0000917520
2009-01-01
2009-12-31
0000917520
2009-09-30
0000917520
2008-12-31
0000917520
2010-07-01
2010-09-30
0000917520
2009-07-01
2009-09-30
0000917520
2009-01-01
2009-09-30
0000917520
2010-09-30
0000917520
2009-12-31
0000917520
2009-06-30
0000917520
2010-10-26
0000917520
2010-01-01
2010-09-30
iso4217:USD
xbrli:shares
xbrli:shares
iso4217:USD
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<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>1. BASIS OF PRESENTATION</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>General</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In the opinion of management, the September 30, 2010 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, 2009 included in the Company’s
Annual Report on Form 10-K. The December 31, 2009 condensed 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 nine-month period ended September 30, 2010 are not necessarily
indicative of the results to be expected for the entire year.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The preparation of consolidated financial statements in conformity with generally
accepted accounting principles 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, 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, valuation of intangible assets and
in-process research and development, pension assets and liabilities, computation of
taxes, valuation allowances recorded against deferred tax assets, the valuation of
stock-based compensation, 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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Certain amounts from the prior year’s financial statements have been reclassified in
order to conform to the current year’s presentation.
</div>
</div>
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<div align="left" style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>2. BUSINESS AND ASSET ACQUISITIONS</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Culley Investments Pty. Ltd.</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In September 2010, the Company acquired certain assets as well as the distribution
rights for its extremity reconstruction product lines in Australia from Culley
Investments Pty. Ltd. (“Culley”) for approximately $1.6 million (1.7 million Australian
dollars) in cash. The Company has determined that this acquisition met the definition of
a business under the authoritative guidance. For eight years, Culley has been the
Company’s distributor of these products in Australia. The acquisition provides the
Company with the ability to sell orthopedic products directly to its Australian
customers.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The final purchase price has been allocated as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventory
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">878</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Property, plant and equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">319</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right"> </td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap">Wtd. Avg. Life</font></td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Intangible assets — Customer relationships
</div></td>
<td> </td>
<td> </td>
<td align="right">373</td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap">12 years</font></td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td colspan="3" align="center"><font style="white-space: nowrap"> </font></td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right"> </td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap"> </font></td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Total net assets acquired
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,570</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Welch Allyn, Inc.</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In May 2010, the Company acquired certain assets and liabilities of the surgical
headlight business of Welch Allyn, Inc. (“Welch”) for approximately $2.4 million in cash
and $0.2 million of working capital adjustments. The Company determined that this
acquisition met the definition of a business under the authoritative guidance. The
Company believes that the assets acquired will further its goal of expanding its reach
into the surgical headlight market. The Company also entered into a development
agreement with Welch that will expire on February 15, 2011 unless the product is
commercially available prior to that date.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The final purchase price has been allocated as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts receivable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">518</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventory
</div></td>
<td> </td>
<td> </td>
<td align="right">138</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Property, plant and equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">280</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Intangible assets
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap">Wtd. Avg. Life</font></td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px">Customer relationships
</div></td>
<td> </td>
<td> </td>
<td align="right">490</td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap">15 years</font></td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px">Technology
</div></td>
<td> </td>
<td> </td>
<td align="right">263</td>
<td> </td>
<td> </td>
<td colspan="3" align="left">6 years</td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px">In-Process research and development
</div></td>
<td> </td>
<td> </td>
<td align="right">312</td>
<td> </td>
<td> </td>
<td colspan="3" align="left">Indefinite</td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill
</div></td>
<td> </td>
<td> </td>
<td align="right">601</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Total net assets acquired
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,602</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Athrodax Healthcare International Ltd.</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In December 2009, the Company acquired certain assets as well as the distribution rights
for its extremity reconstruction product lines in the United Kingdom from Athrodax
Healthcare International Ltd. (“Athrodax”), for approximately $3.3 million (2.0 million
British Pounds) in cash, subject to certain adjustments for working capital items. For
the previous ten years Athrodax had been the Company’s distributor of extremity
reconstruction products in the United Kingdom. The acquisition provides the Company with
the opportunity to distribute orthopedic products directly to its United Kingdom
customers. Accompanying this acquisition was an experienced sales team in the foot and
ankle surgery market that had successfully developed the brand in the United Kingdom.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Innovative Spinal Technologies, Inc.</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In August 2009, the Company acquired certain assets and liabilities of Innovative Spinal
Technologies, Inc. (“IST”) for approximately $9.3 million in cash and $0.2 million in
acquisition expenses. IST’s focus was on spinal implant products related to minimally
invasive surgery and motion preservation techniques. The Company acquired three product
lines, various product development assets for posterior dynamic stabilization, various
patents and trademarks and inventory, and the Company also assumed certain of IST’s
patent license agreements and related obligations. The assets and liabilities acquired
did not meet the definition of a business under the authoritative guidance for business
combinations. Accordingly, the assets and liabilities were recognized at fair value with
no related goodwill.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Theken</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In August 2008 the Company acquired Theken Spine, LLC, Theken Disc, LLC and Therics, LLC
(collectively, “Integra Spine”) for $75.0 million in cash, acquisition expenses of $2.4
million, working capital adjustments of $3.9 million, and up to an additional $125.0
million in future payments based on the revenue performance of the business in each of
the two years after closing. The Company paid approximately $52.0 million for the first
year revenue performance obligation in November 2009 and accrued an additional $3.4
million at September 30, 2010 as an estimate of the disputed settlement amount (see Note 13). The Company
believes that there are
no additional amounts due for the second
performance year. Integra Spine, based in Akron, Ohio, designs, develops and
manufactures spinal fixation products.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>3. INVENTORIES</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Inventories, net consisted of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Finished goods
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">110,767</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">109,077</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Work-in process
</div></td>
<td> </td>
<td> </td>
<td align="right">36,164</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,757</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Raw materials
</div></td>
<td> </td>
<td> </td>
<td align="right">30,319</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,131</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Less: reserves
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(29,277</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(27,725</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">147,973</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">140,240</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>4. GOODWILL AND OTHER INTANGIBLE ASSETS</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Changes in the carrying amount of goodwill for the nine months ended September 30, 2010
were as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">261,941</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Accumulated impairment losses
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill at December 31, 2009
</div></td>
<td> </td>
<td> </td>
<td align="right">261,941</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Foreign currency translation
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,509</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Theken earn-out
</div></td>
<td> </td>
<td> </td>
<td align="right">3,400</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Welch Allyn, Inc. acquisition
</div></td>
<td> </td>
<td> </td>
<td align="right">601</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill at September 30, 2010
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">262,433</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s assessment of the recoverability of goodwill is based upon a comparison of
the carrying value of goodwill with its estimated fair value, determined using a
discounted cash flow methodology. The Company performs this assessment annually and no
impairment resulted after completing this assessment during the second quarter of 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">During the second quarter of 2010, the Company recorded a $0.8 million impairment charge
related to several brand names. The impairment charge relates to management’s decision
with respect to the Company’s re-branding strategy for several legacy brand names. The
Company has recorded the charge as a component of amortization expense.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The components of the Company’s identifiable intangible assets were as follows (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="23%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Weighted</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>September 30, 2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000"><b>December 31, 2009</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Average</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Accumulated</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Life</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Amortization</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Net</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Completed technology
</div></td>
<td> </td>
<td colspan="3" align="center">12 years</td>
<td> </td>
<td align="left">$</td>
<td align="right">69,660</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(26,753</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">42,907</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">69,632</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(22,526</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">47,106</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Customer relationships
</div></td>
<td> </td>
<td colspan="3" align="center">12 years</td>
<td> </td>
<td> </td>
<td align="right">98,636</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(43,318</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">55,318</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">97,922</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(36,724</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">61,198</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Trademarks/brand names
</div></td>
<td> </td>
<td colspan="3" align="center">35 years</td>
<td> </td>
<td> </td>
<td align="right">33,446</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,183</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">25,263</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">35,741</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(8,692</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">27,049</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Trademarks/brand names
</div></td>
<td> </td>
<td colspan="3" align="center">Indefinite</td>
<td> </td>
<td> </td>
<td align="right">49,384</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49,384</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49,384</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49,384</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Supplier relationships
</div></td>
<td> </td>
<td colspan="3" align="center">30 years</td>
<td> </td>
<td> </td>
<td align="right">29,300</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,281</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">25,019</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,300</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,647</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">25,653</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">All other*
</div></td>
<td> </td>
<td colspan="3" align="center">15 years*</td>
<td> </td>
<td> </td>
<td align="right">8,461</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,641</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">820</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,197</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,470</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">727</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">288,887</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(90,176</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">198,711</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">290,176</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(79,059</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">211,117</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 6pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">*</td>
<td> </td>
<td>
<div style="text-align: justify">All other includes $0.3 million of in-process research and development which is indefinite lived.
</div></td>
</tr>
</table>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Annual amortization expense is expected to approximate $17.9 million in 2010, $16.8
million in 2011, $16.6 million in 2012, $13.9 million in 2013 and $12.9 million in 2014.
Identifiable intangible assets are initially recorded at fair market value at the time
of acquisition using an income or cost approach.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:DebtDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>5. DEBT</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Amended and Restated Senior Credit Agreement</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On August 10, 2010, the Company entered into an amended and restated credit agreement
(the “Senior Credit Facility”) with a syndicate of lending banks. The Senior Credit
Facility increased the size of the Company’s prior revolving credit facility from $300.0
million to $450.0 million, provided for a $150.0 million term loan component and allowed
the Company to further increase the size of either the term loan or the revolving credit
facility, or a combination thereof, by an aggregate of $150.0 million with additional
commitments. The Senior Credit Facility extended the prior revolving credit facility’s
maturity date from December 21, 2011 to August 10, 2015 and increased the applicable
rates used for borrowings and the annual commitment fee. The Senior Credit Facility is
secured by substantially all of the assets of the Company’s U.S. subsidiaries, excluding
intangible assets.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Amounts borrowed under the Senior Credit Facility bear interest, at the Company’s
option, at a rate equal to (i) the Eurodollar Rate (as defined in the Senior Credit
Facility) in effect from time to time plus the applicable rate (ranging from 1.75% to
2.5%) or (ii) the highest of (x) the weighted average overnight Federal funds rate, as
published by the Federal Reserve Bank of New York, plus 0.5%, (y) the prime lending rate
of Bank of America, N.A. or (z) the one-month Eurodollar Rate plus 1.0%. The applicable
fixed rates are based on the Company’s consolidated total leverage ratio (defined as the
ratio of (a) consolidated funded indebtedness less cash in excess of $40.0 million that
is not subject to any restriction on the use or investment thereof to (b) consolidated
earnings before interest, taxes, depreciation and amortization) at the time of the
applicable borrowing.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company also pays an annual commitment fee (ranging from 0.2% to 0.5%, based on the
Company’s consolidated total leverage ratio) on the daily amount by which the revolving
credit facility exceeds the outstanding loans and letters of credit under the credit
facility.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Senior Credit Facility also modified certain financial and negative covenants. In
particular, it:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">reduced the maximum consolidated total leverage ratio that the Company is permitted to
have from 4.50 to 1.00, to either (i) 3.75 to 1.00 during any consecutive four fiscal
quarter period ending on or before March 31, 2012 or (ii) 3.5 to 1.00 during any
period thereafter,
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">eliminated the senior secured leverage ratio covenant,
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">increased the amount of permitted unsecured debt,
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">provided the Company more ability to repurchase stock and make restricted payments, and
</div></td>
</tr>
<tr style="font-size: 8pt">
<td> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>
<div style="text-align: justify">provided for capital expenditures in any fiscal year equal to 10% of the revenues
during the prior fiscal year, subject to carry over to the next following fiscal year.
</div></td>
</tr>
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On August 10, 2010, the Company also entered into an interest rate swap effective
December 31, 2010 with an investment grade bank which converts a portion of the
Company’s variable interest payments to fixed interest payments (see Note 6).
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Prior to entering into the Senior Credit Facility in 2010, the Company borrowed $75.0
million under the revolving credit facility in connection with the maturity of its 2010
Notes (defined below) and also repaid $15.0 million of outstanding borrowings. At
September 30, 2010, there was $70.0 million outstanding under the revolving credit
facility at a weighted average interest rate of 2.5%. The fair value of outstanding
borrowings under the revolving credit facility at September 30, 2010 was approximately
$65.7 million. The Company considers all such amounts to be long-term in nature based on
its current intent and ability to repay the borrowing outside of the next twelve-month
period.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">At September 30, 2010, there was $150.0 million outstanding under the term loan at an
interest rate of 2.7% — of this amount, the Company considers $7.5 million as short-term
and $142.5 million as long-term based on its intent and ability to repay the loan
pursuant to the terms of the loan agreement. Under the term loan, principal payments to
be made during the calendar years are as follows: $1.9 million in 2010, $8.4 million in
2011, $12.2 million in 2012, $15.0 million in 2013, $15.0 million in 2014 and $97.5 million in
2015. The fair value of outstanding borrowings on the term loan at September 30, 2010
was approximately $141.6 million.
</div>
<!-- Folio -->
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>2010 and 2012 Senior Convertible Notes</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On June 11, 2007, the Company issued $165.0 million aggregate principal amount of its
2010 Notes and $165.0 million aggregate principal amount of its 2012 Notes (the 2010
Notes and the 2012 Notes, collectively the “Notes”). The 2010 Notes and the 2012 Notes
bear interest at a rate of 2.75% per annum and 2.375% per annum, respectively, in each
case payable semi-annually in arrears on December 1 and June 1 of each year.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In 2009, the Company repurchased a total principal amount of $87.1 million of the 2010
Notes and recognized a gain of $0.5 million. Total cash paid for these repurchases was
$83.3 million of which $78.0 million related to repayment of the liability component of
the Notes. For all of these transactions, the Company terminated the bond hedge
contracts on a pro-rata basis and the number of options were adjusted to reflect the
number of convertible securities outstanding whose principal amount totaled $77.9
million. Also, in connection with the repurchases, in separate transactions, the Company
amended the warrant transactions to reduce the number of warrants outstanding to reflect
the number of convertible securities outstanding. The Company repaid the remaining $77.9
million principal amount in June 2010 in accordance with the agreement, of which $71.4
million was for the liability component and $6.6 million was for accreted interest.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The principal amount outstanding under the 2012 Notes at September 30, 2010 was $165.0
million. The fair value of the 2012 Notes at September 30, 2010 was approximately $162.0
million. The 2012 Notes are senior, unsecured obligations of the Company, and are
convertible into cash and, if applicable, shares of its common stock based on an initial
conversion rate, subject to adjustment, of 15.3935 shares per $1,000 principal amount of
notes (which represents an initial conversion price of approximately $64.96 per share).
The Company will satisfy any conversion of the 2012 Notes with cash up to the principal
amount pursuant to the net share settlement mechanism set forth in the indenture and,
with respect to any excess conversion value, with shares of the Company’s common stock.
The 2012 Notes are convertible only in the following circumstances: (1) if the closing
sale price of the Company’s common stock exceeds 130% of the conversion price during a
period as defined in the indenture; (2) if the average trading price per $1,000
principal amount of the Notes is less than or equal to 97% of the average conversion
value of the Notes during a period as defined in the indenture; (3) at any time on or
after December 15, 2011; or (4) if specified corporate transactions occur. However, none
of these conditions existed at September 30, 2010 and, as a result, the 2012 Notes are
classified as long term. The issue price of the 2012 Notes was equal to their face
amount, which is also the amount holders are entitled to receive at maturity if the 2012
Notes are not converted.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Holders of the 2012 Notes, who convert their notes in connection with a qualifying
fundamental change, as defined in the indenture, may be entitled to a make-whole premium
in the form of an increase in the conversion rate. Additionally, following the
occurrence of a fundamental change, holders may require that the Company repurchase some
or all of the 2012 Notes for cash at a repurchase price equal to 100% of the principal
amount of the notes being repurchased, plus accrued and unpaid interest, if any.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The 2012 Notes, under the terms of the private placement agreement, are guaranteed fully
by Integra LifeSciences Corporation, a subsidiary of the Company. The 2012 Notes are the
Company’s direct senior unsecured obligations and will rank equal in right of payment to
all of the Company’s existing and future unsecured and unsubordinated indebtedness.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In connection with the original issuance of the Notes, the Company entered into call
transactions and warrant transactions, primarily with affiliates of the initial
purchasers of the Notes (the “hedge participants”), in connection with each series of
Notes. The cost of the call transactions to the Company was approximately $46.8 million.
The Company received approximately $21.7 million of proceeds from the warrant
transactions. The call transactions involve the Company’s purchasing call options from
the hedge participants, and the warrant transactions involve the Company’s selling call
options to the hedge participants with a higher strike price than the purchased call
options. The calls related to the 2010 Notes expired with the maturity of those notes
and the warrants related to the 2010 Notes expire at various times through January 2011.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The initial strike price of the remaining call transactions is approximately $64.96 for
the 2012 Notes, subject to anti-dilution adjustments substantially similar to those in
the 2012 Notes. The initial strike price of the warrant transactions is approximately
$77.96 per share of Common Stock for the 2010 Notes and approximately $90.95 for the
2012 Notes, in each case subject to customary anti-dilution adjustments.
</div>
<!-- Folio -->
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>6. DERIVATIVE INSTRUMENTS</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company develops, manufactures, and sells medical devices globally and its earnings
and cash flows are exposed to market risk from changes in interest rates and currency
exchange rates. The Company addresses these risks through a risk management program that
includes the use of derivative financial instruments, and operates the program pursuant
to documented corporate risk management policies. All derivative financial instruments
are recognized in the financial statements at fair value in accordance with the
authoritative guidance. Under the guidance, for those instruments that are designated
and qualify as hedging instruments, the hedging instrument must be designated as a fair
value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation,
based on the exposure being hedged. The accounting for changes in the fair value of a
derivative instrument depends on whether it has been designated and qualifies as part of
a hedging relationship and, further, on the type of hedging relationship. The Company’s
derivative instruments do not subject its earnings or cash flows to material risk, and
gains and losses on these derivatives generally offset losses and gains on the item
being hedged. The Company has not entered into derivative transactions for speculative
purposes and all of its derivatives are designated as hedges.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">All derivative instruments are recognized at their fair values as either assets or
liabilities on the balance sheet. The Company determines the fair value of its
derivative instruments, using the framework prescribed by the authoritative guidance, by
considering the estimated amount the Company would receive to sell or transfer these
instruments at the reporting date and by taking into account current interest rates,
currency exchange rates, the creditworthiness of the counterparty for assets, and its
creditworthiness for liabilities. In certain instances, the Company may utilize
financial models to measure fair value. Generally, the Company uses inputs that include
quoted prices for similar assets or liabilities in active markets; other observable
inputs for the asset or liability; and inputs derived principally from, or corroborated
by, observable market data by correlation or other means. As of September 30, 2010, the
Company has classified all of its derivative assets and liabilities within Level 2 of
the fair value hierarchy because observable inputs are available for substantially the
full term of its derivative instruments.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Foreign Currency Hedging</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">All of the Company’s designated foreign currency hedge contracts outstanding as of
September 30, 2010 and December 31, 2009 were cash flow hedges under the authoritative
guidance intended to protect the U.S. dollar value of certain forecasted foreign
currency denominated intercompany transactions. The Company records the effective
portion of any change in the fair value of foreign currency cash flow hedges in other
comprehensive income (“OCI”), net of tax, until the hedged item impacts earnings. Once
the related hedged item effects earnings, the Company reclassifies the effective portion
of any related unrealized gain or loss on the foreign currency cash flow hedge to
earnings. If the hedged forecasted transaction does not occur, or if it becomes probable
that it will not occur, the Company will reclassify the amount of any gain or loss on
the related cash flow hedge to earnings at that time.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The success of the Company’s hedging program depends, in part, on forecasts of certain
activity denominated in euros. The Company may experience unanticipated currency
exchange gains or losses to the extent that there are differences between forecasted and
actual activity during periods of currency volatility. In addition, changes in currency
exchange rates related to any unhedged transactions may impact its earnings and cash
flows.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">All currency cash flow hedges outstanding as of September 30, 2010 mature within 12
months; therefore the Company may reclassify a <i>de minimus </i>amount of pre-tax net losses
recorded in OCI to earnings within the next twelve months.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Interest Rate Hedging</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s interest rate risk relates to U.S. dollar denominated variable LIBOR
interest rate borrowings. The Company uses an interest rate swap derivative instrument
entered into on August 10, 2010 with an effective date of December 31, 2010 to manage
its earnings and cash flow exposure to changes in interest rates by converting a portion
of its floating-rate debt into fixed-rate debt beginning on December 31, 2010. This
interest rate swap expires on August 10, 2015.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company designates this derivative instrument as a cash flow hedge. The Company
records the effective portion of any change in the fair value of a derivative instrument
designated as a cash flow hedge as unrealized gains or losses in OCI, net of tax, until
the hedged item affects earning, at which point the effective portion of any gain or
loss will be 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 amount of any gain or
loss on the related cash flow hedge to interest expense at that time.
</div>
<!-- Folio -->
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</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company expects that approximately $1.6 million of net pre-tax losses recorded in
OCI could be reclassified to earnings within the next twelve months related to the
interest rate hedge.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Counterparty Credit Risk</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">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 on-going basis. Therefore, the Company
considers the credit risk of the counterparties to be low. Furthermore, none of the
Company’s derivative transactions is subject to collateral or other security
arrangements, and none contains provisions that are dependent on the Company’s credit
ratings from any credit rating agency.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Fair Value of Derivative Instruments</i>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the fair value, notional amounts presented in U.S.
dollars, and presentation in the condensed consolidated balance sheet for derivatives
designated as hedging instruments as of September 30, 2010 and December 31, 2009 (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="36%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="11%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="11%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="11%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="11%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Fair Value as of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Notional Amount as of</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Location on Balance Sheet (1)</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Derivative Assets:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Currency hedge contracts — Prepaid
expenses and other current assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,285</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">31,308</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Derivative Liabilities:</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swap — Accrued expenses and
other current liabilities (2)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,578</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Currency hedge contracts — Accrued
expenses and other current liabilities
</div></td>
<td> </td>
<td> </td>
<td align="right">1,006</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">418</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,107</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,696</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swap — Other liabilities (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">1,066</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Total Derivative Liabilities</b>
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,650</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">418</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 6pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(1)</td>
<td> </td>
<td>
<div style="text-align: justify">The Company classifies derivative assets and liabilities as current based on
the cash flows expected to be incurred within the following 12 months.
</div></td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left">(2)</td>
<td> </td>
<td>
<div style="text-align: justify">The total notional amount related to the interest rate swap is $148.1 million.
In the next twelve months this amount will be reduced by $7.5 million.
</div></td>
</tr>
</table>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following presents the effect of derivative instruments designated as cash flow
hedges on the accompanying unaudited condensed consolidated statements of operations
during the three and nine months ended September 30, 2010 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="36%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="15%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="15%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="19%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amount of Gain</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amount of Gain</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Loss) Reclassified</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>(Loss) Recognized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>from OCI Into</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>in OCI (Effective</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Earnings (Effective</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Location in Statements of</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Portion)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Portion)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Three Months ended September 30, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Currency hedge contracts
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,430</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,437</td>
<td> </td>
<td> </td>
<td colspan="3" align="left"><font style="white-space: nowrap">Other income (expense)</font></td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swap
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,644</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td colspan="3" align="left">Interest (expense)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">786</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,437</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Nine Months ended September 30, 2010</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Currency hedge contracts
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,695</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,718</td>
<td> </td>
<td> </td>
<td colspan="3" align="left">Other income (expense)</td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swap
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,644</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td colspan="3" align="left">Interest (expense)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(949</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">1,718</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company had no derivative instruments outstanding, or affecting the statement of
operations during the three- and nine-month periods ended September 30, 2009 and
recognized no gains or losses due to ineffectiveness for the three- and nine-month
periods ended September 30, 2010 and 2009.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>7. STOCK-BASED COMPENSATION</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">As of September 30, 2010, the Company had stock options, restricted stock awards,
performance stock awards, contract stock awards and restricted stock unit awards
outstanding under six plans, the 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan (the “1996 Plan”), the 1998 Stock Option Plan (the “1998 Plan”), the 1999
Stock Option Plan (the “1999 Plan”), the 2000 Equity Incentive Plan (the “2000 Plan”),
the 2001 Equity Incentive Plan (the “2001 Plan”), and the 2003 Equity Incentive Plan
(the “2003 Plan” and collectively, the “Plans”). No new awards may be granted under the
1996 Plan, the 1998 Plan, the 1999 Plan and the 2000 Plan.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Stock options issued under the Plans become exercisable over specified periods,
generally within four years from the date of grant for officers, directors and
employees, and generally expire six years from the grant date for employees and from six
to ten years for directors and certain executive officers. The transfer and
non-forfeiture provisions of restricted stock issued under the Plans lapse over
specified periods, generally three years after the date of grant.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Stock Options</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company granted approximately 59,000 and 62,500 stock options during the nine months
ended September 30, 2010 and 2009, respectively. As of September 30, 2010, there were
approximately $2.9 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 1.5 years. The Company received net proceeds of $5.7 million and $2.6
million from stock option exercises for the nine months ended September 30, 2010 and
2009, respectively.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><u>Awards of Restricted Stock, Performance Stock and Contract Stock</u>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Performance stock awards have performance features associated with them. Performance
stock, restricted stock and contract stock awards generally have requisite service
periods of three years. The Company expenses the fair value of these awards on a
straight-line basis over the vesting period or requisite service period, whichever is
shorter. As of September 30, 2010, there was approximately $12.5 million of total
unrecognized compensation costs related to unvested awards. The Company expects to
recognize these costs over a weighted-average period of approximately 1.8 years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company has no formal policy related to the repurchase of shares for the purpose of
satisfying stock-based compensation obligations.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which provides
eligible employees of the Company 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.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:ScheduleOfTreasuryStockByClassTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>8. TREASURY STOCK</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On October 30, 2008, the Board of Directors authorized the Company to repurchase shares
of its common stock for an aggregate purchase price not to exceed $75.0 million through
December 31, 2010. Shares may be purchased either in the open market or in privately
negotiated transactions. The following table sets forth the Company’s treasury stock
activity during the nine-month periods ended September 30, 2010 and 2009 (amounts in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>Nine Months Ended September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b># of shares</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>$</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b># of shares</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Shares repurchased
in the open market
in connection with
the Board approved
buyback program
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">31,278</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">859</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:PensionAndOtherPostretirementBenefitsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>9. RETIREMENT BENEFIT PLANS</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company maintains defined benefit pension plans that cover employees in its
manufacturing plants located in Andover, United Kingdom (the “UK Plan”) and Tuttlingen,
Germany (the “Germany Plan”). The Company closed the Tuttlingen, Germany plant, to which
the Germany Plan pertained, in December 2005. However, the Company did not terminate the
Germany Plan and the Company remains obligated for the accrued pension benefits related
to this plan. The plans cover certain current and former employees. Net periodic benefit
costs for the Company’s defined benefit pension plans included the following amounts (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service cost
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">26</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">29</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">79</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">85</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest cost
</div></td>
<td> </td>
<td> </td>
<td align="right">166</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">150</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">479</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">435</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected return on plan assets
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(124</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(103</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(368</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(298</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Recognized net actuarial loss
</div></td>
<td> </td>
<td> </td>
<td align="right">38</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">114</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">112</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">331</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Net period benefit cost
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">106</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">190</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">302</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">553</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company made $0.7 million and $0.3 million of contributions to its defined benefit
pension plans during the nine-month periods ended September 30, 2010 and 2009,
respectively.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>10. COMPREHENSIVE INCOME</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Comprehensive income was as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">16,483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,432</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,862</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">35,224</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Foreign currency
translation
adjustment
</div></td>
<td> </td>
<td> </td>
<td align="right">21,979</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,661</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,954</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">13,386</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Change in
unrealized gain
(loss) on
derivatives, net of
tax
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,514</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(1,525</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Comprehensive income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">36,948</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">22,093</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">39,383</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">48,610</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 11 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>11. NET INCOME PER SHARE</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In January 2009 the Company adopted the authoritative guidance related to determining
whether instruments issued in share-based payment transactions are participating
securities. Certain of the Company’s unvested restricted share units contain rights to
receive nonforfeitable dividends, and thus, are participating securities requiring the
two-class method of computing earnings per share. Because these securities had an
insignificant impact on the calculation of earnings per share (impacts the rounding by
$0.01 or less per share) the Company does not present the full calculation below.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Basic and diluted net income per common share was as follows (in thousands, except per share amounts):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic net income per common share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">16,483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,432</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,862</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">35,224</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares
outstanding
</div></td>
<td> </td>
<td> </td>
<td align="right">29,572</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,049</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,638</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,999</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Basic net income per common share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.56</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.49</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.57</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.21</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted net income per common share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">16,483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,330</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">46,862</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,977</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares
outstanding — Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">29,572</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,049</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,638</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">28,999</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options and restricted stock
</div></td>
<td> </td>
<td> </td>
<td align="right">500</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">351</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">588</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">233</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares
for diluted earnings per share
</div></td>
<td> </td>
<td> </td>
<td align="right">30,072</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,400</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,226</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,232</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted net income per common share
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">0.55</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.49</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.54</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.20</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">At September 30, 2010 and 2009 the Company had 1.9 million and 2.6 million of
outstanding stock options, respectively. The Company also has warrants outstanding
relating to its 2010 Notes and 2012 Notes. Stock options, restricted stock and warrants
are included in the diluted earnings per share calculation using the treasury stock
method, unless the effect of including the stock options would be anti-dilutive. For the
three months ended September 30, 2010 and 2009, 0.8 million and 1.7 million
anti-dilutive stock options, respectively, were excluded from the diluted earnings per
share calculation. As the strike price of the warrants exceeded the Company’s average
stock price for the period, the warrants are anti-dilutive and the entire number of
warrants were also excluded from the diluted earnings per share calculation.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 12 - iart:SegmentAndGeographicReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>12. SEGMENT AND GEOGRAPHIC INFORMATION</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company’s management, including the chief operating decision maker, reviews
financial results and manages the business on an aggregate basis. Therefore, financial
results are reported in a single operating segment, the development, manufacture and
marketing of medical devices for use in cranial and spinal procedures, peripheral nerve
repair, small bone and joint injuries, and the repair and reconstruction of soft tissue.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Revenue consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Orthopedics
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">72,970</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">64,135</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">215,976</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">193,665</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Neurosurgery
</div></td>
<td> </td>
<td> </td>
<td align="right">69,816</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">67,228</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">200,896</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">188,407</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Instruments
</div></td>
<td> </td>
<td> </td>
<td align="right">43,855</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">40,923</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">121,062</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">116,889</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">186,641</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">172,286</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">537,934</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">498,961</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Total revenue by major geographic area are summarized below (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">United States
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">145,257</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">132,143</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">413,380</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">381,814</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Europe
</div></td>
<td> </td>
<td> </td>
<td align="right">20,847</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">23,484</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">65,075</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">69,913</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Asia Pacific
</div></td>
<td> </td>
<td> </td>
<td align="right">11,042</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">7,064</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,453</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,193</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Other Foreign
</div></td>
<td> </td>
<td> </td>
<td align="right">9,495</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,595</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,026</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,041</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Total revenue
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">186,641</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">172,286</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">537,934</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">498,961</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<!-- Begin Block Tagged Note 13 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>13. COMMITMENTS AND CONTINGENCIES</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In consideration for certain technology, manufacturing, distribution and selling rights
and licenses granted to the Company, the Company has agreed to pay royalties on the
sales of products that are commercialized relative to the granted rights and licenses.
Royalty payments made by the Company under these agreements were not significant for any
of the periods presented.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Various lawsuits, claims and proceedings are pending or have been settled by the
Company. The only significant item is described below.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In January 2010, the Company received a notice from the seller’s representative of the
former Theken companies of a disagreement in the calculation of “trade sales” used in
calculating a revenue performance payment that the Company made in November 2009 related to the first performance year that ended September 30, 2009. The
notice alleges that the Company owes an additional $6.7 million. The Company is
currently discussing this matter with the seller’s representative in an attempt to
resolve the dispute in accordance with the provisions contained in the asset purchase
agreement governing the transaction. The Company has accrued $3.4 million as an estimate
of the settlement in this matter. The Company believes that there are no additional amounts due under the asset
purchase agreement for the second performance year that ended September 30, 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In addition to this matter, the Company is subject to various claims, lawsuits and
proceedings in the ordinary course of its business, including claims by current or
former employees, distributors and competitors and with respect to its products. In the
opinion of management, such claims are either adequately covered by insurance or
otherwise indemnified, or are not expected, individually or in the aggregate, to result
in a material adverse effect on the Company’s financial condition. However, it is
possible that its results of operations, financial position and cash flows in a
particular period could be materially affected by these contingencies.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company accrues for loss contingencies when it is deemed probable that a loss has
been incurred and that loss is estimable. The amounts accrued are based on the full
amount of the estimated loss before considering insurance proceeds, and do not include
an estimate for legal fees expected to be incurred in connection with the loss
contingency. The Company consistently accrues legal fees expected to be incurred in
connection with loss contingencies as those fees are incurred by outside counsel as a
period cost.
</div>
</div>
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<!-- Begin Block Tagged Note 14 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>14. INCOME TAXES</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following table provides a summary of the Company’s effective tax rate:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Percentage</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Point Increase</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Decrease)</b></td>
<td> </td>
</tr>
<tr valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b> </b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b> </b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reported tax rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">26.0 </td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">20.5 </td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">5.5 </td>
<td nowrap="nowrap">%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>Nine Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Percentage</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 0px solid #000000"><b>Point Increase</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Decrease)</b></td>
<td> </td>
</tr>
<tr valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b> </b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b> </b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reported tax rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">25.2 </td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">30.2 </td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5.0 </td>
<td nowrap="nowrap">%)</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">During the three months ended September 30, 2010 and 2009, the Company reversed $1.4
million and $1.6 million, respectively of reserves for uncertain tax positions due to
matters that are considered effectively settled and the expiration of the statute of
limitations for certain matters. Additionally, the 2009 period also
included the cumulative impact
of the expected increase in the estimate of earnings that would be generated in foreign
jurisdictions at lower rates.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The change in the Company’s effective tax rates for the first nine months of 2010, as
compared to the same period in 2009, relates primarily to an expected increase in the
proportion of the Company’s taxable income for the full year that will come from foreign
jurisdictions with lower tax rates.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 15 - us-gaap:LeasesOfLesseeDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>15. LEASES</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On March 1, 2010, the Company exercised an option to extend a lease agreement for
production equipment dated June 2000 with Medicus Corporation. Under the option, the
term of the original lease agreement was extended through March 31, 2012. The initial
June 2000 agreement was subsequently amended on June 29, 2010 to extend the term of the
lease to March 31, 2022, with an option to renew through March 31, 2032. The sole
stockholder of Medicus Corporation is Provco Ventures I, LP, of which the Company’s
chairman serves as partner and president.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 16 - us-gaap:ScheduleOfSubsequentEventsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>16. SUBSEQUENT EVENTS</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On October 12, 2010, the Company entered into an employment agreement with Peter J.
Arduini, who was appointed President and Chief Operating Officer, effective November 1,
2010. The term of the agreement continues through December 31, 2013, unless terminated
earlier by either party. On October 12, 2010 the Company also entered into an amendment
to the employment agreement with John B. Henneman, III, its Chief Financial Officer,
which extended the agreement until January 4, 2013 and provided for automatic one-year
extensions thereafter, unless either party gives at least six months’ advance notice of
nonrenewal. In connection with these two agreements, the Company expects to incur
additional compensation costs of $2.0 million in the fourth quarter of 2010.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">On October 19, 2010, the Company borrowed $30.0 million under its revolving credit
facility. As a result of this borrowing, the Company has $250.0 million of outstanding
borrowings under the Senior Credit Facility, including a $150.0 million term loan and
$100.0 million of borrowings under its revolving credit facility as of the date of this
filing. The Company plans to use the funds to repay certain intercompany loans, the
proceeds of which were used for repurchases of the Company’s common stock, an earn-out
payment relating to an acquisition and other general corporate purposes.
</div>
</div>
false
--12-31
Q3
2010
2010-09-30
10-Q
0000917520
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Yes
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