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ACQUISITIONS AND DIVESTITURES | 12 Months Ended
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Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS AND DIVESTITURES | ACQUISITIONS AND DIVESTITURES Sale of Extremity Orthopedics Business On January 4, 2021, the Company completed the sale of its Extremity Orthopedics business to Smith & Nephew USD Limited ("Smith & Nephew"). The transaction included the sale of the Company's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines. The Company received an aggregate purchase price of $240.0 million from Smith & Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO") effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products. Assets and liabilities divested consisted of the following as of December 31, 2020 (dollar amounts in thousands):
Prepaid expenses and other current assets | $ | 713 |
Right of use asset - operating leases and Other assets | 3,186 |
Deferred tax assets | 6,589 |
Intangible assets, net | 13,332 |
Property, plant and equipment, net | 37,893 |
Goodwill | 47,546 |
Inventories | 52,845 |
Total assets held for sale | $ | 162,104 |
Other liabilities | $ | 336 |
Current portion of lease liability - operating leases | 539 |
Accrued compensation | 1,767 |
Deferred tax liabilities | 3,440 |
Lease liability - operating leases | 5,669 |
Total liabilities held for sale | $ | 11,751 |
The divestiture does not represent a strategic shift that will have a major effect on the Company's operations and financial statements. Goodwill was allocated to the assets and liabilities divested using the relative fair value method of the Extremity Orthopedics business to the Company's Tissue Technologies reporting unit. In connection with the sale, the Company recognized a gain of $41.8 million that is presented in Gain from the sale of business in the consolidated statement of operations for the year ended December 31, 2021. The Company finalized the net working capital and paid an additional $1.3 million to Smith & Nephew as of December 31, 2021. The Company also entered into a transition services agreement with Smit h & Nephew which requires the Company to provide certain services on behalf of Smith & Nephew for the duration of the period subsequent to the sale of the business as defined in the agreement. The Company recognized a payable due to Smith & Nephew of $9.1 million as of December 31, 2021, included in the consolidated balance sheet within accrued expenses and other current liabilities. ACell, Inc. Acquisition On January 20, 2021, the Company acquired ACell, Inc. (the "ACell Acquisition") for an acquisition purchase price of $306.9 million plus contingent considerations of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025. The final working capital adjustments of $1.3 million was finalized and paid as of June 30, 2021. ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix, a technology platform derived from porcine urinary bladder extracellular matrix. Assets Acquired and Liabilities Assumed at Fair Value The ACell Acquisition has been accounted for using the acquisition method of accounting. This method requires that assets acquired and liabilities assumed in a business combination are recognized at their fair values as of the acquisition date. The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date:
Dollars in thousands | Final Valuation |  | Weighted Average Life |  |  |
Current assets: |  |  |  |  |  |
Cash | $ | 2,726 |  |  |  |  |  |
Trade accounts receivable, net | 16,469 |  |  |  |  |  |
Inventories, net | 18,299 |  |  |  |  |  |
Prepaid expenses and other current assets | 1,498 |  |  |  |  |  |
Total current assets | $ | 38,992 |  |  |  |  |  |
Property, plant and equipment, net | 13,769 |  |  |  |  |  |
Intangible assets | 245,000 |  |  | 13-14 years |  |  |
Goodwill | 94,147 |  |  |  |  |  |
Right of use asset - operating leases | 9,259 |  |  |  |  |  |
Deferred tax assets | 7,465 |  |  |  |  |  |
Other assets | 148 |  |  |  |  |  |
Total assets acquired | $ | 408,780 |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |
Accounts payable | $ | 718 |  |  |  |  |  |
Accrued expenses | 5,966 |  |  |  |  |  |
Current portion of lease liability - operating leases | 1,673 |  |  |  |  |  |
Total current liabilities | $ | 8,357 |  |  |  |  |  |
Other long-term liability | 276 |  |  |  |  |  |
Lease liability - operating leases | 7,585 |  |  |  |  |  |
Deferred tax liability | 61,724 |  |  |  |  |  |
Contingent consideration | 23,900 |  |  |  |  |  |
Total liabilities assumed | 101,842 |  |  |  |  |  |
Net assets acquired | $ | 306,938 |  |  |  |  |  |
Intangible Assets The estimated fair value of the developed technology acquired was determined using the multi-period excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each product including net revenues, cost of sales, R&D costs, selling and marketing costs, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream. The Company used a discount rate of 8.5% to arrive at the present value for the acquired intangible assets to reflect the rate of return a market participant would expect to earn and incremental commercial uncertainty in the cash flow projections. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results. Goodwill The Company allocated goodwill related to the ACell acquisition to the Tissue Technologies segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected synergies of the combined company and assembled workforce. Goodwill recognized as a result of this acquisition is non-deductible for income tax purposes. Contingent Consideration As part of the acquisition, the Company is required to make payments to the former shareholders of ACell up to $100 million based on the achievement of certain revenue-based performance milestones in 2022, 2023, and 2025. T he Company used iterations of the Monte Carlo simulation to calculate the fair value of the contingent consideration that considered the possible outcomes of scenarios related to each specific milestone. The Company estimated the fair value of the contingent consideration to be $23.9 million at the acquisition date. The estimated fair value as of December 31, 2021 was $21.8 million. This amount is included in other liabilities at December 31, 2021 in the consolidated balance sheets of the Company. The Company determined the acquisition date fair value of contingent consideration obligations using a Monte Carlo simulation, as well as significant unobservable inputs, reflecting the Company’s assessment of the assumptions market participants would use to value these liabilities. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined using the fair value concepts in ASC 820. The resultant most likely payouts are discounted using an appropriate effective annual interest rate. At each reporting date, the contingent consideration obligations is revalued to estimated fair value and changes in fair value will be reflected as income or expense in our consolidated statement of operations. Changes in the fair value of the contingent considerations may result from changes in discount periods and rates and changes in the timing and amount of revenue estimates. Deferred Tax Liabilities Deferred tax liabilities result from identifiable intangible assets’ fair value adjustments. These adjustments create excess book basis over tax basis which is tax-effected by the statutory tax rates of applicable jurisdictions. Pro Forma Results (unaudited) Pro forma revenues for the year ended December 31, 2021 and 2020 were $1,547.0 million and $1,466.8 million, respectively. Pro forma net income and earnings per share are not presented for this acquisition as they are not material. 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. The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date:
Dollars in thousands | Final Valuation | Weighted Average Life
Cash | $ | 90 |  |
Other current assets | 751 |  |
Property, plant and equipment | 457 |  |
Deferred tax assets | 1,697 |  |
Intangible assets: |  |
CerebroFlo developed technology | 20,100 |  | 15 years
Enabling technology license | 1,980 |  | 14 years
Goodwill | 27,153 |  |
Total assets acquired | 52,228 |  |
Accounts payable, accrued expenses and other liabilities | 2,926 |  |
Contingent consideration | 13,100 |  |
Deferred tax liabilities | 5,603 |  |
Net assets acquired | $ | 30,599 |  |
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 determined 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 is 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 the contingent consideration fair value estimates could result in an increase in the contingent consideration obligation and a corresponding charge to operating results. As part of the 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. The estimated the fair value as of December 31, 2021 was $15.1 million. The Company recorded $3.7 million in accrued expenses and other current liabilities and $11.4 million in other liabilities at December 31, 2021 in the consolidated balance sheets of the Company. Deferred Tax Liabilities Deferred tax liabilities result from identifiable intangible assets’ fair value adjustments. These adjustments create excess book basis over tax basis which is tax-effected by the statutory tax rates of applicable jurisdictions. The pro forma results are not presented for this acquisition as they are not material. 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 IPR&D 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. During the fourth quarter of 2019, the Company achieved the first developmental milestone which triggered a $5.0 million obligation to be paid to former shareholders of Rebound. The Company recorded $5.0 million as IPR&D expense in the consolidated statements of operations. The obligation was included in accrued expenses and other current liabilities at December 31, 2019 in the consolidated balance sheets. The milestone was paid during the first quarter of 2020. During the fourth quarter of 2020, the Company achieved another developmental milestone which triggered a $20.0 million obligation to be paid to the former shareholders of Rebound. The Company recorded $20.0 million as an intangible asset in the consolidated balance sheet upon achieving the milestone. The milestone was paid during the fourth quarter of 2020. During the fourth quarter of 2021, the Company achieved its final developmental milestone which triggered a $5.0 million obligation to be paid to the former shareholders of Rebound. The Company recorded $5.0 million as an intangible asset in the consolidated balance sheet upon achieving the milestone. The remaining obligation was included in accrued expenses and other current liabilities at December 31, 2021 in the consolidated balance sheets. The milestone is expected to be fully paid during the first quarter of 2022. 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 research and development expense and the future milestone and option payments will be recorded if the corresponding events become probable. In connection with the sale of the Company's Extremity Orthopedic business, on January 4, 2021 the Company paid $41.5 million to CFO pursuant to the terms of certain agreements between the Company and CFO relating to the sale of shares of ISC effectively terminating our licensing agreement with ISC.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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