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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(in thousands except share and per share data)April 3,
2020December 31,
2019ASSETSCurrent assets:Cash and cash equivalentsAccounts receivable, net of provision for credit losses of $2.2 million and allowance for doubtful accounts of $2.4 million, respectivelyInventoriesContract assetsPrepaid expenses and other current assetsTotal current assetsProperty, plant and equipment, netGoodwillOther intangible assets, netDeferred income taxesOperating lease assetsOther long-term assetsTotal assetsLIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Current portion of long-term debtAccounts payableIncome taxes payableOperating lease liabilitiesAccrued expenses and other current liabilitiesTotal current liabilitiesLong-term debtOther long-term liabilitiesTotal liabilitiesCommitments and contingencies (Note 10)Stockholders’ equity:Common stock, $0.001 par value; 100,000,000 shares authorized; 32,847,017 shares issued; 32,826,005 and 32,700,471 shares outstanding, respectivelyAdditional paid-in capitalTreasury stock, at cost, 21,012 and 146,546 shares, respectivelyRetained earningsAccumulated other comprehensive income (loss)Total stockholders’ equityTotal liabilities and stockholders’ equityCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)Three Months Ended(in thousands except per share data)March 29,
2019SalesCost of salesGross profitOperating expenses:Selling, general and administrative expensesResearch, development and engineering costsOther operating expensesTotal operating expensesOperating incomeInterest expense(Gain) loss on equity investments, netOther (income) loss, netIncome from continuing operations before taxesProvision for income taxesIncome from continuing operationsDiscontinued operations:Income from discontinued operations before taxes—Income from discontinued operations$—Net incomeBasic earnings per share:Basic earnings per shareDiluted earnings per share:Diluted earnings per shareWeighted average shares outstanding:BasicDilutedCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)(in thousands)Comprehensive IncomeOther comprehensive loss:Foreign currency translation lossChange in fair value of cash flow hedges, net of taxOther comprehensive loss, net of taxComprehensive income, net of taxCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)Cash flows from operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortizationDebt related charges included in interest expenseStock-based compensationNon-cash charges related to customer bankruptcyNon-cash lease expenseNon-cash (gain) loss on equity investmentsOther non-cash gainsChanges in operating assets and liabilities, net of acquisition:Accounts receivablePrepaid expenses and other assetsAccrued expenses and other liabilitiesNet cash provided by operating activitiesCash flows from investing activities:Acquisition of property, plant and equipmentPurchase of intangible assetProceeds from sale of property, plant and equipmentPurchase of equity investmentsAcquisitions, netNet cash used in investing activitiesCash flows from financing activities:Principal payments of long-term debtProceeds from senior secured revolving line of creditProceeds from the exercise of stock optionsTax withholdings related to net share settlements of restricted stock unit awardsNet cash provided by (used in) financing activitiesEffect of foreign currency exchange rates on cash and cash equivalentsNet increase (decrease) in cash and cash equivalentsCash and cash equivalents, beginning of periodCash and cash equivalents, end of periodCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)Total stockholders’ equity, beginning balanceCommon stock and additional paid-in capitalBalance, beginning of periodStock awards exercised or vestedBalance, end of periodTreasury stockTreasury shares purchasedTreasury shares reissuedAdoption of ASC 842, LeasesOther comprehensive lossTotal stockholders’ equity, ending balance(4.) INVENTORIESRaw materialsWork-in-processFinished goodsTotal(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NETMedicalNon- MedicalDecember 31, 2019Foreign currency translationAcquisitions and related adjustments (Note 2)April 3, 2020NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)GrossCarryingAmountAccumulatedAmortizationNetCarryingAmountDefinite-lived:Purchased technology and patentsCustomer listsOtherIndefinite-lived:Trademarks and tradenamesTotal intangible asset amortization expenseRemainder of 20202021202220232024After 2024Amortization ExpenseSenior secured term loan ASenior secured term loan BRevolving line of creditUnamortized discount on term loan B and debt issuance costsTotal debtTotal long-term debtCovenants2020Future minimum principal paymentsStock optionsRSUsTotal stock-based compensation expenseNumber ofStockOptionsWeightedAverageExercisePriceWeightedAverageRemainingContractualLife(In Years)AggregateIntrinsicValue(In Millions)Outstanding at December 31, 2019ExercisedOutstanding at April 3, 2020Exercisable at April 3, 2020Weighted average fair valueRisk-free interest rate1.53%2.49%Expected volatility30%40%Expected life (in years)Expected dividend yield—%Time-VestedActivityWeightedAverageGrant Date Fair ValueNonvested at December 31, 2019GrantedVestedForfeitedNonvested at April 3, 2020Performance-VestedActivity(8.) OTHER OPERATING EXPENSESStrategic reorganization and alignmentManufacturing alignment to support growth2020 restructuring planAcquisition and integration expensesOther general expensesTotal other operating expensesSeverance and RetentionRestructuring chargesCash paymentsAdditions to warranty reserve, net of reversalsAdjustments to pre-existing warrantiesWarranty claims settledNumerator for basic and diluted EPS:Denominator for basic and diluted EPS:Weighted average shares outstanding - BasicDilutive effect of share-based awardsWeighted average shares outstanding - DilutedThree Months Ended April 3, 2020Three Months Ended March 29, 2019IssuedTreasury StockOutstandingStock options exercisedRSAs issued, net of forfeitures, and vesting of RSUsDefinedBenefitPlanLiabilityCashFlowHedgesForeignCurrencyTranslationAdjustmentTotalPre-TaxAmountTaxNet-of-TaxAmountDecember 31, 2019Unrealized loss on cash flow hedgesRealized gain on foreign currency hedgesRealized loss on interest rate swap hedgesDecember 28, 2018Realized gain on interest rate swap hedgeMarch 29, 2019Fair ValueQuotedPrices inActiveMarkets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)Liabilities: Foreign currency contractsLiabilities: Interest rate swapsLiabilities: Contingent consideration (Note 2)Liabilities: Contingent consideration (Note 5)Assets: Foreign currency contractsInterest Rate SwapsNotional AmountStart DateEndDatePay Fixed RateReceive Current Floating RateBalance Sheet LocationJun 2017Jun 20201.1325%0.9591%Jul 2019Jul 2020Apr 2019Apr 2020Jun 2023(a)1.7920%Foreign Currency ContractsStartDate$/Foreign CurrencyMXN PesoSep 2020Dec 2020EuroMar 2020UYU PesoJan 2020Amount of Gain (Loss) on Cash Flow Hedge ActivityGain (Loss) Recognized in OCIGain (Loss) Reclassified from AOCILocation in Statement of OperationsInterest rate swapsForeign exchange contractsEquity method investmentNon-marketable equity securitiesTotal equity investmentsSegment sales from continuing operations by product line:Cardio & VascularCardiac & NeuromodulationAdvanced Surgical, Orthopedics & Portable MedicalTotal MedicalNon-MedicalTotal sales from continuing operationsSegment income from continuing operations:Total segment incomeUnallocated operating expensesUnallocated expenses, netDisaggregated RevenueCustomerCustomer A20%*25%Customer B18%12%Customer C16%19%Customer D24%All other customers46%81%44%76%Ship to LocationUnited States55%56%57%Puerto Rico15%United KingdomSingapore14%Canada13%All other countries33%29%MANAGEMENT'S DISCUSSION AND ANALYSISApril 3,March 29,Change2019$%Medical Sales:17.5%(7.8)%(1.1)%Total Medical Sales5.7%(25.3)%Total Sales4.4%2.5%9.1%Gross profit as a % of sales29.4%28.2%Selling, general and administrative expenses (“SG&A”)4.3%SG&A as a % of sales11.1%Research, development and engineering costs (“RD&E”)14.2%RD&E as a % of sales4.0%3.7%1.3%12.5%Operating margin13.4%12.4%(25.1)%NM45.8%47.1%Effective tax rate15.1%15.0%45.6%Income from continuing operations as a % of sales9.5%6.8%Diluted earnings per share from continuing operations44.6%Strategic reorganization and alignment(a)Manufacturing alignment to support growth(b)2020 restructuring plan(c)Acquisition and integration expenses(d)Other general expenses(e)(dollars in thousands)Working capitalCurrent ratioSummary of Cash FlowCash provided by (used in):Operating activitiesInvesting activitiesFinancing activitiesNet change in cash and cash equivalentsCERTIFICATIONI have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended April 3, 2020 of Integer Holdings Corporation;Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andAny fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Dated:May 8, 2020/s/ Joseph W. DziedzicJoseph W. DziedzicPresident and Chief Executive Officer(Principal Executive Officer)/s/ Jason K. GarlandJason K. GarlandExecutive Vice President and Chief Financial Officer(Principal Financial Officer)President and Chief Executive OfficerPK ! &Z|
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