite | — | |||||||||||
Supplier relationships | ( | ) | |||||||||||
All other | ( | ) | |||||||||||
$ | $ | ( | ) | $ |
i. | a $ |
ii. | a $ |
Fiscal Quarter | Maximum Consolidated Total Leverage Ratio | |
Execution of May 2018 Amendment through March 31, 2019 | 5.50 : 1.00 | |
June 30, 2019 through March 31, 2020 | 5.00 : 1.00 | |
June 30, 2020 through March 31, 2021 | 4.50 : 1.00 | |
June 30, 2021 and thereafter | 4.00 : 1.00 |
i. | the Eurodollar Rate (as defined in the Senior Credit Facility) in effect from time to time plus the applicable rate (ranging from |
ii. | the highest of: |
1. | the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus |
2. | the prime lending rate of Bank of America, N.A. plus the applicable rate (ranging from |
3. | the one-month Eurodollar Rate plus |
Year Ended December 31, | Principal Repayment | |||
(In thousands) | ||||
Remainder of 2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
$ |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||
Hedged Item | Current Notional Amount | Designation Date | Effective Date | Termination Date | Fixed Interest Rate | Estimated Fair Value | Estimated Fair Value | |||||||||||||
Assets (Liabilities) | Assets (Liabilities) | |||||||||||||||||||
3-month USD LIBOR Loan | $ | June 22, 2016 | December 31, 2016 | June 30, 2019 | % | $ | $ | |||||||||||||
3-month USD LIBOR Loan | June 22, 2016 | December 31, 2016 | June 30, 2019 | % | ||||||||||||||||
1-month USD LIBOR Loan | July 12, 2016 | December 31, 2016 | June 30, 2019 | % | ||||||||||||||||
3-month USD LIBOR Loan | February 6, 2017 | June 30, 2017 | June 30, 2020 | % | ||||||||||||||||
1-month USD LIBOR Loan | February 6, 2017 | June 30, 2017 | June 30, 2020 | % | ||||||||||||||||
1-month USD LIBOR Loan | March 27, 2017 | December 31, 2017 | June 30, 2021 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | December 13, 2017 | January 1, 2018 | December 31, 2022 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | December 13, 2017 | January 1, 2018 | December 31, 2022 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | December 13, 2017 | July 1, 2019 | June 30, 2024 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | December 13, 2017 | July 1, 2019 | June 30, 2024 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | December 13, 2017 | January 1, 2018 | December 31, 2024 | % | ( | ) | ||||||||||||||
1-month USD LIBOR Loan | October 10, 2018 | July 1, 2020 | June 30, 2025 | % | ( | ) | ( | ) | ||||||||||||
1-month USD LIBOR Loan | October 10, 2018 | July 1, 2020 | June 30, 2025 | % | ( | ) | ( | ) | ||||||||||||
1-month USD LIBOR Loan | October 10, 2018 | July 1, 2020 | June 30, 2025 | % | ( | ) | ( | ) | ||||||||||||
1-month USD LIBOR Loan | December 18, 2018 | December 30, 2022 | December 31, 2027 | % | ( | ) | ( | ) | ||||||||||||
1-month USD LIBOR Loan | December 18, 2018 | December 30, 2022 | December 31, 2027 | % | ( | ) | ( | ) | ||||||||||||
Total interest rate derivatives designated as cash flow hedge | $ | $ | ( | ) | $ |
September 30, 2019 | ||||||||||||||
Effective Date | Termination Date | Fixed Rate | Aggregate Notional Amount | Fair Value Asset (Liability) | ||||||||||
Pay CHF | October 2, 2017 | October 2, 2020 | CHF | $ | ||||||||||
Receive U.S.$ | $ | |||||||||||||
Pay CHF | October 2, 2017 | October 2, 2021 | CHF | |||||||||||
Receive U.S.$ | $ | |||||||||||||
Pay CHF | October 2, 2017 | October 2, 2022 | CHF | |||||||||||
Receive U.S.$ | $ | |||||||||||||
Total | $ |
December 31, 2018 | ||||||||||||||
Effective Date | Termination Date | Fixed Rate | Aggregate Notional Amount | Fair Value Asset (Liability) | ||||||||||
Pay CHF | October 2, 2017 | October 2, 2020 | CHF | $ | ( | ) | ||||||||
Receive U.S.$ | $ | |||||||||||||
Pay CHF | October 2, 2017 | October 2, 2021 | CHF | ( | ) | |||||||||
Receive U.S.$ | $ | |||||||||||||
Pay CHF | October 2, 2017 | October 2, 2022 | CHF | ( | ) | |||||||||
Receive U.S.$ | $ | |||||||||||||
Total | $ | ( | ) |
September 30, 2019 | December 31, 2018 | ||||||||||||||||
Effective Date | Termination Date | Fixed Rate | Aggregate Notional Amount | Fair Value Asset (Liability) | Fair Value Asset (Liability) | ||||||||||||
Pay EUR | October 3, 2018 | September 30, 2021 | EUR | $ | $ | ||||||||||||
Receive U.S.$ | $ | ||||||||||||||||
Pay EUR | October 3, 2018 | September 30, 2023 | EUR | ( | ) | ||||||||||||
Receive U.S.$ | $ | ||||||||||||||||
Pay EUR | October 3, 2018 | September 30, 2025 | EUR | ( | ) | ||||||||||||
Receive U.S.$ | $ | ||||||||||||||||
Pay GBP | October 3, 2018 | September 30, 2025 | GBP | ||||||||||||||
Receive U.S.$ | $ | ||||||||||||||||
Pay CHF | October 3, 2018 | September 30, 2025 | CHF | ( | ) | ( | ) | ||||||||||
Receive GBP | GBP | ||||||||||||||||
Total | $ | $ | ( | ) |
Fair Value as of | ||||||||
Location on Balance Sheet (1): | September 30, 2019 | December 31, 2018 | ||||||
(In thousands) | ||||||||
Derivatives designated as hedges — Assets: | ||||||||
Prepaid expenses and other current assets | ||||||||
Cash Flow Hedges | ||||||||
Interest rate swap(2) | $ | $ | ||||||
Cross-currency swap | ||||||||
Net Investment Hedges | ||||||||
Cross-currency swap | ||||||||
Other assets | ||||||||
Cash Flow Hedges | ||||||||
Interest rate swap(2) | ||||||||
Cross-currency swap | ||||||||
Net Investment Hedges | ||||||||
Cross-currency swap | ||||||||
Total derivatives designated as hedges — Assets | $ | $ | ||||||
Derivatives designated as hedges — Liabilities: | ||||||||
Accrued expenses and other current liabilities | ||||||||
Cash Flow Hedges | ||||||||
Interest rate swap(2) | $ | $ | ||||||
Other liabilities | ||||||||
Cash Flow Hedges | ||||||||
Interest rate swap(2) | ||||||||
Cross-currency swap | ||||||||
Net Investment Hedges | ||||||||
Cross-currency swap | ||||||||
Total derivatives designated as hedges — Liabilities | $ | $ |
(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, 2019 and December 31, 2018, the notional amount related to the Company’s interest rate swaps were $ |
Balance 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 | |||||||||||||
(In thousands) | |||||||||||||||||
Three Months Ended September 30, 2019 | |||||||||||||||||
Cash Flow Hedges | |||||||||||||||||
Interest rate swap | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | Interest expense | ||||||
Cross-currency swap | ( | ) | ( | ) | Other income, net | ||||||||||||
Net Investment Hedges | |||||||||||||||||
Cross-currency swap | Interest income | ||||||||||||||||
$ | ( | ) | $ | $ | $ | ( | ) | ||||||||||
Three Months Ended September 30, 2018 | |||||||||||||||||
Cash Flow Hedges | |||||||||||||||||
Interest rate swap | $ | $ | $ | $ | Interest expense | ||||||||||||
Cross-currency swap | ( | ) | ( | ) | ( | ) | ( | ) | Other income, net | ||||||||
$ | $ | $ | ( | ) | $ | ||||||||||||
Balance 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 | |||||||||||||
(In thousands) | |||||||||||||||||
Nine Months Ended September 30, 2019 | |||||||||||||||||
Cash Flow Hedges | |||||||||||||||||
Interest rate swap | $ | $ | ( | ) | $ | $ | ( | ) | Interest expense | ||||||||
Cross-currency swap | ( | ) | ( | ) | Other income, net | ||||||||||||
Net Investment Hedges | |||||||||||||||||
Cross-currency swap | $ | ( | ) | $ | $ | $ | Interest income | ||||||||||
$ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||
Nine Months Ended September 30, 2018 | |||||||||||||||||
Cash Flow Hedges | |||||||||||||||||
Interest rate swap | $ | $ | $ | ( | ) | $ | Interest expense | ||||||||||
Cross-currency swap | $ | ( | ) | $ | $ | $ | ( | ) | Other income, net | ||||||||
$ | ( | ) | $ | $ | $ |
September 30, 2019 | |||
(In thousands, except lease term and discount rate) | |||
ROU assets | $ | ||
Current lease liabilities | $ | ||
Non-current lease liabilities | |||
Total lease liabilities | $ | ||
Weighted average remaining lease term (in years): | |||
Leased facilities | |||
Leased vehicles | |||
Weighted average discount rate: | |||
Leased facilities | % | ||
Leased vehicles | % |
September 30, 2019 | |||
(In thousands) | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | ||
ROU assets obtained in exchange for lease liabilities: | |||
Operating leases |
Related Parties | Third Parties | Total | |||||||||
(In thousands) | |||||||||||
2019 | $ | $ | $ | ||||||||
2020 | |||||||||||
2021 | |||||||||||
2022 | |||||||||||
2023 | |||||||||||
Thereafter | |||||||||||
Total minimum lease payments | $ | $ | $ | ||||||||
Less: Imputed interest | |||||||||||
Total lease liabilities | |||||||||||
Less: Current lease liabilities | |||||||||||
Long-term lease liabilities |
Related Parties | Third Parties | Total | |||||||||
(In thousands) | |||||||||||
2019 | $ | $ | $ | ||||||||
2020 | |||||||||||
2021 | |||||||||||
2022 | |||||||||||
2023 | |||||||||||
Thereafter | |||||||||||
Total minimum lease payments | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Reported tax rate | ( | )% | ( | )% | ( | )% | ( | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Basic net income per share: | |||||||||||||||
Net income (loss) | $ | ( | ) | $ | $ | $ | |||||||||
Weighted average common shares outstanding | |||||||||||||||
Basic net income (loss) per common share | $ | ( | ) | $ | $ | $ | |||||||||
Diluted net income per share: | |||||||||||||||
Net income (loss) | $ | ( | ) | $ | $ | $ | |||||||||
Weighted average common shares outstanding — Basic | |||||||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and restricted stock | |||||||||||||||
Weighted average common shares for diluted earnings per share | |||||||||||||||
Diluted net income (loss) per common share | $ | ( | ) | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
Net income (loss) | $ | ( | ) | $ | $ | $ | |||||||||
Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Change in unrealized gain (loss) on derivatives, net of tax | ( | ) | ( | ) | |||||||||||
Pension liability adjustment, net of tax | |||||||||||||||
Comprehensive income (loss), net | $ | ( | ) | $ | $ | ( | ) | $ |
Gains and Losses on Derivatives | Defined Benefit Pension Items | Foreign Currency Items | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Balance at January 1, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Amounts reclassified from accumulated other comprehensive loss | ( | ) | ||||||||||||||
Net current-period other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
Balance at September 30, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
• | The Codman Specialty Surgical 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 instruments business, which sells more than |
• | The Orthopedics and Tissue Technologies segment includes such offerings as skin and wound repair, bone and joint fixation implants in the upper and lower extremities, bone grafts and nerve and tendon repair products. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
Segment Net Sales | |||||||||||||||
Codman Specialty Surgical | $ | $ | $ | $ | |||||||||||
Orthopedics and Tissue Technologies | |||||||||||||||
Total revenues | $ | $ | $ | $ | |||||||||||
Segment Profit | |||||||||||||||
Codman Specialty Surgical | $ | $ | $ | $ | |||||||||||
Orthopedics and Tissue Technologies | |||||||||||||||
Segment profit | |||||||||||||||
Amortization | ( | ) | ( | ( | ) | ( | ) | ||||||||
Corporate and other | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Operating income | $ | ( | ) | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
United States | $ | $ | $ | $ | |||||||||||
Europe | |||||||||||||||
Asia Pacific | |||||||||||||||
Rest of World | |||||||||||||||
Total Revenues | $ | $ | $ | $ |
Nine Months Ended September 30, 2019 | Contingent Consideration Liability Related to Acquisition of Arkis (See Note 2) | Contingent Consideration Liability Related to Acquisition of Derma Sciences | |||||
Long-term | Long-term | ||||||
Balance as of January 1, 2019 | $ | $ | |||||
Additions from acquisition of Arkis | — | ||||||
Balance as of September 30, 2019 | $ | $ |
Nine months Ended September 30, 2018 | Contingent Considerations Liabilities Related to Acquisition of Derma Sciences | Contingent Consideration Liability Related to Acquisition of Confluent Surgical, Inc. | Location in Financial Statements | |||||||||||
Short-term | Long-term | Short-term | ||||||||||||
Balance as of January 1, 2018 | $ | $ | $ | |||||||||||
Transfers from long-term to current portion | ( | ) | ||||||||||||
Payments | ( | ) | ( | ) | ||||||||||
Loss from change in fair value of contingent consideration liabilities | Selling, general and administrative | |||||||||||||
Balance as of September 30, 2018 | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
Acquisition and integration-related charges(1) | $ | 74,531 | $ | 23,515 | $ | 106,816 | $ | 76,108 | |||||||
Structural optimization charges | 5,353 | 3,345 | 13,169 | 11,885 | |||||||||||
EU medical device regulation | 1,978 | — | 3,200 | — | |||||||||||
Litigation (settlement) charges | (2,254 | ) | 1,637 | 46 | 3,139 | ||||||||||
Discontinued product lines charges | 3,104 | — | 6,825 | — | |||||||||||
Impairment charges | — | 4,941 | 5,764 | 4,941 | |||||||||||
Total | $ | 82,712 | $ | 33,438 | $ | 135,820 | $ | 96,073 |
(1) | The Company included $59.9 million of in-process research and development expense within acquisition and integration-related charges as a result of the Rebound transaction. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
Cost of goods sold | $ | 5,963 | $ | 16,314 | $ | 17,177 | $ | 36,242 | |||||||
In-process research and development expense | 59,889 | — | 61,566 | — | |||||||||||
Selling, general and administrative | 19,361 | 17,124 | 53,814 | 59,040 | |||||||||||
Impairment charges | — | — | 5,764 | — | |||||||||||
Interest expense | — | — | — | 791 | |||||||||||
Other expense | (2,501 | ) | — | (2,501 | ) | — | |||||||||
Total | $ | 82,712 | $ | 33,438 | $ | 135,820 | $ | 96,073 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment Net Sales | (Dollars in thousands) | ||||||||||||||
Codman Specialty Surgical | $ | 252,984 | $ | 239,035 | $ | 736,810 | $ | 714,654 | |||||||
Orthopedics & Tissue Technologies | 126,111 | 126,819 | 385,620 | 374,472 | |||||||||||
Total revenue | 379,095 | 365,854 | 1,122,430 | 1,089,126 | |||||||||||
Cost of goods sold | 142,636 | 143,245 | 415,219 | 425,032 | |||||||||||
Gross margin on total revenues | $ | 236,459 | $ | 222,609 | $ | 707,211 | $ | 664,094 | |||||||
Gross margin as a percentage of total revenues | 62.4 | % | 60.8 | % | 63.0 | % | 61.0 | % |
Three Months Ended September 30, | |||||
2019 | 2018 | ||||
Research and development | 5.0 | % | 5.6 | % | |
In-process research and development expense | 15.8 | % | — | % | |
Selling, general and administrative | 45.7 | % | 47.4 | % | |
Intangible asset amortization | 1.3 | % | 1.4 | % | |
Total operating expenses | 67.8 | % | 54.4 | % |
Three Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Interest income | $ | 2,913 | $ | ||||
Interest expense | (13,962 | ) | ( | ) | |||
Other income, net | 4,127 |
Three Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Income before income taxes | $ | (27,509 | ) | $ | 11,024 | ||
Income tax (benefit) expense | 101 | ( | ) | ||||
Effective tax rate | (0.4 | )% | (20.6 | )% |
Nine Months Ended September 30, | |||||
2019 | 2018 | ||||
Research and development | 4.7 | % | 5.3 | % | |
In-process research and development expense | 5.5 | % | — | % | |
Selling, general and administrative | 45.7 | % | 47.1 | % | |
Intangible asset amortization | 1.9 | % | 1.5 | % | |
Total operating expenses | 57.8 | % | 53.9 | % |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Interest income | $ | 8,051 | $ | 325 | |||
Interest expense | (40,495 | ) | (50,750 | ) | |||
Other income, net | 8,461 | 6,422 |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Income before income taxes | $ | 33,697 | $ | 32,887 | |||
Income tax benefit | (1,185 | ) | (2,776 | ) | |||
Effective tax rate | (3.5 | )% | (8.4 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(In thousands) | |||||||||||||||
United States | $ | 266,280 | $ | 260,870 | $ | 796,397 | $ | 769,509 | |||||||
Europe | 49,242 | 47,472 | 148,753 | 150,650 | |||||||||||
Asia Pacific | 42,079 | 37,022 | 114,810 | 108,304 | |||||||||||
Rest of World | 21,494 | 20,490 | 62,470 | 60,663 | |||||||||||
Total Revenues | $ | 379,095 | $ | 365,854 | $ | 1,122,430 | $ | 1,089,126 |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
(In thousands) | |||||||
Net cash provided by operating activities | $ | 142,249 | $ | 156,995 | |||
Net cash used in investing activities | (142,059 | ) | (24,375 | ) | |||
Net cash (used in) / provided by financing activities | 73,226 | (96,817 | ) | ||||
Effect of exchange rate fluctuations on cash | (4,273 | ) | (4,747 | ) |
Payments Due by Calendar Year | |||||||||||||||||||
Total | Remaining 2019 | 2020-2021 | 2022-2023 | Thereafter | |||||||||||||||
(In millions) | |||||||||||||||||||
Revolving Credit Facility (1) | $ | 440.0 | $ | — | $ | 440.0 | $ | — | |||||||||||
Term Loan | 888.9 | 11.3 | 101.3 | 776.3 | — | ||||||||||||||
Securitization Facility (1) | 110.0 | — | 110.0 | — | — | ||||||||||||||
Interest (2) | 97.1 | 7.5 | 56.4 | 33.2 | — | ||||||||||||||
Employment Agreements (3) | 1.5 | 0.5 | 1.0 | — | — | ||||||||||||||
Operating Leases (4) | 161.2 | 4.6 | 26.6 | 25.6 | 104.4 | ||||||||||||||
Purchase Obligations | 9.9 | 9.7 | 0.2 | — | — | ||||||||||||||
Other | 4.6 | 0.7 | 0.8 | 1.2 | 1.9 | ||||||||||||||
Total | $ | 1,713.2 | $ | 34.3 | $ | 296.3 | $ | 1,276.3 | $ | 106.3 |
(1 | ) | The Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period. |
(2 | ) | Interest is calculated on the term loan portion of the Senior Credit Facility based on current interest rates paid by the Company. [As the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.] |
(3 | ) | Amounts shown under Employment Agreements do not include compensation resulting from a change in control. |
(4 | ) | During 2018, the Company entered into an operating lease with a term of 18 years for a new corporate headquarters in Princeton, NJ which commenced during the second quarter of 2019. The Company recorded a ROU asset and lease liability of $35.6 million. The gross payments over the lease term of approximately $67.0 million are included in the table above. |
INTEGRA LIFESCIENCES HOLDINGS CORPORATION | |||
Date: | October 25, 2019 | /s/ Peter J. Arduini | |
Peter J. Arduini | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: | October 25, 2019 | /s/ Carrie L. Anderson | |
Carrie L. Anderson | |||
Corporate Vice President and Chief Financial Officer | |||
(Principal Financial Officer) | |||
Date: | October 25, 2019 | /s/ Jeffrey A. Mosebrook | |
Jeffrey A. Mosebrook | |||
Vice President, Corporate Controller | |||
(Principal Accounting Officer) |
Exhibits | ||
*31.1 | ||
*31.2 | ||
*32.1 | ||
*32.2 | ||
*†101.INS | XBRL 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.SCH | XBRL Taxonomy Extension Schema Document | |
*†101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
*†101.DEF | XBRL Definition Linkbase Document | |
*†101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
*†101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith |
1. | I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences Holdings Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | October 25, 2019 | /s/ Peter J. Arduini |
Peter J. Arduini | ||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Integra LifeSciences Holdings Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | October 25, 2019 | /s/ Carrie L. Anderson |
Carrie L. Anderson | ||
Corporate Vice President and Chief Financial Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2019 (the “Report”) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | October 25, 2019 | /s/ Peter J. Arduini |
Peter J. Arduini | ||
President and Chief Executive Officer |
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2019 (the “Report”) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | October 25, 2019 | /s/ Carrie L. Anderson |
Carrie L. Anderson | ||
Corporate Vice President and Chief Financial Officer |
NET INCOME (LOSS) PER SHARE |
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NET INCOME (LOSS) PER SHARE | NET INCOME (LOSS) PER SHARE The Company computes EPS in accordance with Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share” (“ASC 260”) and related guidance, which requires two calculations of EPS to be disclosed: basic and diluted. Basic EPS is computed by dividing net (loss) by the weighted average ordinary shares outstanding during a period. Diluted EPS is based on the treasury stock method and includes the effect from potential issuance of ordinary shares, such as shares issuable pursuant to the exercise of stock options and restricted stock units. Ordinary share equivalents have been excluded where their inclusion would be anti-dilutive. Basic and diluted net income (loss) per share was as follows:
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DEFINED BENEFIT PLANS |
9 Months Ended |
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Sep. 30, 2019 | |
Retirement Benefits [Abstract] | |
DEFINED BENEFIT PLANS | DEFINED BENEFIT PLANS The Company maintains defined benefit pension plans that cover certain employees in Austria, France, Japan, Germany and Switzerland. Net periodic benefit costs for the Company’s defined benefit pension plans for the three and nine months ended September 30, 2019 were $1.0 million and $2.1 million, respectively. The components of the net periodic benefit costs other than the service cost component of $0.7 million and $2.0 million for the three and nine months ended September 30, 2019, respectively, 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 nine months ended September 30, 2018 were $0.5 million and $1.7 million, respectively. The components of the net periodic benefit costs other than the service cost component of $0.7 million and $1.4 million for the three and nine months ended September 30, 2018, respectively, are included in other income, net in the consolidated statements of operations. The estimated fair values of plan assets were $28.6 million and $31.1 million as of September 30, 2019 and December 31, 2018, respectively. The net plan assets of the pension plans are invested in common trusts as of September 30, 2019 and December 31, 2018. 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.
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GOODWILL AND OTHER INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | GOODWILL AND OTHER INTANGIBLE ASSETS Changes in the carrying amount of goodwill for the nine-month period ended September 30, 2019 were as follows:
The components of the Company’s identifiable intangible assets were as follows:
Goodwill and Intangible Assets with Indefinite Lives The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the third quarter in accordance with ASC Topic 350. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative evaluation for some or all of its reporting units and perform a quantitative test. During the third quarter of 2019 the Company began with the qualitative evaluation, which was sufficient to find no impairment. For intangible assets with indefinite lives, the Company elected to bypass the qualitative evaluation for its Codman tradename intangible asset and perform a quantitative test during the third quarter 2019. In performing this test, the Company utilized a discount rate of 12.5%. The assumptions used in evaluating the Codman tradename for impairment are subject to change and are tracked against historical results by management. Based on the results of the quantitative test, the Company recorded no impairment to the Codman tradename intangible asset. Definite Lived Intangible Assets Product rights and other definite-lived intangible assets are tested periodically for impairment in accordance with ASC Topic 360 when events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. The impairment testing involves comparing the carrying amount of the asset or asset group to the forecasted undiscounted future cash flows. In the event the carrying value of the asset exceeds the undiscounted future cash flows, the carrying value is considered not recoverable and an impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, calculated using discounted future cash flows. The computed impairment loss is recognized in the period that the impairment occurs. During the third quarter of 2018, the Company recorded an impairment charge of $4.9 million in cost of goods sold related to completed technology assets acquired from Koby Ventures II, L.P dba Metasurg ("Metasurg Technology") due to recent contract negotiations and revised future projections. The remaining net book value of these intangible assets total $2.3 million as of September 30, 2018. Metasurg Technology is included in the Orthopedic and Tissue Technology segment. Of the total impairment charge of $4.9 million, $2.5 million was related to an out-of-period adjustment included in the three and nine months ended September 30, 2018. The out-of-period adjustment is attributed to the timing of performing the impairment test based on the contract termination associated with the intangible asset. The Company determined that the adjustment was not material to the consolidated financial statements for any previously reported annual or interim period and the adjustment to correct the misstatements is not material to the three or nine months ended September 30, 2018. In April 2019, a contract manufacturing customer of the private label product line received a notification from the FDA ordering them to remove their product from the market. During the second quarter of 2019, the Company recorded an impairment charge of $5.8 million in intangible asset amortization in the consolidated statement of operations related to the customer relationship intangible asset acquired from TEI Biosciences, Inc. and TEI Medical Inc. (collectively "TEI") due to revised future projections based on a pending contract termination. Based on quarter-end exchange rates, amortization expense (including amounts reported in cost of product revenues) is expected to be approximately $16.6 million for the remainder of 2019, $66.6 million in 2020, $65.5 million in 2021, $62.0 million in 2022, $61.1 million in 2023, $60.3 million in 2024 and $549.0 million thereafter.
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NET INCOME (LOSS) PER SHARE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Net Income Per Share | Basic and diluted net income (loss) per share was as follows:
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BASIS OF PRESENTATION - Narrative (Details) - USD ($) $ in Thousands |
1 Months Ended | ||
---|---|---|---|
May 31, 2018 |
Sep. 30, 2019 |
Jan. 01, 2019 |
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New Accounting Pronouncement, Early Adoption [Line Items] | |||
Lease liabilities | $ 108,655 | ||
ROU assets | $ 97,738 | ||
Accounting Standards Update 2016-02 | |||
New Accounting Pronouncement, Early Adoption [Line Items] | |||
Lease liabilities | $ 76,400 | ||
ROU assets | $ 67,300 | ||
Public Offering | |||
New Accounting Pronouncement, Early Adoption [Line Items] | |||
Stock issued during the period (in shares) | 6,000,000.0 | ||
Stock issued during the period, value | $ 349,600 |
SEGMENT AND GEOGRAPHIC INFORMATION - Total Revenue by Major Geographic Area (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Segment Reporting Information [Line Items] | ||||
Total Revenues | $ 379,095 | $ 365,854 | $ 1,122,430 | $ 1,089,126 |
United States | ||||
Segment Reporting Information [Line Items] | ||||
Total Revenues | 266,280 | 260,870 | 796,397 | 769,509 |
Europe | ||||
Segment Reporting Information [Line Items] | ||||
Total Revenues | 49,242 | 47,472 | 148,753 | 150,650 |
Asia Pacific | ||||
Segment Reporting Information [Line Items] | ||||
Total Revenues | 42,079 | 37,022 | 114,810 | 108,304 |
Rest of World | ||||
Segment Reporting Information [Line Items] | ||||
Total Revenues | $ 21,494 | $ 20,490 | $ 62,470 | $ 60,663 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Income Statement [Abstract] | ||||
Total revenue, net | $ 379,095 | $ 365,854 | $ 1,122,430 | $ 1,089,126 |
Costs and expenses: | ||||
Cost of goods sold | 142,636 | 143,245 | 415,219 | 425,032 |
Research and development | 19,003 | 20,309 | 53,280 | 57,742 |
In-process research and development | 59,889 | 0 | 61,566 | 0 |
Selling, general and administrative | 173,098 | 173,355 | 513,345 | 513,518 |
Intangible asset amortization | 5,056 | 5,268 | 21,340 | 15,944 |
Total costs and expenses | 399,682 | 342,177 | 1,064,750 | 1,012,236 |
Operating income (loss) | (20,587) | 23,677 | 57,680 | 76,890 |
Interest income | 2,913 | 75 | 8,051 | 325 |
Interest expense | (13,962) | (14,478) | (40,495) | (50,750) |
Other income, net | 4,127 | 1,750 | 8,461 | 6,422 |
Income (loss) before income taxes | (27,509) | 11,024 | 33,697 | 32,887 |
Provision (benefit) for income taxes | 101 | (2,271) | (1,185) | (2,776) |
Net income (loss) | $ (27,610) | $ 13,295 | $ 34,882 | $ 35,663 |
Net income (loss) per share | ||||
Basic (in dollars per share) | $ (0.32) | $ 0.16 | $ 0.41 | $ 0.43 |
Diluted (in dollars per share) | $ (0.32) | $ 0.15 | $ 0.40 | $ 0.43 |
Weighted average common shares outstanding (See Note 13): | ||||
Basic (in shares) | 85,688 | 85,193 | 85,536 | 82,058 |
Diluted (in shares) | 85,688 | 86,299 | 86,581 | 83,142 |
Comprehensive income (loss) (See Note 14) | $ (46,521) | $ 12,330 | $ (7,288) | $ 33,731 |
REVENUES FROM CONTRACTS WITH CUSTOMERS - Schedule of Changes in Contract Assets and Liabilities (Details) $ in Thousands |
9 Months Ended |
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Sep. 30, 2019
USD ($)
| |
Contract Asset | |
Contract asset, Beginning of period | $ 4,193 |
Transferred to trade receivable of contract asset included in beginning of the year contract asset | (4,193) |
Contract asset, net of transferred to trade receivables on contracts during the period | 9,371 |
Contract asset, End of Period | 9,371 |
Contract Liability | |
Contract liability, Beginning of Period | 12,716 |
Recognition of revenue included in beginning of year contract liability | (6,343) |
Contract liability, net of revenue recognized on contracts during the period | 4,766 |
Foreign currency translation | (5) |
Contract liability, End of Period | $ 11,134 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Schedule of Changes in Carrying Amount of Goodwill (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2019
USD ($)
| |
Goodwill [Roll Forward] | |
Beginning of Period | $ 926,475 |
Foreign currency translation | (8,490) |
End of Period | 945,282 |
Arkis | |
Goodwill [Roll Forward] | |
Arkis Acquisition | 27,297 |
Codman Specialty Surgical | |
Goodwill [Roll Forward] | |
Beginning of Period | 625,760 |
Foreign currency translation | (5,843) |
End of Period | 647,214 |
Codman Specialty Surgical | Arkis | |
Goodwill [Roll Forward] | |
Arkis Acquisition | 27,297 |
Orthopedics and Tissue Technologies | |
Goodwill [Roll Forward] | |
Beginning of Period | 300,715 |
Foreign currency translation | (2,647) |
End of Period | 298,068 |
Orthopedics and Tissue Technologies | Arkis | |
Goodwill [Roll Forward] | |
Arkis Acquisition | $ 0 |
COMPREHENSIVE INCOME (LOSS) - Schedule of Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Equity [Abstract] | ||||
Net income (loss) | $ (27,610) | $ 13,295 | $ 34,882 | $ 35,663 |
Foreign currency translation adjustment | (18,651) | (2,353) | (17,960) | (16,359) |
Change in unrealized gain (loss) on derivatives, net of tax | (775) | 1,386 | (24,714) | 14,419 |
Pension liability adjustment, net of tax | 515 | 2 | 504 | 8 |
Comprehensive income (loss), net | $ (46,521) | $ 12,330 | $ (7,288) | $ 33,731 |
TREASURY STOCK - Narrative (Details) - USD ($) |
9 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Dec. 31, 2018 |
Dec. 11, 2018 |
Dec. 10, 2018 |
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Treasury Stock Transactions, Excluding Value of Shares Reissued [Abstract] | |||||
Treasury stock (in shares) | 2,900,000 | 2,900,000 | |||
Treasury stock | $ 120,100,000 | $ 120,600,000 | |||
Treasury stock, average cost per share (in dollars per share) | $ 41.87 | $ 41.87 | |||
Stock repurchase program, authorized amount (up to) | $ 225,000,000.0 | $ 150,000,000.0 | |||
Amount available for share repurchase under this latest authorization | $ 225,000,000.0 | ||||
Stock repurchased during period (in shares) | 0 | 0 |
LEASES AND RELATED PARTY LEASES - Supplemental Balance Sheet Information (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
|
---|---|
Lessee, Lease, Description [Line Items] | |
ROU assets | $ 97,738 |
Current lease liabilities | 11,835 |
Non-current lease liabilities | 96,820 |
Total lease liabilities | $ 108,655 |
Leased facilities | |
Lessee, Lease, Description [Line Items] | |
Weighted average remaining lease term (in years) | 12 years 10 months 24 days |
Weighted average discount rate | 5.40% |
Leased vehicles | |
Lessee, Lease, Description [Line Items] | |
Weighted average remaining lease term (in years) | 2 years 9 months 18 days |
Weighted average discount rate | 3.20% |
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Carrying Amount of Goodwill | Changes in the carrying amount of goodwill for the nine-month period ended September 30, 2019 were as follows:
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Schedule of Finite-Lived Intangible Assets | The components of the Company’s identifiable intangible assets were as follows:
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Schedule of Indefinite-Lived Intangible Assets | The components of the Company’s identifiable intangible assets were as follows:
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BASIS OF PRESENTATION (Policies) |
9 Months Ended |
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Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Recently Issued Accounting Standards | Recently Issued Accounting Standards In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (the New Lease Standard). The New Lease Standard requires that lessees recognize virtually all of its 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 became effective for all annual periods and interim reporting periods beginning after December 15, 2018. The Company adopted the New Lease Standard as of January 1, 2019 using a modified retrospective transition. Under this method, financial results reported in periods prior to January 1, 2019 are unchanged. The Company elected the ‘package of practical expedients’ which permits the company not to reassess the prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company also elected the use-of-hindsight practical expedient. As most of the leases do not provide an implicit rate, the Company used our collateralized incremental borrowing rate based on the information available at the lease implementation date in determining the present value of the lease payments. The adoption of the New Lease Standard had an initial impact on the consolidated balance sheet due to the recognition of $76.4 million of lease liabilities with corresponding right-of-use assets ("ROU") of $67.3 million for operating leases. The difference between lease liabilities and right-of-use assets is primarily attributed to unamortized lease incentives which will be amortized over the term of each respective lease. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact, if any, that this pronouncement will have on the financial position and results of operations. In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The new guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The adoption is not expected to have a material impact on the Condensed and Consolidated Financial Statements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (e.g., a service contract). Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively. The Company is evaluating the impact, if any, that this pronouncement will have on the financial position and results of operations. There are no other recently issued accounting pronouncements that are expected to have any significant effect on the Company's financial position, results of operations or cash flows.
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Summary of Accounting Policies on Revenue Recognition and Shipping and Handling Fees | Summary of Accounting Policies on Revenue Recognition Revenue is recognized upon the transfer of control of promised products or services to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Total revenue, net, includes product sales, product royalties and other revenues, such as fees received for services. For products shipped with FOB shipping point terms, the control of the product passes to the customer at the time of shipment. For shipments in which the control of the product is transferred when the customer receives the product, the Company recognizes revenue upon receipt by the customer. Certain products that the Company produces for private label customers have no alternative use and the Company has a right of payment for performance to date. Revenues from those products are recognized over the period that the Company manufactures these products, which is typically one to three months. The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company's performance obligation of transferring control of goods being manufactured for private label customers. A portion of the Company's product revenue is generated from consigned inventory maintained at hospitals and distributors, and also from inventory physically held by field sales representatives. For these types of product sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized. Revenues from sale of products and services are evidenced by either a contract with the customer or a valid purchase order and an invoice which includes all relevant terms of sale. For product sales, invoices are generally issued upon the transfer of control (or upon the completion of the manufacturing in the case of the private label transactions recognized over time) and are typically payable thirty days after the invoice date. The Company performs a review of each specific customer's creditworthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers' creditworthiness prospectively. Performance Obligations The Company's performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders, or invoices. The Company has no significant multi-element contracts with customers. Significant Judgments Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company's strategic partners. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information, and expected sales trends. Differences between actual reported licensee sales and those that were estimated are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant. The Company estimates returns, price concessions, and discount allowances using the expected value method based on historical trends and other known factors. Rebate allowances are estimated using the most likely method based on each customer contract. The Company's return policy, as set forth in its product catalogs and sales invoices, requires review and authorization in advance prior to the return of product. Upon the authorization, a credit will be issued for the goods returned within a set amount of days from the shipment, which is generally ninety days. The Company disregards the effects of a financing component if the Company expects, at contract inception, that the period between the transfer and customer payment for the goods or services will be one year or less. The Company has no significant revenues recognized on payments expected to be received more than one year after the transfer of control of products or services to customers. Contract Asset and Liability Revenues recognized from the Company's private label business that are not invoiced to the customers as a result of recognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheet. Other operating revenues may include fees received under service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability. Shipping and Handling Fees The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold.
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Product Warranties | Product Warranties Certain of the Company's medical devices, including monitoring systems and neurosurgical systems, are designed to operate over long periods of time. These products are sold with warranties which may extend for up to two years from the date of purchase. The warranties are not considered a separate performance obligation. The Company estimates its product warranties using the expected value method based on historical trends and other known factors. The Company includes them in accrued expenses and other current liabilities in the consolidated balance sheet.
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Taxes Collected from Customers | 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.
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LEASES AND RELATED PARTY LEASES - Future Minimum Lease Payment Under Operating Leases, Before Adoption of 842 (Details) $ in Thousands |
Dec. 31, 2018
USD ($)
|
---|---|
Operating Leased Assets [Line Items] | |
2019 | $ 16,768 |
2020 | 13,806 |
2021 | 12,493 |
2022 | 13,233 |
2023 | 11,003 |
Thereafter | 102,399 |
Total minimum lease payments | 169,702 |
Related Parties | |
Operating Leased Assets [Line Items] | |
2019 | 296 |
2020 | 296 |
2021 | 296 |
2022 | 296 |
2023 | 296 |
Thereafter | 1,724 |
Total minimum lease payments | 3,204 |
Third Parties | |
Operating Leased Assets [Line Items] | |
2019 | 16,472 |
2020 | 13,510 |
2021 | 12,197 |
2022 | 12,937 |
2023 | 10,707 |
Thereafter | 100,675 |
Total minimum lease payments | $ 166,498 |
NET INCOME (LOSS) PER SHARE - Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Basic net income per share: | ||||
Net income (loss) | $ (27,610) | $ 13,295 | $ 34,882 | $ 35,663 |
Weighted average common shares outstanding - Basic (in shares) | 85,688 | 85,193 | 85,536 | 82,058 |
Basic net income (loss) per common share (in dollars per share) | $ (0.32) | $ 0.16 | $ 0.41 | $ 0.43 |
Diluted net income per share: | ||||
Net income (loss) | $ (27,610) | $ 13,295 | $ 34,882 | $ 35,663 |
Weighted average common shares outstanding - Basic (in shares) | 85,688 | 85,193 | 85,536 | 82,058 |
Effect of dilutive securities: | ||||
Stock options and restricted stock (in shares) | 0 | 1,106 | 1,045 | 1,084 |
Weighted average common shares for diluted earnings per share (in shares) | 85,688 | 86,299 | 86,581 | 83,142 |
Diluted net income (loss) per common share (in dollars per share) | $ (0.32) | $ 0.15 | $ 0.40 | $ 0.43 |
INVENTORIES (Tables) |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Inventories, Net | Inventories, net consisted of the following:
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COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Contingent Consideration The Company determined the fair value of contingent consideration during the nine-month period ended September 30, 2019 and 2018 to reflect the change in estimates, 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 nine months ended September 30, 2019 and 2018 is as follows (in thousands):
Confluent Surgical On January 15, 2014, the Company acquired all outstanding shares of Confluent Surgical, Inc., ("Confluent Surgical"). The purchase price included contingent consideration. The potential maximum undiscounted contingent consideration of $30.0 million consisted of $25.0 million upon obtaining certain U.S. governmental approvals (the "U.S. Contingent Consideration") 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 a discount rate of 2.2%. During the first quarter of 2018, the Company received the U.S. governmental approvals and adjusted the related contingent consideration liability to $19.0 million, which the Company paid in April 2018. During the third quarter of 2018, the Company received certain European governmental approvals. The Company paid the remaining $5.0 million of contingent consideration related to Confluent Surgical in October of 2018. Derma Sciences The Company assumed contingent consideration incurred by Derma Sciences, Inc. ("Derma Sciences") related to its acquisitions of BioD and the intellectual 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 paid $33.3 million related to the aforementioned contingent liabilities. One contingent liability remains which relates to net sales of Medihoney products exceeding certain amounts defined in the agreement between the Company and Derma Sciences. The potential maximum undiscounted payment amounts to $3.0 million. The estimated fair value as of September 30, 2019, December 31, 2018 and September 30, 2018 was $0.2 million. 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, the acceleration of the payment of $26.5 million by BioD. 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.
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STOCK-BASED COMPENSATION |
9 Months Ended |
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Sep. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION As of September 30, 2019, the Company had stock options, restricted stock awards, performance stock units, contract stock awards and restricted stock unit awards outstanding under two plans, the 2001 Equity Incentive Plan (the “2001 Plan”) and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, the “Plans”). Stock options issued under the Plans become exercisable over specified periods, generally within four years from the date of grant for officers and employees, and within one year from date of grant for directors and generally expire eight years from the grant date for employees, and from six to ten years for directors and certain executive officers. 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 September 30, 2019, there were approximately $5.3 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 202,752 stock options granted during the nine months ended September 30, 2019. For the nine months ended September 30, 2019, the weighted average grant date fair value for stock options was $18.74 per option. Awards of Restricted Stock and Performance Stock Performance stock and restricted stock awards generally have requisite service periods of three years. Performance stock units are subject to graded vesting conditions based on revenue goals of the Company. The Company expenses their fair value over the requisite service period. The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period. As of September 30, 2019, there were approximately $28.1 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 318,410 restricted stock awards and 118,903 performance stock awards during the nine months ended September 30, 2019. For the nine months ended September 30, 2019, the weighted average grant date fair value for restricted stock awards and performance stock units was $55.19 and $55.91 per award, respectively. The Company has no formal policy related to the repurchase of stock for the purpose of satisfying stock-based compensation obligations. 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.
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INVENTORIES |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES Inventories, net consisted of the following:
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INCOME TAXES |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES The following table provides a summary of the Company's effective tax rate:
The Company’s effective income tax rates for the three months ended September 30, 2019 and 2018 were (0.4)% and (20.6)%, respectively. For the three months ended September 30, 2019, the increase in the rate is primarily driven by the impact of the Rebound transaction, which resulted in a $59.9 million in–process research and development (IPR&D) expense. This amount is not deductible for tax purposes. Additionally, the Company recorded a tax expense of $1.6 million of tax reform–related adjustments, due to updates in IRS guidance. The Company’s effective income tax rates for the nine months ended September 30, 2019 and 2018 were (3.5)% and (8.4)%, respectively. For the nine months ended September 30, 2019, the increase in the rate is primarily driven by the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense. This amount is not deductible for tax purposes. Additionally, the Company recorded a tax expense of $1.6 million for tax reform-related adjustments due to updates in IRS guidance. This was offset by a tax benefit of $10.8 million ($0.13 per share) related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 31, 2019. The Company received a federal tax credit in Switzerland of 12 million CHF, which may be used over a seven year period, ending in 2024. The nine months ended September 30, 2018, included an additional tax benefit of $1.2 million related to share–based compensation, when compared to the same period in 2019. As of September 30, 2019, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed indefinitely reinvested. Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. As such, the Company has determined the tax impact of repatriating these earnings would not be material as of September 30, 2019.
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COMPREHENSIVE INCOME (LOSS) (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Comprehensive Income (Loss) | Comprehensive income (loss) was as follows:
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Schedule of Changes in Accumulated Other Comprehensive Loss by Component | Changes in accumulated other comprehensive loss by component between December 31, 2018 and September 30, 2019 are presented in the table below, net of tax:
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Label | Element | Value |
---|---|---|
Accounting Standards Update 2014-09 [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 1,854,000 |
Accounting Standards Update 2014-09 [Member] | Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 1,854,000 |
BUSINESS DEVELOPMENT - Business Combination, Narrative (Details) - Arkis |
Jul. 29, 2019
USD ($)
|
---|---|
Business Acquisition [Line Items] | |
Purchase price of business combination | $ 30,600,000 |
Contingent consideration, liability (up to) | 25,500,000 |
Contingent consideration, fair value | $ 13,100,000 |
Acquired intangible assets, discount rate | 14.50% |
Development Milestones | |
Business Acquisition [Line Items] | |
Contingent consideration, liability (up to) | $ 10,000,000 |
Commercial Sales Milestones | |
Business Acquisition [Line Items] | |
Contingent consideration, liability (up to) | $ 15,500,000 |
BASIS OF PRESENTATION |
9 Months Ended |
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Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BASIS OF PRESENTATION | 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 September 30, 2019 unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K. The December 31, 2018 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. Operating results for the three and nine month period ended September 30, 2019 are not necessarily indicative of the results to be expected for the entire year. The preparation of consolidated financial statements is in conformity with generally accepted accounting principles in the United States ("GAAP") which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets including amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation, valuation of derivative instruments, valuation of pension assets and liabilities, 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. Equity Offering In May 2018, the Company commenced and closed on a public offering of common stock. The Company issued 6.0 million shares of common stock and received total proceeds, net of underwriting fees and offering expenses, of approximately $349.6 million. The net proceeds from the offering were used to reduce outstanding borrowings under the revolving credit portion of the Company's Senior Credit Facility. Recently Issued Accounting Standards In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (the New Lease Standard). The New Lease Standard requires that lessees recognize virtually all of its 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 became effective for all annual periods and interim reporting periods beginning after December 15, 2018. The Company adopted the New Lease Standard as of January 1, 2019 using a modified retrospective transition. Under this method, financial results reported in periods prior to January 1, 2019 are unchanged. The Company elected the ‘package of practical expedients’ which permits the company not to reassess the prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company also elected the use-of-hindsight practical expedient. As most of the leases do not provide an implicit rate, the Company used our collateralized incremental borrowing rate based on the information available at the lease implementation date in determining the present value of the lease payments. The adoption of the New Lease Standard had an initial impact on the consolidated balance sheet due to the recognition of $76.4 million of lease liabilities with corresponding right-of-use assets ("ROU") of $67.3 million for operating leases. The difference between lease liabilities and right-of-use assets is primarily attributed to unamortized lease incentives which will be amortized over the term of each respective lease. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact, if any, that this pronouncement will have on the financial position and results of operations. In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The new guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The adoption is not expected to have a material impact on the Condensed and Consolidated Financial Statements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), relating to a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by a vendor (e.g., a service contract). Under the new guidance, a customer will apply the same criteria for capitalizing implementation costs as it would for an arrangement that has a software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted. The Company can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively. The Company is evaluating the impact, if any, that this pronouncement will have on the financial position and results of operations. There are no other recently issued accounting pronouncements that are expected to have any significant effect on the Company's financial position, results of operations or cash flows.
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COMMITMENTS AND CONTINGENCIES - Fair Value Contingent Consideration, Balance Information (Details) - Contingent Consideration Liability - Other Long-term Liabilities - Fair Value, Inputs, Level 3 $ in Thousands |
9 Months Ended |
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Sep. 30, 2019
USD ($)
| |
Arkis | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Balance, Beginning of Period | $ 0 |
Additions from acquisition of Arkis | 13,100 |
Balance, End of Period | 13,100 |
Derma Sciences | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Balance, Beginning of Period | 230 |
Balance, End of Period | $ 230 |
INCOME TAXES - Summary of Effective Tax Rate (Details) |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Income Tax Disclosure [Abstract] | ||||
Reported tax rate | (0.40%) | (20.60%) | (3.50%) | (8.40%) |
LEASES AND RELATED PARTY LEASES - Supplemental Cash Flow Information (Details) $ in Thousands |
9 Months Ended |
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Sep. 30, 2019
USD ($)
| |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | $ 10,680 |
ROU assets obtained in exchange for lease liabilities: | |
Operating leases | $ 41,860 |
REVENUES FROM CONTRACTS WITH CUSTOMERS - Narrative, Revenue Remaining Performance Obligation (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-10-01 |
Sep. 30, 2019 |
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Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Expected performance obligation through 2020, percentage | 42.00% |
Performance obligations expected to be satisfied, expected timing | 15 months |
INVENTORIES - Schedule of Net Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Inventory, Net [Abstract] | ||
Finished goods | $ 191,250 | $ 179,885 |
Work in process | 51,438 | 47,715 |
Raw materials | 59,934 | 52,747 |
Inventories, net | $ 302,622 | $ 280,347 |
DEBT (Tables) |
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Maximum Leverage Ratios | In connection with the May 2018 Amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:
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Schedule of Maturities of Long-term Debt | Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
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BUSINESS DEVELOPMENT (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets Acquired and Liabilities Assumed | The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
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COMPREHENSIVE INCOME (LOSS) |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMPREHENSIVE INCOME (LOSS) | COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) was as follows:
Changes in accumulated other comprehensive loss by component between December 31, 2018 and September 30, 2019 are presented in the table below, net of tax:
For the nine months ended September 30, 2019, the Company reclassified gains of $7.2 million and $7.8 million from accumulated other comprehensive loss to other income, net, and interest income, respectively.
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INCOME TAXES (Tables) |
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Schedule of Effective Income Tax Rate Reconciliation | The following table provides a summary of the Company's effective tax rate:
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COMMITMENTS AND CONTINGENCIES (Tables) |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Contingent Consideration | A reconciliation of the opening balances to the closing balances of these Level 3 measurements for the nine months ended September 30, 2019 and 2018 is as follows (in thousands):
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LEASES AND RELATED PARTY LEASES |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES AND RELATED PARTY LEASES | 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 September 30, 2019. 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 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 nine months ended September 30, 2019 and September 30, 2018, was $14.2 million and $11.8 million respectively, which includes $0.2 million, in related party operating lease expense. Supplemental balance sheet information related to operating leases at September 30, 2019 were as follows:
Supplemental cash flow information related to leases was as follows for the nine months ended September 30, 2019 (in thousands):
Future minimum lease payments under operating leases at September 30, 2019 were as follows:
During 2018, the Company entered into an operating lease with a term of 18 years for a new corporate headquarters in Princeton, NJ. The lease commenced during the second quarter of 2019 and the Company recorded a ROU asset and lease liability of $35.6 million. Future minimum lease payments under operating leases at December 31, 2018 were as follows:
Total operating lease expense for the year ended December 31, 2018 was $16.3 million and included $0.3 million, in related party lease expense. There were no future minimum lease payments under capital leases at December 31, 2018. Related Party Leases The Company leases its manufacturing facility in Plainsboro, New Jersey, from a general partnership that is 50% owned by a corporation whose shareholders are trusts, whose beneficiaries include family members of the Company’s principal stockholder and former director. The term of the current lease agreement is through October 31, 2032 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, 2032 through October 31, 2037 at the fair market rental rate of the premises, and (ii) another 5-year renewal option to extend the lease from November 1, 2037 through October 31, 2042 at the fair market rental rate of the premises.
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DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | DEBT Amended and Restated Senior Credit Agreement On May 3, 2018, the Company entered into the fifth amendment and restatement (the "May 2018 Amendment") of its Senior Credit Facility (the "Senior Credit Facility") with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent. The May 2018 Amendment extended the maturity date to May 3, 2023 and decreased the applicable rate, as described below. The Company continues to have the aggregate principal amount of $2.2 billion available to it through the following facilities:
In connection with the May 2018 Amendment, the Company’s maximum consolidated total leverage ratio in the financial covenants (as defined in the Senior Credit Facility) was modified to the following:
Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at a rate equal to the following:
The applicable rates are based on the Company’s consolidated total leverage ratio (defined as the ratio of (a) consolidated funded indebtedness less cash that is not subject to any restriction on the use or investment thereof to (b) consolidated EBITDA at the time of the applicable borrowing). The Company will pay an annual commitment fee (ranging from 0.15% to 0.30%), based on the Company's consolidated total leverage ratio, on the amount available for borrowing under the revolving credit facility. The Senior Credit Facility is collateralized by substantially all of the assets of the Company’s U.S. subsidiaries, excluding intangible assets. The Senior Credit Facility is subject to various financial and negative covenants and at September 30, 2019, the Company was in compliance with all such covenants. In connection with the May 2018 Amendment, the Company capitalized $4.2 million of financing costs and wrote off $0.8 million of previously capitalized financing costs during the second quarter of 2018. At September 30, 2019 and December 31, 2018, there was $440.0 million and $345.0 million outstanding, respectively, under the revolving credit component of the Senior Credit Facility at weighted average interest rates of 3.4% and 4.0%, respectively. At September 30, 2019 and December 31, 2018, there was $888.8 million and $900.0 million outstanding, respectively, under the Term Loan component of the Senior Credit Facility at a weighted average interest rate of 3.4% and 3.9%, respectively. At September 30, 2019, $45.0 million of the Term Loan component of the Senior Credit Facility is classified as current on the consolidated balance sheet. Securitization Facility During the fourth quarter of 2018, the Company entered into an accounts receivable securitization facility (the "Securitization Facility") under which accounts receivable of certain domestic subsidiaries are sold on a non-recourse basis to a special purpose entity (“SPE”), which is a bankruptcy-remote, consolidated subsidiary of the Company. Accordingly, the assets of the SPE are not available to satisfy the obligations of the Company or any of its subsidiaries. From time to time, the SPE may finance such accounts receivable with a revolving loan facility secured by a pledge of such accounts receivable. The amount of outstanding borrowings on the Securitization Facility at any one time is limited to $150.0 million. The Securitization Facility Agreement ("Securitization Agreement") is for an initial three-year term and may be extended. The Securitization Agreement governing the Securitization Facility contains certain covenants and termination events. An occurrence of an event of default or a termination event under this Securitization Agreement may give rise to the right of its counterparty to terminate this facility. As of September 30, 2019, the Company was in compliance with the covenants and none of the termination events had occurred. At September 30, 2019, the Company had $110.0 million of outstanding borrowings under its Securitization Facility at a weighted average interest rate of 3.1%. The fair value of outstanding borrowings of the Senior Credit Facility's revolving credit and Term Loan components at September 30, 2019 were approximately $430.1 million and, $875.7 million, respectively. The fair value of the outstanding borrowing of the Securitization Facility at September 30, 2019 was approximately $109.1 million. These fair values were determined by using a discounted cash flow model based on current market interest rates available to the Company. These inputs are corroborated by observable market data for similar liabilities and therefore classified within Level 2 of the fair value hierarchy. Level 2 inputs represent inputs that are observable for the asset or liability, either directly or indirectly, and are other than active market observable inputs that reflect unadjusted quoted prices for identical assets or liabilities. Letters of credit outstanding as of September 30, 2019 and December 31, 2018 totaled $0.8 million. There were no amounts drawn as of September 30, 2019. Contractual repayments of the Term Loan component of the Senior Credit Facility are due as follows:
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REVENUES FROM CONTRACTS WITH CUSTOMERS |
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REVENUES FROM CONTRACTS WITH CUSTOMERS | REVENUES FROM CONTRACTS WITH CUSTOMERS Summary of Accounting Policies on Revenue Recognition Revenue is recognized upon the transfer of control of promised products or services to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Total revenue, net, includes product sales, product royalties and other revenues, such as fees received for services. For products shipped with FOB shipping point terms, the control of the product passes to the customer at the time of shipment. For shipments in which the control of the product is transferred when the customer receives the product, the Company recognizes revenue upon receipt by the customer. Certain products that the Company produces for private label customers have no alternative use and the Company has a right of payment for performance to date. Revenues from those products are recognized over the period that the Company manufactures these products, which is typically one to three months. The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company's performance obligation of transferring control of goods being manufactured for private label customers. A portion of the Company's product revenue is generated from consigned inventory maintained at hospitals and distributors, and also from inventory physically held by field sales representatives. For these types of product sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized. Revenues from sale of products and services are evidenced by either a contract with the customer or a valid purchase order and an invoice which includes all relevant terms of sale. For product sales, invoices are generally issued upon the transfer of control (or upon the completion of the manufacturing in the case of the private label transactions recognized over time) and are typically payable thirty days after the invoice date. The Company performs a review of each specific customer's creditworthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers' creditworthiness prospectively. Performance Obligations The Company's performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders, or invoices. The Company has no significant multi-element contracts with customers. Significant Judgments Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company's strategic partners. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information, and expected sales trends. Differences between actual reported licensee sales and those that were estimated are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant. The Company estimates returns, price concessions, and discount allowances using the expected value method based on historical trends and other known factors. Rebate allowances are estimated using the most likely method based on each customer contract. The Company's return policy, as set forth in its product catalogs and sales invoices, requires review and authorization in advance prior to the return of product. Upon the authorization, a credit will be issued for the goods returned within a set amount of days from the shipment, which is generally ninety days. The Company disregards the effects of a financing component if the Company expects, at contract inception, that the period between the transfer and customer payment for the goods or services will be one year or less. The Company has no significant revenues recognized on payments expected to be received more than one year after the transfer of control of products or services to customers. Contract Asset and Liability Revenues recognized from the Company's private label business that are not invoiced to the customers as a result of recognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheet. Other operating revenues may include fees received under service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability. The following table summarizes the changes in the contract asset and liability balances for the nine months ended September 30, 2019:
At September 30, 2019, the short-term portion of the contract liability of $4.0 million and the long-term portion of $7.1 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet. As of September 30, 2019, the Company is expected to recognize approximately 42.0% of our unsatisfied (or partially unsatisfied) performance obligations as revenue through 2020, with the remaining balance to be recognized in 2021 and thereafter. Shipping and Handling Fees The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold. Product Warranties Certain of the Company's medical devices, including monitoring systems and neurosurgical systems, are designed to operate over long periods of time. These products are sold with warranties which may extend for up to two years from the date of purchase. The warranties are not considered a separate performance obligation. The Company estimates its product warranties using the expected value method based on historical trends and other known factors. The Company includes them in accrued expenses and other current liabilities in the consolidated balance sheet. Taxes Collected from Customers The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer. Disaggregated Revenue The following table presents revenues disaggregated by the major sources of revenues for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):
Prior period amounts were reclassified between categories within the Orthopedics and Tissue Technologies segment to conform to the current period presentation. See Note 15, Segment and Geographical Information, for details of revenues based on the location of the customer. Effect of Adoption of ASC Topic 606 On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to all contracts which were not completed as of January 1, 2018. Results of operations for the reporting periods after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition. The adoption of Topic 606 resulted in an increase to the opening retained earnings of $1.9 million, which was recorded net of taxes as of January 1, 2018 to reflect the change in timing of the recognition of revenue related to the Company's private label business from point in time to over time during the manufacturing process and goods in transit for which control was transferred to customers at the time of shipment. The total assets and liabilities increased by $7.1 million and $5.2 million, respectively, as of January 1, 2018. The impact of adoption in the year of implementation of Topic 606 to the Company's consolidated statement of operations for the three and nine months ended September 30, 2018 was as follows:
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SEGMENT AND GEOGRAPHIC INFORMATION - Net Sales and Profit by Reportable Segment (Details) - USD ($) $ in Thousands |
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Sep. 30, 2018 |
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Segment Net Sales | ||||
Total Revenues | $ 379,095 | $ 365,854 | $ 1,122,430 | $ 1,089,126 |
Segment Profit | ||||
Operating income | (20,587) | 23,677 | 57,680 | 76,890 |
Amortization | (5,056) | (5,268) | (21,340) | (15,944) |
Operating Segments | ||||
Segment Profit | ||||
Operating income | 131,512 | 127,386 | 404,414 | 377,574 |
Segment Reconciling Items | ||||
Segment Profit | ||||
Amortization | (5,056) | (5,268) | (21,340) | (15,944) |
Corporate and other | ||||
Segment Profit | ||||
Operating income | (147,043) | (98,441) | (325,394) | (284,740) |
Codman Specialty Surgical | ||||
Segment Net Sales | ||||
Total Revenues | 252,984 | 239,035 | 736,810 | 714,654 |
Codman Specialty Surgical | Operating Segments | ||||
Segment Profit | ||||
Operating income | 101,129 | 91,871 | 291,750 | 272,480 |
Orthopedics and Tissue Technologies | ||||
Segment Net Sales | ||||
Total Revenues | 126,111 | 126,819 | 385,620 | 374,472 |
Orthopedics and Tissue Technologies | Operating Segments | ||||
Segment Profit | ||||
Operating income | $ 30,383 | $ 35,515 | $ 112,664 | $ 105,094 |
DEBT - Maximum Total Leverage Ratio Table (Details) - Senior Credit Facility |
Sep. 30, 2019 |
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Execution of May 2018 Amendment through March 31, 2019 | |
Debt Instrument [Line Items] | |
Maximum Consolidated Total Leverage Ratio | 5.50 |
June 30, 2019 through March 31, 2020 | |
Debt Instrument [Line Items] | |
Maximum Consolidated Total Leverage Ratio | 5.00 |
June 30, 2020 through March 31, 2021 | |
Debt Instrument [Line Items] | |
Maximum Consolidated Total Leverage Ratio | 4.50 |
June 30, 2021 and thereafter | |
Debt Instrument [Line Items] | |
Maximum Consolidated Total Leverage Ratio | 4.00 |
BUSINESS DEVELOPMENT - Business Combination, Schedule of Purchase Price Allocation (Details) - USD ($) $ in Thousands |
Jul. 29, 2019 |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Intangible assets: | |||
Goodwill | $ 945,282 | $ 926,475 | |
Arkis | |||
Business Acquisition [Line Items] | |||
Cash | $ 90 | ||
Other current assets | 751 | ||
Property, plant and equipment | 159 | ||
Intangible assets: | |||
Goodwill | 27,297 | ||
Total assets acquired | 50,377 | ||
Accounts payable, accrued expenses and other liabilities | 2,908 | ||
Contingent consideration | 13,100 | ||
Deferred tax liabilities, net | 3,769 | ||
Net assets acquired | 30,600 | ||
Arkis | CerebroFlo developed technology | |||
Intangible assets: | |||
Intangible assets | $ 20,100 | ||
Weighted Average Life | 15 years | ||
Arkis | Enabling technology license | |||
Intangible assets: | |||
Intangible assets | $ 1,980 | ||
Weighted Average Life | 14 years |
LEASES AND RELATED PARTY LEASES (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Balance Sheet Information | Supplemental balance sheet information related to operating leases at September 30, 2019 were as follows:
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Supplemental Cash Flow Information | Supplemental cash flow information related to leases was as follows for the nine months ended September 30, 2019 (in thousands):
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Future Minimum Lease Payment Obligations Under Operating Leases, After Adoption of 842 | Future minimum lease payments under operating leases at September 30, 2019 were as follows:
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Future Minimum Lease Payment Obligations Under Operating Leases, Before Adoption of 842 | Future minimum lease payments under operating leases at December 31, 2018 were as follows:
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SEGMENT AND GEOGRAPHIC INFORMATION (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue By Major Geographic Area | Net sales and profit by each reportable segment for the three and nine months ended September 30, 2019 and 2018 are as follows:
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:
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TREASURY STOCK |
9 Months Ended |
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Sep. 30, 2019 | |
Treasury Stock Transactions, Excluding Value of Shares Reissued [Abstract] | |
TREASURY STOCK | TREASURY STOCK As of September 30, 2019 and December 31, 2018, there were 2.9 million shares of treasury stock outstanding with a cost of $120.1 million and $120.6 million, respectively, at a weighted average cost per share of $41.87. On December 11, 2018, the Board of Directors (the "Board") authorized the Company to repurchase up to $225.0 million of the Company’s common stock. The program allows the Company to repurchase its shares opportunistically from time to time. The repurchase authorization expires in December 2020. Purchases may be affected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing. As of September 30, 2019, there remained $225.0 million available for repurchase under this authorization. This stock repurchase authorization replaces the previous $150.0 million stock repurchase authorization, approved by the Board in 2016. There were no cash treasury stock repurchases during the nine months ended September 30, 2019 and 2018.
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DERIVATIVE INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS | 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 our expected LIBOR-indexed floating-rate borrowings. The Company held the following interest rate swaps as of September 30, 2019 and December 31, 2018 (amounts in thousands):
The Company has designated these derivative instruments as cash flow hedges. The Company assesses the effectiveness of these derivative instruments and has recorded the changes in the fair value of the derivative instrument designated as a cash flow hedge as unrealized gains or losses in accumulated other comprehensive income (“AOCI”), net of tax, until the hedged item affected earnings, at which point any gain or loss was reclassified to earnings. If the hedged cash flow does not occur, or if it becomes probable that it will not occur, the Company will reclassify the remaining amount of any gain or loss on the related cash flow hedge recorded in AOCI to interest expense at that time. During the nine months ended September 30, 2019, interest rate swaps with an aggregate notional amount of $150 million matured. Foreign Currency Hedging From time to time the Company enters into foreign currency hedge contracts intended to protect the U.S. dollar value of certain forecasted foreign currency denominated transactions. The Company assesses the effectiveness of the contracts that are designated as hedging instruments. The changes in fair value of foreign currency cash flow hedges are recorded in AOCI, net of tax, until the hedged item affects earnings. Once the related hedged item affects earnings, the Company reclassifies amounts recorded in AOCI 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 (expense), 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 foreign currency. The Company may experience unanticipated currency exchange gains or losses to the extent that there are differences between forecasted and actual activities during periods of currency volatility. In addition, changes in currency exchange rates related to any unhedged transactions may affect earnings and cash flows. Cross-Currency Rate Swaps 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 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 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 September 30, 2019 (dollar amounts in thousands):
During the nine months ended September 30, 2019, the Company settled a cross-currency swap designated as a cash flow hedge of an intercompany loan with an aggregate notional amount of $33.3 million. The original maturity date was October 2, 2020, however, as the intercompany loan settlement was consummated, the cross-currency swap was settled simultaneously. As a result of the settlement, the Company recorded a loss of $0.4 million in other income, net in the consolidated statement of operations. The Company held the following cross-currency rate swaps as of December 31, 2018 (dollar amounts in thousands):
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 nine months ended September 30, 2019, the Company recorded gains of $5.7 million and $3.9 million, respectively, in other income, net for the foreign currency rate translation to offset the losses recognized on the intercompany loans. For the three and nine months ended September 30, 2018, the Company recorded loss of $2.6 million and gain of $2.2 million in other income, net for the foreign currency rate translation to offset the gains or losses recognized on the intercompany loans. For the three and nine months ended September 30, 2019, the Company recorded a gain of $9.7 million and gain of $15.4 million, respectively, in AOCI related to the change in fair value of the cross-currency swaps. For the three and nine months ended September 30, 2018, the Company recorded losses of $3.1 million and gains of $3.0 million in AOCI related to the change in fair value of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $1.8 million and $5.5 million 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 nine months ended September 30, 2018, the Company recorded gains of $1.9 million and $5.9 million in other income, net included in the consolidated statements of operations related to the interest rate differential of the cross-currency swap. As of September 30, 2019, an estimated gain of $6.5 million is expected to be reclassified within the next twelve months to other income, net from AOCI. As of September 30, 2019, the Company does not expect any gains or losses will be reclassified into earnings as a result of the discontinuance of these cash flow hedges because the original forecasted transaction 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, the Company entered into cross-currency swap agreements designated as net investment hedges to partially offset the effects of foreign currency on foreign subsidiaries. The Company held the following cross-currency rate swaps designated as net investment hedges as of September 30, 2019 and December 31, 2018, respectively (dollar amounts in thousands):
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 nine months ended September 30, 2019, the Company recorded gains of $17.1 million and $26.6 million in AOCI related to the change in fair value of the cross-currency swaps. For the three and nine months ended September 30, 2019, the Company recorded gains of $2.5 million and $7.2 million 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 September 30, 2019 within the next twelve months is $9.6 million. 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 are subject to collateral or other security arrangements, and none contain provisions that depend upon the Company’s credit ratings from any credit rating agency. 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 terms of the derivative instruments. The fair value of the interest rate swaps and the cross-currency swaps was 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 for derivatives designated as hedging instruments in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018:
The following presents the effect of derivative instruments designated as cash flow hedges on the accompanying condensed consolidated statement of operations during the three and nine months ended September 30, 2019 and 2018:
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BUSINESS DEVELOPMENT |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS DEVELOPMENT | BUSINESS DEVELOPMENT Arkis BioSciences Inc. On July 29, 2019, the Company acquired Arkis BioSciences Inc. ("Arkis") for an acquisition purchase price of $30.6 million (the "Arkis Acquisition") plus contingent consideration of up to $25.5 million, that may be payable based on the successful completion of certain development and commercial milestones. The contingent consideration had an acquisition date fair value of $13.1 million. Arkis was a privately-held company that marketed the CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation. Assets Acquired and Liabilities Assumed at Fair Value The Arkis Acquisition has been accounted for using 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. As of September 30, 2019, certain amounts relating to the valuation of intangible assets and tax related matters have not been finalized. The finalization of these matters may result in changes to goodwill. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:
Intangible Assets The estimated fair value of the intangible assets was determined using the income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. 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 asset (including net revenues, cost of sales, R&D costs, selling and marketing costs, and working capital/contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream. The Company used a discount rate of 14.5% to arrive at the present value for the acquired intangible assets to reflect the rate of return a market participant would expect to earn and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results. Goodwill The Company allocated goodwill related to the Arkis Acquisition to the Codman Specialty Surgical 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. One of the key factors that contributes to the recognition of goodwill, and a driver for the Company's acquisition of Arkis, is the planned expansion of the Endexo technology with the existing products within the Codman Specialty Surgical segment. Goodwill recognized as a result of this acquisition is non-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 resultant probability-weighted cash flows are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value will be reflected as income or expense in our consolidated statement of operations. Changes in the fair value of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations. Adverse changes in assumptions utilized in our contingent consideration fair value estimates could result in an increase in our contingent consideration obligation and a corresponding charge to operating results. As part of the acquisition, the Company is required to pay the former shareholders of Arkis up to $25.5 million based on the timing of certain development milestones of $10 million and commercial sales milestones of $15.5 million, respectively. The Company used 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. 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. The pro forma results are not presented for this acquisition as they are immaterial. Rebound Therapeutics Corporation On September 9, 2019, the Company acquired Rebound Therapeutics Corporation (“Rebound”), developers of a single-use medical device known as the AURORA Surgiscope® System ("Aurora") which enables minimally invasive access, using optics and illumination, for visualization, diagnostic and therapeutic use in neurosurgery (the “Rebound transaction”). Under the terms of the Rebound transaction, the Company made an upfront payment of $67.1 million and are committed to pay up to $35.0 million of contingent development milestones upon achievement of certain regulatory milestones. The acquisition of Rebound was primarily concentrated in one single identifiable asset and thus, for accounting purposes, the Company has concluded that the acquired assets do not meet the accounting definition of a business. The initial payment was allocated primarily to Aurora, resulting in a $59.9 million in-process research and development expense. The balance of approximately $7.2 million, which included $2.1 million of cash and cash equivalents and a net deferred tax asset of $4.2 million, was allocated to the remaining net assets acquired. The deferred tax asset primarily resulted from a federal net operating loss carry forward. Integrated Shoulder Collaboration, Inc. On January 4, 2019, the Company entered into a licensing agreement with Integrated Shoulder Collaboration, Inc ("ISC"). Under the terms of the agreement, the Company paid ISC $1.7 million for the exclusive, worldwide license to commercialize its short stem and stemless shoulder system. A patent related to short stem and stemless shoulder systems was issued to ISC during the first quarter of 2019. ISC is eligible to receive royalties on sales of the short stem and stemless shoulder system. The Company has the option to acquire ISC at a date four years subsequent to the first commercial sale, which becomes mandatory upon the achievement of a certain sales thresholds of the short stem and stemless shoulder system, for an amount not to exceed $80.0 million. The transaction was accounted for as an asset acquisition as the Company concluded that it acquired primarily one asset. The total upfront payment of $1.7 million was expensed as a component of in-process research and development expense and the future milestone and option payments will be recorded if the corresponding events become probable. The pro forma results are not presented for this acquisition as they are immaterial.
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SEGMENT AND GEOGRAPHIC INFORMATION - Narrative (Details) |
9 Months Ended |
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Sep. 30, 2019
Segment
product
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Segment Reporting Information [Line Items] | |
Number of reportable segments | Segment | 2 |
Codman Specialty Surgical | |
Segment Reporting Information [Line Items] | |
Number of products offered (more than) | product | 60,000 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Statement of Financial Position [Abstract] | ||
Trade accounts receivable, allowance | $ 4,006 | $ 3,719 |
Preferred stock, authorized shares (in shares) | 15,000,000 | 15,000,000 |
Preferred stock, outstanding shares (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized shares (in shares) | 240,000,000 | 240,000,000 |
Common stock, issued shares (in shares) | 88,689,000 | 88,044,000 |
Treasury stock, shares (in shares) | 2,869,000 | 2,881,000 |
DEBT - Contractual Maturity Table (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
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Debt Disclosure [Abstract] | |
Remainder of 2019 | $ 11,250 |
2020 | 45,000 |
2021 | 56,250 |
2022 | 67,500 |
2023 | 708,750 |
Principal Repayment | $ 888,750 |
DEFINED BENEFIT PLANS - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
Dec. 31, 2018 |
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Retirement Benefits [Abstract] | |||||
Net periodic benefit costs | $ 1.0 | $ 0.5 | $ 2.1 | $ 1.7 | |
Service cost component | 0.7 | $ 0.7 | 2.0 | $ 1.4 | |
Estimated fair value of plan assets | $ 28.6 | $ 28.6 | $ 31.1 |
INCOME TAXES - Narrative (Details) $ / shares in Units, SFr in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||||
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Sep. 30, 2019
USD ($)
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Mar. 31, 2019
USD ($)
$ / shares
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Sep. 30, 2018 |
Sep. 30, 2019
CHF (SFr)
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Sep. 30, 2019
USD ($)
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Sep. 30, 2018
USD ($)
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Income Tax Contingency [Line Items] | ||||||
Effective income tax rate | (0.40%) | (20.60%) | (3.50%) | (3.50%) | (8.40%) | |
Tax expense, tax reform-related adjustments, due to clarification in IRS guidance | $ 1.6 | $ 1.6 | ||||
Tax benefit from Switzerland tax holiday | $ 10.8 | |||||
Tax benefit from Switzerland tax holiday (in dollars per share) | $ / shares | $ 0.13 | |||||
Tax benefit, related to share-based compensation | $ 1.2 | |||||
Foreign Tax Authority | Swiss Federal Tax Administration (FTA) | ||||||
Income Tax Contingency [Line Items] | ||||||
Federal tax credit | SFr | SFr 12 | |||||
Federal tax credit, term | 7 years | 7 years | ||||
Rebound | ||||||
Income Tax Contingency [Line Items] | ||||||
In-process research and development (IPR&D) expense | $ 59.9 | $ 59.9 |
LEASES AND RELATED PARTY LEASES - Future Minimum Lease Payment Under Operating Leases, After Adoption of 842 (Details) $ in Thousands |
Sep. 30, 2019
USD ($)
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Operating Leased Assets [Line Items] | |
2019 | $ 4,563 |
2020 | 13,585 |
2021 | 12,987 |
2022 | 13,937 |
2023 | 11,710 |
Thereafter | 104,467 |
Total minimum lease payments | 161,249 |
Less: Imputed interest | 52,594 |
Total lease liabilities | 108,655 |
Less: Current lease liabilities | 11,835 |
Long-term lease liabilities | 96,820 |
Related Parties | |
Operating Leased Assets [Line Items] | |
2019 | 74 |
2020 | 296 |
2021 | 296 |
2022 | 296 |
2023 | 296 |
Thereafter | 1,724 |
Total minimum lease payments | 2,982 |
Third Parties | |
Operating Leased Assets [Line Items] | |
2019 | 4,489 |
2020 | 13,289 |
2021 | 12,691 |
2022 | 13,641 |
2023 | 11,414 |
Thereafter | 102,743 |
Total minimum lease payments | $ 158,267 |
REVENUES FROM CONTRACTS WITH CUSTOMERS - Impact of Adoption on Statement of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Statement of Operations | ||||
Total revenue, net | $ 379,095 | $ 365,854 | $ 1,122,430 | $ 1,089,126 |
Cost of goods sold | 142,636 | 143,245 | 415,219 | 425,032 |
Income tax benefit | 101 | (2,271) | (1,185) | (2,776) |
Net loss | $ (27,610) | 13,295 | $ 34,882 | 35,663 |
Excluding Impact of Topic 606 | ||||
Statement of Operations | ||||
Total revenue, net | 368,990 | 1,089,153 | ||
Cost of goods sold | 143,918 | 424,969 | ||
Income tax benefit | (1,092) | (2,754) | ||
Net loss | $ 14,579 | $ 35,731 |
REVENUES FROM CONTRACTS WITH CUSTOMERS (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in Contract Assets and Contract Liabilities | The following table summarizes the changes in the contract asset and liability balances for the nine months ended September 30, 2019:
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Schedule of Disaggregation of Revenue | The following table presents revenues disaggregated by the major sources of revenues for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):
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Schedule of Impact on Statement of Operations | The impact of adoption in the year of implementation of Topic 606 to the Company's consolidated statement of operations for the three and nine months ended September 30, 2018 was as follows:
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SEGMENT AND GEOGRAPHIC INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT AND GEOGRAPHIC INFORMATION | 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 Corporate and other category includes (i) various executive, finance, human resource, information systems, legal 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 nine months ended September 30, 2019 and 2018 are as follows:
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:
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