UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________

FORM 10-Q

_____________________________________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~July 3, 2020~~April 2, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 1-16137

_____________________________________________________________

INTEGER HOLDINGS CORPORATION

(Exact name of Registrant as specified in its charter)

_____________________________________________________________


Delaware						16-1531026
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5830 Granite Parkway,

Suite 1150

Plano,

Texas

75024

(Address of principal executive offices)

(Zip Code)

(214) 618-5243

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ITGR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the Company’s common stock, $0.001 par value per share, as of ~~July 24, 2020~~April 23, 2021 was: ~~32,848,950~~32,975,085 shares.

INTEGER HOLDINGS CORPORATION

Form 10-Q

For the Quarterly Period Ended ~~July 3, 2020~~April 2, 2021

TABLE OF CONTENTS

- 2 -

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


(in thousands except share and per share data)	(in thousands except share and per share data)	July 3, 2020		December 31, 2019		(in thousands except share and per share data)	April 2, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	206,244	$	13,535	Cash and cash equivalents	$	28,402	$	49,206
Accounts receivable, net of provision for credit losses of $2.2 million and allowance for doubtful accounts of $2.4 million, respectively		147,751		191,985
Accounts receivable, net of provision for credit losses of $0.2 million, respectively						Accounts receivable, net of provision for credit losses of $0.2 million, respectively	165,826		156,207
Inventories	Inventories	172,458		167,256		Inventories	153,815		149,323
Refundable income taxes						Refundable income taxes	2,461		2,087
Contract assets	Contract assets	37,389		24,767		Contract assets	44,686		40,218

Prepaid expenses and other current assets	Prepaid expenses and other current assets	15,660		17,852		Prepaid expenses and other current assets	14,047		15,896

Total current assets	Total current assets	579,502		415,395		Total current assets	409,237		412,937
Property, plant and equipment, net	Property, plant and equipment, net	247,646		246,185		Property, plant and equipment, net	248,993		253,964
Goodwill	Goodwill	844,972		839,617		Goodwill	852,243		859,442
Other intangible assets, net	Other intangible assets, net	762,434		775,784		Other intangible assets, net	739,334		757,224
Deferred income taxes	Deferred income taxes	5,152		4,438		Deferred income taxes	4,381		4,398
Operating lease assets	Operating lease assets	47,327		42,379		Operating lease assets	50,433		45,153
Other long-term assets	Other long-term assets	36,422		29,295		Other long-term assets	38,731		38,739

Total assets	Total assets	$	2,523,455	$	2,353,093	Total assets	$	2,343,352	$	2,371,857
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	37,500	$	37,500	Current portion of long-term debt	$	37,500	$	37,500
Accounts payable	Accounts payable	54,000		64,975		Accounts payable	62,395		51,570
Income taxes payable	Income taxes payable	4,760		3,023		Income taxes payable	3,610		1,847

Operating lease liabilities	Operating lease liabilities	8,102		7,507		Operating lease liabilities	7,904		8,431
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	49,286		66,073		Accrued expenses and other current liabilities	50,142		56,843

Total current liabilities	Total current liabilities	153,648		179,078		Total current liabilities	161,551		156,191
Long-term debt	Long-term debt	930,385		777,272		Long-term debt	649,630		693,758
Deferred income taxes	Deferred income taxes	187,300		187,978		Deferred income taxes	180,779		182,304
Operating lease liabilities	Operating lease liabilities	40,552		37,114		Operating lease liabilities	45,150		37,861
Other long-term liabilities	Other long-term liabilities	30,169		19,163		Other long-term liabilities	28,518		30,688

Total liabilities	Total liabilities	1,342,054		1,200,605		Total liabilities	1,065,628		1,100,802
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:

Common stock, $0.001 par value; 100,000,000 shares authorized; 32,847,017 shares issued; 32,838,552 and 32,700,471 shares outstanding, respectively		33		33
Common stock, $0.001 par value; 100,000,000 shares authorized; 32,974,702 and 32,908,178 shares issued and outstanding, respectively						Common stock, $0.001 par value; 100,000,000 shares authorized; 32,974,702 and 32,908,178 shares issued and outstanding, respectively	33		33
Additional paid-in capital	Additional paid-in capital	695,651		701,018		Additional paid-in capital	703,033		700,814
Treasury stock, at cost, 8,465 and 146,546 shares, respectively		(509)		(8,809)

Retained earnings	Retained earnings	471,747		440,258		Retained earnings	539,036		517,516
Accumulated other comprehensive income	Accumulated other comprehensive income	14,479		19,988		Accumulated other comprehensive income	35,622		52,692
Total stockholders’ equity	Total stockholders’ equity	1,181,401		1,152,488		Total stockholders’ equity	1,277,724		1,271,055
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,523,455	$	2,353,093	Total liabilities and stockholders’ equity	$	2,343,352	$	2,371,857

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

- 3 -

INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (Unaudited)

Three Months Ended Six Months Ended
(in thousands except per share data) July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Sales $ 240,115 $ 314,194 $ 568,541 $ 628,870
Cost of sales 182,252 217,210 413,976 443,276
Gross profit 57,863 96,984 154,565 185,594
Operating expenses:
Selling, general and administrative expenses 33,903 33,143 70,360 68,099
Research, development and engineering costs 12,746 11,396 25,987 22,991
Other operating expenses 2,029 3,108 4,957 5,998
Total operating expenses 48,678 47,647 101,304 97,088
Operating income 9,185 49,337 53,261 88,506
Interest expense, net 9,273 13,612 19,634 27,442
(Gain) loss on equity investments, net 205 1,611 (1,720) 1,652
Other income, net (458) (718) (1,457) (552)
Income from continuing operations before taxes 165 34,832 36,804 59,964
Provision (benefit) for income taxes (224) 6,610 5,315 10,376
Income from continuing operations $ 389 $ 28,222 $ 31,489 $ 49,588
Discontinued operations:
Income from discontinued operations before taxes — 4,930 — 5,316
Provision for income taxes — 95 — 178
Income from discontinued operations $ — $ 4,835 $ — $ 5,138
Net income $ 389 $ 33,057 $ 31,489 $ 54,726
Basic earnings per share:
Income from continuing operations $ 0.01 $ 0.87 $ 0.96 $ 1.52
Income from discontinued operations — 0.15 — 0.16
Basic earnings per share 0.01 1.01 0.96 1.68
Diluted earnings per share:
Income from continuing operations $ 0.01 $ 0.85 $ 0.95 $ 1.50
Income from discontinued operations — 0.15 — 0.16
Diluted earnings per share 0.01 1.00 0.95 1.66
Weighted average shares outstanding:
Basic 32,834 32,621 32,820 32,579
Diluted 33,129 33,009 33,123 32,995


	Three Months Ended
(in thousands except per share data)		April 2, 2021		April 3, 2020
Sales		$	290,467	$	328,426
Cost of sales		205,981		231,724
Gross profit		84,486		96,702
Operating expenses:
Selling, general and administrative		35,502		36,457
Research, development and engineering		13,461		13,241
Other operating expenses		915		2,928
Total operating expenses		49,878		52,626
Operating income		34,608		44,076
Interest expense		8,532		10,361
(Gain) loss on equity investments		1,335		(1,925)
Other income, net		(237)		(999)
Income before taxes		24,978		36,639
Provision for income taxes		3,458		5,539







Net income		$	21,520	$	31,100

Earnings per share:
Basic		$	0.65	$	0.95
Diluted		$	0.65	$	0.94











Weighted average shares outstanding:
Basic		32,957		32,807
Diluted		33,188		33,117

Comprehensive Income
Net income		$	21,520	$	31,100
Other comprehensive loss:
Foreign currency translation loss		(16,364)		(12,032)
Change in fair value of cash flow hedges, net of tax		(706)		(8,629)

Other comprehensive loss, net of tax		(17,070)		(20,661)
Comprehensive income, net of tax		$	4,450	$	10,439

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

- 4 -

INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS (Unaudited)

Three Months Ended Six Months Ended
(in thousands) July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Comprehensive Income
Net income $ 389 $ 33,057 $ 31,489 $ 54,726
Other comprehensive income (loss):
Foreign currency translation gain (loss) 12,948 4,510 916 (2,328)
Change in fair value of cash flow hedges, net of tax 2,204 (4,043) (6,425) (4,745)
Other comprehensive income (loss), net of tax 15,152 467 (5,509) (7,073)
Comprehensive income, net of tax $ 15,541 $ 33,524 $ 25,980 $ 47,653


	Three Months Ended
(in thousands)	April 2, 2021		April 3, 2020
Cash flows from operating activities:
Net income	$	21,520	$	31,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,294		19,494
Debt related charges included in interest expense	1,372		1,023
Stock-based compensation	4,704		1,738
Non-cash (gains) charges related to customer bankruptcy	(24)		628
Non-cash lease expense	2,004		1,930
Non-cash (gain) loss on equity investments	1,335		(1,925)
Contingent consideration fair value adjustment	0		(500)
Other non-cash (gains) losses	69		(585)
Deferred income taxes	(242)		61

Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	(9,373)		(8,165)
Inventories	(5,157)		(4,365)
Prepaid expenses and other assets	(189)		929
Contract assets	(4,677)		(14,279)
Accounts payable	11,434		18,458
Accrued expenses and other liabilities	(7,887)		(18,108)
Income taxes	1,246		4,963
Net cash provided by operating activities	36,429		32,397
Cash flows from investing activities:
Acquisition of property, plant and equipment	(7,660)		(14,925)
Purchase of intangible asset	0		(3,500)
Proceeds from sale of property, plant and equipment	15		52

Acquisitions, net	0		(5,219)


Net cash used in investing activities	(7,645)		(23,592)
Cash flows from financing activities:
Principal payments of long-term debt	(45,375)		(9,375)

Proceeds from senior secured revolving line of credit	0		25,000


Proceeds from the exercise of stock options	116		2,201
Payment of debt issuance costs	(72)		0
Tax withholdings related to net share settlements of restricted stock unit awards	(2,601)		(2,664)


Contingent consideration payments	(1,621)		0
Principal payments on finance leases	(9)		0

Net cash provided by (used in) financing activities	(49,562)		15,162
Effect of foreign currency exchange rates on cash and cash equivalents	(26)		(243)
Net increase (decrease) in cash and cash equivalents	(20,804)		23,724
Cash and cash equivalents, beginning of period	49,206		13,535
Cash and cash equivalents, end of period	$	28,402	$	37,259

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

- 5 -

INTEGER HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY (Unaudited)

Six Months Ended
(in thousands) July 3,
2020 June 28,
2019
Cash flows from operating activities:
Net income $ 31,489 $ 54,726
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 39,074 38,535
Debt related charges included in interest expense 2,045 3,676
Stock-based compensation 3,242 5,433
Non-cash charges related to customer bankruptcy 567 —
Non-cash lease expense 3,875 3,750
Non-cash (gain) loss on equity investments (1,720) 1,652
Other non-cash (gains) losses 39 (311)
Deferred income taxes 39 (1,126)
Gain on sale of discontinued operations — (4,974)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 44,115 (30,545)
Inventories (5,933) 2,846
Prepaid expenses and other assets (16,564) (16,692)
Accounts payable (5,854) 16,289
Accrued expenses and other liabilities (18,195) (8,593)
Income taxes payable 1,735 2,884
Net cash provided by operating activities 77,954 67,550
Cash flows from investing activities:
Acquisition of property, plant and equipment (26,680) (15,506)
Purchase of intangible asset (4,107) —
Proceeds from sale of property, plant and equipment 52 5
Purchase of equity investments — (327)
Acquisitions, net (5,219) —
Proceeds from sale of discontinued operations — 4,734
Net cash used in investing activities (35,954) (11,094)
Cash flows from financing activities:
Principal payments of long-term debt (18,750) (70,750)
Proceeds from senior secured revolving line of credit 185,000 15,000
Payments of senior secured revolving line of credit (15,000) (10,000)
Proceeds from the exercise of stock options 2,474 1,600
Tax withholdings related to net share settlements of restricted stock unit awards (2,779) (2,123)
Net cash provided by (used in) financing activities 150,945 (66,273)
Effect of foreign currency exchange rates on cash and cash equivalents (236) 170
Net increase (decrease) in cash and cash equivalents 192,709 (9,647)
Cash and cash equivalents, beginning of period 13,535 25,569
Cash and cash equivalents, end of period $ 206,244 $ 15,922


	Three Months Ended
(in thousands)		April 2, 2021		April 3, 2020
Total stockholders’ equity, beginning balance		$	1,271,055	$	1,152,488

Common stock and additional paid-in capital
Balance, beginning of period		700,847		701,051
Stock awards exercised or vested		(2,485)		(8,010)
Stock-based compensation		4,704		1,738
Balance, end of period		703,066		694,779
Treasury stock
Balance, beginning of period		0		(8,809)

Treasury shares reissued		0		7,546
Balance, end of period		0		(1,263)
Retained earnings
Balance, beginning of period		517,516		440,258

Net income		21,520		31,100
Balance, end of period		539,036		471,358
Accumulated other comprehensive income (loss)
Balance, beginning of period		52,692		19,988
Other comprehensive loss		(17,070)		(20,661)

Balance, end of period		35,622		(673)

Total stockholders’ equity, ending balance		$	1,277,724	$	1,164,201

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

- 6 -

~~INTEGER HOLDINGS CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)~~

Three Months Ended Six Months Ended
(in thousands) July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Total stockholders’ equity, beginning balance $ 1,164,201 $ 1,075,972 $ 1,152,488 $ 1,060,493
Common stock and additional paid-in capital
Balance, beginning of period 694,779 694,943 701,051 691,116
Stock awards exercised or vested (599) 18 (8,609) 1,132
Stock-based compensation 1,504 2,720 3,242 5,433
Balance, end of period 695,684 697,681 695,684 697,681
Treasury stock
Balance, beginning of period (1,263) (10,026) (8,809) (8,125)
Treasury shares purchased — (782) — (2,905)
Treasury shares reissued 754 243 8,300 465
Balance, end of period (509) (10,565) (509) (10,565)
Retained earnings
Balance, beginning of period 471,358 365,591 440,258 344,498
Adoption of ASC 842, Leases
— — — (576)
Net income 389 33,057 31,489 54,726
Balance, end of period 471,747 398,648 471,747 398,648
Accumulated other comprehensive income (loss)
Balance, beginning of period (673) 25,464 19,988 33,004
Other comprehensive income (loss) 15,152 467 (5,509) (7,073)
Balance, end of period 14,479 25,931 14,479 25,931
Total stockholders’ equity, ending balance $ 1,181,401 $ 1,111,695 $ 1,181,401 $ 1,111,695

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

~~- 7~~ -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1.) BASIS OF PRESENTATION

Integer Holdings Corporation (together with its consolidated subsidiaries, “Integer” or the “Company”) is a publicly-traded corporation listed on the New York Stock Exchange under the symbol “ITGR.” Integer is one of the largest medical device outsource manufacturers in the world serving the cardiac, neuromodulation, vascular, orthopedics, advanced surgical and portable medical markets. The Company provides innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition, it develops batteries for high-end niche applications in the energy, military, and environmental markets. The Company’s reportable segments are: (1) Medical and (2) Non-Medical. The Company’s customers include large multi-national original equipment manufacturers (“OEMs”) and their affiliated subsidiaries.

On July 2, 2018, the Company completed the sale of the Advanced Surgical and Orthopedic product lines (the “AS&O Product Line”). The results of operations of the AS&O Product Line are reported as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. The cash flows related to discontinued operations have not been segregated, and are included in the Condensed Consolidated Statements of Cash Flows. Unless otherwise noted specifically as discontinued operations, discussion within these notes to the Company’s condensed consolidated financial statements relates to continuing operations. See Note 16 “Discontinued Operations” for additional information related to discontinued operations.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with ~~accounting principles generally accepted in the United States of America (“GAAP”).~~GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. Intercompany transactions and balances have been fully eliminated in consolidation.

Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, certain components of equity, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ materially from these estimates. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

The ~~second~~first quarter of 2021 ended on April 2 and consisted of 92 days, and the first ~~six months~~quarter of 2020 ended on ~~July~~April 3 ~~2020~~ and consisted of ~~91 days~~94 days.

Risks and ~~185 days, respectively. The second quarter and first six months of 2019 ended on June 28, 2019 and consisted of 91 days and 182 days, respectively.~~

~~Supplier Financing Arrangements~~Uncertainties

Beginning in early March 2020, the ~~Company began utilizing supplier financing arrangements with financial institutions to sell certain accounts receivable on a non-recourse basis. These transactions are treated as a sale~~global spread of the novel coronavirus (“COVID-19”) created significant uncertainty and ~~are accounted for as a reduction to, accounts receivable. The agreements transfer control and risk related~~worldwide economic disruption. Specific impacts to the ~~receivables~~Company’s business include delayed or reduced customer orders and sales, restrictions on its associates’ ability to travel or work, delays in shipments to and from certain countries, and disruptions in its supply chain. The extent to which COVID-19 impacts the ~~financial institutions. The Company has no continuing involvement in~~Company’s operations will depend on future developments, which are highly uncertain and difficult to predict, including, among others, the ~~transferred receivables subsequent~~duration of the outbreak, the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities to contain the ~~sale. During the three and six months ended July 3, 2020,~~pandemic or treat its impact. As pandemic-related events continue to evolve, additional impacts may arise that the Company ~~sold and de-recognized accounts receivable and collected~~is not aware of currently. Any prolonged material disruption of the Company’s associates, suppliers, manufacturing, or customers could materially impact its consolidated financial position, results of operations or cash ~~of $15.4 million and $30.9 million, respectively. The costs associated with the supplier financing arrangements were not material for the three and six months ended July 3, 2020.~~flows.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates (“ASU”) issued by the Financial Accounting Standards Board ("FASB"). ~~ASUs not yet adopted~~The Company evaluated all recent accounting pronouncements issued, including those that are ~~not listed below were assessed~~currently effective, and determined ~~to be either~~that the adoption of these pronouncements would not ~~applicable or are expected to~~ have ~~minimal impact~~a material effect on ~~our consolidated~~the financial position, results of operations ~~financial position and~~or cash ~~flows. With the exception~~flows of the ~~accounting pronouncements adopted as discussed below, there~~Company. There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, that are of significance, or potential significance, to the Company.

- 87 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~(1.) BASIS OF PRESENTATION (Continued)~~

~~Recently Adopted Accounting Guidance~~

~~Adoption of Accounting Standards Codification Topic 326~~

~~The Company adopted ASC 326,~~ ~~Financial Instruments-Credit Losses~~, effective January 1, 2020. Under the current expected credit losses (“CECL”) model, the Company immediately recognizes an estimate of credit losses expected to occur over the life of the financial asset at the time the financial asset is originated or acquired. Estimated credit losses are determined by taking into consideration historical loss conditions, current conditions and reasonable and supportable forecasts. Changes to the expected lifetime credit losses are recognized each period. The adoption of ASC 326 did not have a material impact to the Company’s Condensed Consolidated Financial Statements.

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, in response to concerns about structural risks of interbank offered rates (“IBORs”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions if certain criteria are met. The ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. ASU 2020-04 has not yet affected the Company’s Condensed Consolidated Financial Statements.

(2.) BUSINESS ~~ACQUISITIONS~~ACQUISITION

On February 19, 2020, the Company acquired certain assets and liabilities of InoMec Ltd. (“InoMec”), a privately-held company based in Israel that specializes in the research, development and manufacturing of medical devices, including minimally invasive tools, delivery systems, tubing and catheters, surgery tools, drug-device combination, laser combined devices, and tooling and production. The acquisition enables the Company to create a research and development center in Israel, closer to the customer base in the region. The fair value of the consideration transferred was $7.0 million, which included an initial cash payment of $5.3 million and $1.7 million in estimated fair value of contingent consideration.

The contingent consideration represents the estimated fair value of the Company’s obligation, under the asset purchase agreement, to make additional payments of up to $3.5 million over the ~~next~~ four years following the acquisition based on specified conditions being met. Based on the ~~preliminary~~final purchase price allocation, the assets acquired principally comprise $2.0 million of intangible assets, $4.8 million of goodwill, $0.3 million of acquired property, plant and equipment, and a net liability for other working capital items of $0.1 million. Intangible assets included developed technology, customer relationships and non-compete provisions, which are being amortized over a weighted average period of 5.9 ~~years.~~

On October 7, 2019, the Company acquired certain assets and liabilities of US BioDesign, LLC (“USB”), a privately-held developer and manufacturer of complex braided biomedical structures for disposable and implantable medical devices. The acquisition added a differentiated capability related to the complex development and manufacture of braided and formed biomedical structures to the Company’s broad portfolio. The fair value of the consideration transferred was $19.1 million, which included a cash payment of $14.9 million, which reflects a $0.1 million favorable working capital adjustment finalized in the first quarter of 2020, and $4.2 million in estimated fair value of contingent consideration.

The contingent consideration represents the estimated fair value of the Company’s obligation, under the asset purchase agreement, to make additional payments of up to $5.5 million if certain revenue goals are met through 2023. The assets acquired principally consist of $7.4 million of developed technology, $10.4 million of goodwill, $0.7 million of acquired property, plant and equipment, and $0.6 million of other working capital items. The developed technology intangible asset is being amortized over a useful life of 8 years. The $10.4 million of goodwill reflects a $0.1 million decrease resultingyears from the ~~working capital adjustment. The company finalized the valuation and completed the purchase price allocation for the USB acquisition during the second quarter~~date of ~~2020.~~acquisition.

The amount allocated to goodwill for ~~these acquisitions~~this acquisition is deductible for income tax purposes. The fair value of the contingent consideration was estimated using the Monte Carlo valuation approach. See Note 13 “Financial Instruments and Fair Value Measurements” for additional information related to the fair value measurement of the contingent consideration.

~~- 9 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(2.)BUSINESS ACQUISITIONS (Continued)~~

For segment reporting purposes, the results of operations and assets from ~~these acquisitions~~this acquisition have been included in the Company’s Medical segment since the ~~respective~~ acquisition ~~dates. For the three and six months ended July 3, 2020, sales~~date. Sales related to InoMec were$0.8 millionand ~~USB were $1.8~~$0.4 million, respectively, for the three months ended April 2, 2021 and ~~$3.2 million, respectively.~~April 3, 2020. Earnings related to the operations consisting of the assets and liabilities acquired from InoMec ~~and USB~~ for the three ~~and six~~ months ended ~~July~~April 2, 2021 and April 3, 2020 were not material. During the ~~six~~three months ended ~~July~~on April 3, 2020, direct costs of ~~these acquisitions~~this acquisition of ~~$0.8~~$0.7 million were expensed as incurred and included in Other ~~Operating Expenses~~operating expenses in the Condensed Consolidated ~~Statement~~Statements of ~~Operations.~~Operations and Comprehensive Income.

Pro forma financial information has not been presented for ~~these acquisitions~~this acquisition as the net effects were not significant or material to the Company’s results of operations or financial position.

(3.) SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental information relating to the Condensed Consolidated Statements of Cash Flows (in thousands):

Six Months Ended
July 3,
2020 June 28,
2019
Noncash investing and financing activities:
Property, plant and equipment purchases included in accounts payable $ 3,282 $ 2,297
Purchase of intangible asset included in accrued expenses at period end 500 —
Supplemental lease disclosures:
Operating lease assets obtained in exchange for new or remeasured operating
lease liabilities 7,556 —

~~Refer to Note 16 “Discontinued Operations” for additional supplemental cash flow information pertaining to discontinued operations.~~


	Three Months Ended
	April 2, 2021		April 3, 2020
Noncash investing and financing activities:
Property, plant and equipment purchases included in accounts payable	$	2,981	$	4,481
Purchase of intangible asset included in accrued expenses	0		1,000
Supplemental lease disclosures:
Operating lease assets obtained in exchange for new or remeasured operating lease liabilities	7,414		7,427

(4.) INVENTORIES

Inventories comprise the following (in thousands):

July 3,
2020 December 31,
2019
Raw materials $ 83,666 $ 79,742
Work-in-process 59,899 60,042
Finished goods 28,893 27,472
Total $ 172,458 $ 167,256

~~(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET~~

~~Goodwill~~

~~The changes in the carrying amount of goodwill by reportable segment for the six months ended July 3, 2020 were as follows (in thousands):~~

Medical Non- Medical Total
December 31, 2019 $ 822,617 $ 17,000 $ 839,617
Foreign currency translation 640 — 640
Acquisitions and related adjustments (Note 2) 4,715 — 4,715
July 3, 2020 $ 827,972 $ 17,000 $ 844,972


	April 2, 2021		December 31, 2020
Raw materials	$	70,552	$	72,477
Work-in-process	64,320		58,806
Finished goods	18,943		18,040
Total	$	153,815	$	149,323

- 108 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET ~~(Continued)~~

~~Intangible Assets~~Goodwill

~~Intangible assets at July 3, 2020 and December 31, 2019~~The changes in the carrying amount of goodwill by reportable segment for the three months ended April 2, 2021 were as follows (in thousands):

Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
July 3, 2020
Definite-lived:
Purchased technology and patents $ 253,740 $ (144,969) $ 108,771
Customer lists 708,284 (145,379) 562,905
Other 4,099 (3,629) 470
Total $ 966,123 $ (293,977) $ 672,146
Indefinite-lived:
Trademarks and tradenames $ 90,288
December 31, 2019
Definite-lived:
Purchased technology and patents $ 248,264 $ (138,435) $ 109,829
Customer lists 706,852 (131,185) 575,667
Other 3,503 (3,503) —
Total $ 958,619 $ (273,123) $ 685,496
Indefinite-lived:
Trademarks and tradenames $ 90,288


	Medical		Non- Medical		Total
December 31, 2020	$	842,442	$	17,000	$	859,442


Foreign currency translation	(7,199)		0		(7,199)


April 2, 2021	$	835,243	$	17,000	$	852,243

~~When acquiring certain~~Intangible Assets

Intangible assets comprise the Company assesses whether the acquired assets are a result of a business combination or a purchase of an asset. In the first quarter of 2020, the Company acquired a set of similar identifiable intangible assets relating to a license to use technology within its Non-Medical segment. The Company paid $3.5 million upon closing, $0.5 million in the second quarter, and expects to pay $0.5 million in additional consideration subject to the completion of certain milestones. In addition, the Company has capitalized $0.1 million of costs associated with acquiring the license as an intangible asset. The intangible asset of $4.6 million is being amortized over 11 years, the remaining useful life of the patented technology. See Note 13 “Financial Instruments and Fair Value Measurements” for additional information related to the fair value measurement of the contingent consideration.following (in thousands):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
April 2, 2021
Definite-lived:
Purchased technology and patents	$	255,606	$	(155,278)	$	100,328
Customer lists	716,081		(167,620)		548,461
Other	4,120		(3,863)		257
Total amortizing intangible assets	$	975,807	$	(326,761)	$	649,046
Indefinite-lived:
Trademarks and tradenames					$	90,288

December 31, 2020
Definite-lived:
Purchased technology and patents	$	257,453	$	(152,798)	$	104,655
Customer lists	723,791		(161,856)		561,935
Other	4,142		(3,796)		346
Total amortizing intangible assets	$	985,386	$	(318,450)	$	666,936
Indefinite-lived:
Trademarks and tradenames					$	90,288

Aggregate intangible asset amortization expense comprises the following (in thousands):


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Cost of sales	Cost of sales	$	3,172	$	3,195	$	6,441	$	6,457	Cost of sales	$	3,268	$	3,269
Selling, general and administrative expenses	Selling, general and administrative expenses	6,979		6,636		14,154		13,228		Selling, general and administrative expenses	7,182		7,175

Total intangible asset amortization expense	Total intangible asset amortization expense	$	10,151	$	9,831	$	20,595	$	19,685	Total intangible asset amortization expense	$	10,450	$	10,444

Estimated future intangible asset amortization expense based on the carrying value as of ~~July 3, 2020~~April 2, 2021 is as follows (in thousands):

Remainder of 2020 2021 2022 2023 2024 After 2024
Amortization Expense $ 20,289 40,766 39,727 38,320 37,378 495,666


	Remainder of 2021		2022	2023	2024	2025	After 2025
Amortization Expense	$	30,835	40,170	38,751	37,798	36,483	465,009

- 119 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(6.) DEBT

Long-term debt comprises the following (in thousands):


		July 3, 2020		December 31, 2019			April 2, 2021		December 31, 2020
Senior secured term loan A	Senior secured term loan A	$	248,437	$	267,188	Senior secured term loan A	$	220,312	$	229,687
Senior secured term loan B	Senior secured term loan B	558,286		558,286		Senior secured term loan B	472,286		508,286
Revolving line of credit		170,000		—

Unamortized discount on term loan B and debt issuance costs	Unamortized discount on term loan B and debt issuance costs	(8,838)		(10,702)		Unamortized discount on term loan B and debt issuance costs	(5,468)		(6,715)
Total debt	Total debt	967,885		814,772		Total debt	687,130		731,258
Current portion of long-term debt	Current portion of long-term debt	(37,500)		(37,500)		Current portion of long-term debt	(37,500)		(37,500)
Total long-term debt	Total long-term debt	$	930,385	$	777,272	Total long-term debt	$	649,630	$	693,758

The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”) as of ~~July 3, 2020,~~April 2, 2021, consisting of (i) a $200 million revolving credit facility (the “Revolving Credit Facility”), (ii) a term loan A facility (the “TLA Facility”), and (iii) a term loan B facility (the “TLB Facility”). The TLA Facility and TLB Facility are collectively referred to as the “Term Loan Facilities.” The TLB Facility was issued at a 1% discount.

Revolving Credit Facility

The Revolving Credit Facility matures on October 27, 2022. The Revolving Credit Facility includes a $15 million sublimit for swingline loans and a $25 million sublimit for standby letters of credit. The Company is required to pay a commitment fee on the unused portion of the Revolving Credit Facility, which will range between 0.175% and 0.25%, depending on the Company’s Total Net Leverage Ratio (as defined in the Senior Secured Credit Facilities agreement). As of ~~July 3, 2020,~~April 2, 2021, the commitment fee on the unused portion of the Revolving Credit Facility was 0.25%. Interest rates on the Revolving Credit Facility, as well as the TLA Facility, are at the Company’s option, either at: (i) the prime rate plus the applicable margin, which will range between 0.50% and 2.00%, based on the Company’s Total Net Leverage Ratio, or (ii) the applicable ~~LIBOR rate~~London Interbank Offered Rate (“LIBOR”) plus the applicable margin, which will range between 1.50% and 3.00%, based on the Company’s Total Net Leverage Ratio. The Company also pays certain of its lenders a deferred amendment fee, payable in installments of 0.03125% of the outstanding Revolving Credit Facility and TLA Facility each quarter through maturity when the Company’s total net leverage ratio equals or exceeds 3.00 to 1.00.

As of ~~July 3, 2020,~~April 2, 2021, the Company had ~~available borrowing capacity~~0 outstanding borrowings on the Revolving Credit Facility and an available borrowing capacity of ~~$23.3~~$193.3 million after giving effect to ~~$170.0 million of outstanding borrowings and~~ $6.7 million of outstanding standby letters of credit. ~~As of July 3, 2020, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was 2.18%.~~

Term Loan Facilities

The TLA Facility and TLB Facility mature on October 27, 2022. Interest rates on the TLB Facility are, at the Company’s option, either at: (i) the prime rate plus 1.50% or (ii) the applicable LIBOR rate plus 2.50%, with LIBOR subject to a 1.00% floor. As of ~~July 3, 2020,~~April 2, 2021, the interest rates on the TLA Facility and TLB Facility were ~~2.19%~~2.36% and 3.50%, respectively.

Covenants

~~As of July 3, 2020, the~~The Revolving Credit Facility and TLA Facility contain covenants requiring (A) a maximum Total Net Leverage Ratio of ~~4.00:~~4.75:1.00, subject to a step down to 4.50 to 1.00 for the third fiscal quarter of 2021, and reverting to and remaining at 4.00 to 1.00 beginning with the fourth quarter of 2021 through maturity, and (B) a minimum interest coverage ratio of adjusted EBITDA (as defined in the Senior Secured Credit Facilities) to interest expense of not less than 3.00:1.00. The TLB Facility does not contain any financial maintenance covenants. As of ~~July 3, 2020,~~April 2, 2021, the Company was in compliance with these financial covenants.

Contractual maturities under the Senior Secured Credit Facilities for the remainder of ~~2020~~2021 and through maturity, excluding any discounts or premiums, as of ~~July 3, 2020~~April 2, 2021 are as follows (in thousands):

2020 2021 2022
Future minimum principal payments $ 18,750 37,500 920,473


	2021		2022
Future minimum principal payments	$	28,125	664,473

~~The~~During the three months ended April 2, 2021, the Company prepaid ~~portions~~$36.0 million of its TLB Facility ~~during 2019. The Company~~and recognized ~~losses~~a loss from extinguishment of debt ~~during the three and six months ended June 28, 2019~~ of ~~$0.6 million and $1.0 million, respectively.~~$0.3 million. The loss from extinguishment of debt represents the portion of the unamortized discount and debt issuance costs related to the portion of the TLB Facility that was prepaid and is included in Interest ~~Expense~~expense in the accompanying Condensed Consolidated Statements of ~~Operations.~~Operations and Comprehensive Income.

- 1210 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~(6.) DEBT (Continued)~~

~~Amendment to the Senior Secured Credit Facilities~~

On July 13, 2020, the Company amended the Senior Secured Credit Facilities (the “Amendment”) to increase the Total Net Leverage Ratio. The Amendment increases the Total Net Leverage Ratio from a ratio of 4.00 to 1.00 to 4.75 to 1.00 for the period beginning with the third fiscal quarter of 2020 through the second fiscal quarter of 2021. The Total Net Leverage Ratio steps down to 4.50 to 1.00 for the third fiscal quarter of 2021, and reverts to and remains at 4.00 to 1.00 beginning with the fourth quarter of 2021 through maturity. Additionally, the Company added a credit facility feature where its Net Leverage Ratio can be increased by 0.50 for up to four consecutive quarters commencing in any fiscal quarter in which it consummates an Eligible Adjustment Acquisition (as defined in the Amendment) with a $40 million or greater purchase price.

In connection with the Amendment, the Company agreed to pay each consenting lender an advanced amendment fee of 0.1% of the unused commitments and the outstanding loans on the Revolving Credit Facility and TLA Facility on the amendment effective date. The Company will also pay the consenting lenders a deferred amendment fee, payable in installments of 0.03125% of the outstanding Revolving Credit Facility and TLA Facility each quarter through maturity when the Company’s Total Net Leverage Ratio equals or exceeds 3.00 to 1.00.

(7.) STOCK-BASED COMPENSATION

The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.

The components and classification of stock-based compensation expense were as follows (in thousands):


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Stock options	Stock options	$	10	$	102	$	23	$	203	Stock options	$	0	$	13

RSUs	RSUs	1,494		2,618		3,219		5,230		RSUs	4,704		1,725

Total stock-based compensation expense	Total stock-based compensation expense	$	1,504	$	2,720	$	3,242	$	5,433	Total stock-based compensation expense	$	4,704	$	1,738

Cost of sales	Cost of sales	$	230	$	281	$	684	$	598	Cost of sales	$	1,114	$	454
Selling, general and administrative expenses		1,153		2,334		2,289		4,664
Research, development and engineering costs		121		58		269		124
Other operating expenses		—		47		—		47
Selling, general and administrative										Selling, general and administrative	3,355		1,136
Research, development and engineering										Research, development and engineering	235		148

Total stock-based compensation expense	Total stock-based compensation expense	$	1,504	$	2,720	$	3,242	$	5,433	Total stock-based compensation expense	$	4,704	$	1,738

Stock Options

The following table summarizes the Company’s stock option ~~activity:~~activity for the three month period ended April 2, 2021:

Number of
Stock
Options Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life
(In Years) Aggregate
Intrinsic
Value
(In Millions)
Outstanding at December 31, 2019 384,013 $ 34.96
Exercised (66,131) 37.41
Outstanding at July 3, 2020 317,882 $ 34.45 4.8 $ 12.0
Exercisable at July 3, 2020 315,332 $ 34.36 4.7 $ 12.0


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 31, 2020	281,873	$	36.05

Exercised	(4,229)	27.32

Outstanding and exercisable at April 2, 2021	277,644	$	36.18	4.5	$	15.4

Restricted Stock Units

~~- 13 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(7.) STOCK-BASED COMPENSATION (Continued)~~

During the ~~six~~three months ended ~~July 3, 2020,~~April 2, 2021, the Company awarded grants ~~to certain members~~ of its Board of Directors, certain members of management, and other employees. The Board of Directors received grants of time-based RSUs that vest in 4 substantially equal quarterly installments beginning on the three-month anniversary of the grant date. The members of management and other employees received either time-based RSUs or a mix of time-based RSUs and performance-based RSUs (“PRSUs”)~~. The~~ to certain members of its Board of Directors and management. Newly appointed members to the Board of Directors received a pro-rated portion of the their annual equity retainer in the form of time-based RSUs that vest in accordance with the regularly scheduled vesting schedule applicable to existing members of the Board of Directors. All other time-based RSUs granted during three months ended April 2, 2021 vest ratably, subject to the recipient’s continuous service to the Company over a period of ~~generally~~ three years from the grant date. For the Company’s PRSUs, in addition to service conditions, the ultimate number of shares to be earned depends on the achievement of ~~financial performance or~~ market-based conditions. ~~The financial performance condition is based on the Company’s sales targets.~~ The market-based conditions are based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over three year performance periods.

The Company uses a Monte Carlo simulation model to determine the grant-date fair value of awards with TSR-based performance conditions. The grant-date fair value of all other RSUs is equal to the closing market price of Integer common stock on the date of grant.

- 11 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(7.) STOCK-BASED COMPENSATION (Continued)

The weighted average fair value and assumptions used to value the TSR portion of the PRSUs granted are as follows:


		Six Months Ended										Three Months Ended
		July 3, 2020			June 28, 2019				April 2, 2021			April 3, 2020
Weighted average fair value	Weighted average fair value	$	107.27		$	117.03		Weighted average fair value	$	85.16		$	107.42
Risk-free interest rate	Risk-free interest rate	1.29		%	2.46		%	Risk-free interest rate	0.19		%	1.53		%
Expected volatility	Expected volatility	30		%	40		%	Expected volatility	41		%	30		%
Expected life (in years)	Expected life (in years)	2.9			2.8			Expected life (in years)	3.0			2.9
Expected dividend yield	Expected dividend yield	—		%	—		%	Expected dividend yield	0		%	0		%

The valuation of the TSR portion of the PRSUs granted during 2021 and 2020 also reflects a weighted average illiquidity discount of 8.19% and 8.00%, ~~determined utilizing the Chaffe model valuation technique, and~~respectively, related to the six-month period that recipients are restricted from selling, transferring, pledging or assigning the underlying shares, in the event of vesting.

The following table summarizes time-vested RSU ~~activity:~~activity for the three month period ended April 2, 2021:


		Time-Vested Activity	Weighted Average Grant Date Fair Value			Time-Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		205,223	$	64.75
Nonvested at December 31, 2020					Nonvested at December 31, 2020	207,923	$	75.38
Granted	Granted	140,121	84.26		Granted	146,247	79.09
Vested	Vested	(70,955)	56.60		Vested	(59,143)	63.94
Forfeited	Forfeited	(11,827)	74.76		Forfeited	(2,327)	80.24
Nonvested at July 3, 2020		262,562	$	76.91
Nonvested at April 2, 2021					Nonvested at April 2, 2021	292,700	$	79.51

The following table summarizes PRSU ~~activity:~~activity for the three month period ended April 2, 2021:


		Performance- Vested Activity	Weighted Average Grant Date Fair Value			Performance- Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		191,592	$	56.30
Nonvested at December 31, 2020					Nonvested at December 31, 2020	219,391	$	72.33
Granted	Granted	67,268	95.06		Granted	92,345	85.16
Vested	Vested	(35,363)	31.17		Vested	(38,882)	37.75
Forfeited	Forfeited	(4,106)	51.54		Forfeited	(65,941)	49.00
Nonvested at July 3, 2020		219,391	$	72.33
Nonvested at April 2, 2021					Nonvested at April 2, 2021	206,913	$	91.98

- 1412 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(8.) OTHER OPERATING EXPENSES

Other ~~Operating Expenses consists of~~operating expenses comprise the following (in thousands):


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Operational excellence initiatives										Operational excellence initiatives	$	654	$	974
Strategic reorganization and alignment	Strategic reorganization and alignment	$	138	$	1,656	$	686	$	3,390	Strategic reorganization and alignment	0		548
Manufacturing alignment to support growth	Manufacturing alignment to support growth	60		561		188		1,146		Manufacturing alignment to support growth	0		128

2020 restructuring plan		443		—		1,417		—

Acquisition and integration expenses		47		—		403		—
Acquisition and integration										Acquisition and integration	84		356
Other general expenses	Other general expenses	1,341		891		2,263		1,462		Other general expenses	177		922

Total other operating expenses	Total other operating expenses	$	2,029	$	3,108	$	4,957	$	5,998	Total other operating expenses	$	915	$	2,928

~~Strategic reorganization and alignment~~

As a result of the strategic review of its customers, competitors and markets, the Company began taking steps in 2017 to better align its resources in order to enhance the profitability of its portfolio of products. TheseOperational excellence initiatives include improving its business processes and redirecting investments away from projects where the market does not justify the investment, as well as aligning resources with market conditions and the Company’s future strategic direction. During the six months ended July 3, 2020, the Company incurred charges relating to these initiatives, which primarily included severance recorded within the Medical segment. As of July 3, 2020, total expense incurred for these initiatives since inception, including amounts reported in discontinued operations, was $23.0 million. These actions were completed as of July 3, 2020.

~~Manufacturing alignment to support growth~~

In 2017, the Company initiated several initiatives designed to reduce costs, increase manufacturing capacity to accommodate growth and improve operating efficiencies. The plan involves the relocation of certain manufacturing operations and expansion of certain of the Company’s facilities. The Company estimates that it will incur aggregate pre-tax restructuring related charges in connection with the realignment plan of approximately $6 million, the majority of which are expected to be cash expenditures. Costs related to the Company’s manufacturing alignment to support growth initiative were primarily recorded within the Medical segment. As of July 3, 2020, total expense incurred for this initiative since inception was $5.8 million. These actions were substantially completed at the end of 2019.

~~2020 restructuring plan~~

The Company’s ~~2020 restructuring plan~~operational excellence initiatives mainly ~~consists~~consist of costs associated with executing on its sales force, ~~excellence,~~ manufacturing, ~~excellence and~~ business process and performance excellence operational strategic imperatives. These projects focus on changing the Company’s organizational structure to match product line growth strategies and customer needs, transitioning its manufacturing process into a competitive advantage and standardizing and optimizing its business processes.

2021 Initiatives - Costs related to the Company’s 2021 initiatives are primarily recorded within the Medical segment and mainly include termination benefits. The Company estimates that it will incur aggregate pre-tax ~~restructuring related~~ charges in connection with the ~~2020 restructuring~~2021 realignment plan of between approximately $2$1 million to $3$2 million, the majority of which are expected to be cash expenditures. ~~Costs related to the Company’s 2020 restructuring plan are expected to be primarily recorded within the Medical segment.~~ As of ~~July 3, 2020,~~April 2, 2021, total ~~expense~~restructuring and related charges incurred ~~for this initiative~~ since inception was ~~$1.4 million, which was primarily severance.~~$0.4 million. These actions are expected to be substantially ~~complete~~completed by the end of 2021.

2020 Initiatives - Costs related to the Company’s 2020 initiatives are primarily recorded within the Medical segment and mainly include termination benefits. As of April 2, 2021, total restructuring and related charges incurred since inception was $3.0 million. These actions were substantially complete at the end of 2020.

Strategic reorganization and alignment

These initiatives primarily included aligning resources with the Company’s strategic direction, improving profitability to invest in accelerated growth and the expansion of a facility. These actions began in 2017 and were completed during the second quarter of 2020. The Company recorded, primarily within the Medical segment, $23.0 million of restructuring and related charges since inception.

Manufacturing alignment to support growth

These initiatives were designed to reduce costs, increase manufacturing capacity to accommodate growth and improve operating efficiencies by relocating certain manufacturing operations and expanding certain facilities. These actions began in 2017 and were completed during the fourth quarter of 2020. The Company recorded, primarily within the Medical segment, $5.8 million of restructuring and related charges since inception.

The following table summarizes the change in accrued liabilities, presented within Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets, related to the initiatives described above (in thousands):


	Operational excellence initiatives
December 31, 2020	$	291
Charges incurred, net of reversals	654
Cash payments	(306)

April 2, 2021	$	639

- 1513 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(8.) OTHER OPERATING EXPENSES (Continued)

~~The following table summarizes the change in accrued liabilities, presented within Accrued Expense~~Acquisition and ~~Other Current Liabilities on the Condensed Consolidated Balance Sheets, related to the initiatives described above (in thousands):~~

Severance and Retention Other Total
December 31, 2019 $ 1,389 $ 596 $ 1,985
Restructuring charges 1,637 654 2,291
Cash payments (2,466) (1,248) (3,714)
July 3, 2020 $ 560 $ 2 $ 562
integration

Acquisition and integration ~~expenses~~

costs primarily consist of professional fees and other costs related to business acquisitions. During the ~~six~~three months ended ~~July~~April 2, 2021 and April 3, 2020, acquisition and integration ~~expenses~~costs included $0.1 million and $0.9 million, respectively, of expenses related to the acquisition of certain assets and liabilities of InoMec and ~~USB,~~US BioDesign, LLC (“USB”), which was acquired in October 2019. Acquisition and integration costs for the three months ended April 3, 2020, also includes a $0.5 million adjustment to reduce the fair value of acquisition-related contingent consideration ~~liabilities. Acquisition~~liability associated with the Company’s acquisition of USB. See Note 13 “Financial Instruments and ~~integration costs primarily include direct acquisition costs incurred which consist~~Fair Value Measurements” for additional information related to the fair value measurement of ~~professional fees and other costs.~~the contingent consideration.

Other general expenses

During the ~~six~~three months ended ~~July~~April 2, 2021 and April 3, 2020, ~~and June 28, 2019,~~ the Company recorded expenses related to other initiatives not described above, which relate primarily to ~~actions to align labor with customer demand as a result of COVID-19 and the decline of the energy market,~~ integration and operational initiatives to reduce future costs and improve ~~operational~~ efficiencies. The ~~2020~~2021 and ~~2019~~2020 amounts primarily include ~~severance,~~data archiving expenses, information technology systems conversion expenses, and expenses related to the restructuring of certain legal entities of the Company.

(9.) INCOME TAXES

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including discrete items, changes in the mix and amount of pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, business reorganizations, settlements with taxing authorities and foreign currency fluctuations. In addition, the Company continues to explore tax planning opportunities that may have a material impact on its effective tax rate.

The Company’s effective tax rate for ~~continuing operations for~~ the ~~second~~first quarter of ~~2020~~2021 was ~~(135.8)%~~13.8% on ~~$0.2~~$25.0 million of income ~~from continuing operations~~ before taxes compared to ~~19.0%~~15.1% on ~~$34.8~~$36.6 million of income ~~from continuing operations~~ before taxes for the same period in 2019. The Company’s effective tax rate for continuing operations for the first six months of 2020 was 14.4% on $36.8 million of income from continuing operations before taxes compared to 17.3% on $60.0 million of income from continuing operations before taxes for the same period in 2019.2020. The difference between the Company’s effective tax rates and the U.S. federal statutory income tax rate of 21% for the ~~second~~first quarter of 2021 and ~~first six months of~~ 2020 ~~and 2019~~ is ~~primarily attributable~~due principally to ~~discrete tax benefits, as well as~~ the ~~estimated~~ net impact of the Company’s earnings outside the U.S., which are generally taxed at rates that differ from the U.S federal rate, the ~~estimated net impact of the~~ Global Intangible Low-Taxed Income (“GILTI”) tax, ~~and~~ the availability of tax credits, and certain discrete tax ~~credits. The~~benefits. For the first quarter of 2021 and 2020, the Company recorded discrete tax benefits of ~~$0.1~~$0.6 million and $1.0 million, respectively, for the second quarter and first six months of 2020, compared to discrete tax benefits of $0.4 million and $2.1 million, respectively, for the second quarter and first six months of 2019.respectively. The discrete tax benefits for ~~all~~both periods are predominately related to excess tax benefits recognized upon vesting of RSUs or exercise of stock ~~options.~~options during those quarters.

As of ~~July 3, 2020~~April 2, 2021 and December 31, ~~2019,~~2020, the Company had unrecognized tax benefits ~~from continuing operations~~ of approximately ~~$4.6 million and $4.4 million, respectively.~~$5.5 million. It is reasonably possible that a reduction of up to ~~$0.6~~$3.4 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of potential audit settlements. As of ~~July 3, 2020~~April 2, 2021 and December 31, ~~2019,~~2020, approximately ~~$4.6~~$5.5 million ~~and $4.4 million, respectively,~~ of the unrecognized tax benefits would favorably impact the effective tax rate, net of federal benefit on state issues, if recognized.

~~- 16 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(9.) INCOME TAXES (Continued)~~

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and ~~non-income-based~~non-income- based tax laws. The CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due ~~December 31, 2021~~January 3, 2022 and the remaining 50% due January 3, 2023. As of April 2, 2021 and December 31, ~~2022. As allowed under~~2020, the ~~CARES Act, we~~Company had deferred a total of $9.7 million of payroll taxes. The deferred payroll taxes are ~~deferring payment of~~included within Accrued expenses and other current liabilities and Other long-term liabilities on the ~~employer portion of Social Security taxes through the end of 2020. For the six months ended July 3, 2020, there were no material income tax impacts to our~~ Condensed Consolidated ~~Financial Statements as it relates to COVID-19 measures. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.~~Balance Sheets.

- 14 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(10.) COMMITMENTS AND CONTINGENCIES

Contingent Consideration Arrangements

The Company records contingent consideration liabilities related to the earn-out provisions for certain acquisitions. See Note 13 “Financial Instruments and Fair Value Measurements” for additional information.

Litigation

The Company is subject to litigation arising from time to time in the ordinary course of its business. The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future.

In April 2013, the Company commenced an action against AVX Corporation and AVX Filters Corporation (collectively “AVX”) alleging that AVX had infringed on the Company’s patents by manufacturing and selling filtered feedthrough assemblies used in implantable pacemakers and cardioverter defibrillators that incorporate the Company’s patented technology. Following four trials, the Company was awarded approximately $27 million in damages. In August 2019, AVX filed a notice of appeal with the United States Court of Appeals for the Federal Circuit and the Company subsequently filed a notice of cross-appeal. In July 2020, the United States Court of Appeals for the Federal Circuit affirmed, in all respects, the judgment in favor of the Company. To date, the Company has recorded 0 gains in connection with this litigation.

Product Warranties

The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The product warranty liability is presented within Accrued ~~Expense~~expenses and ~~Other Current Liabilities~~other current liabilities on the Condensed Consolidated Balance Sheets. The change in product warranty liability ~~was~~ comprised of the following (in thousands):


December 31, ~~2019~~2020	$	~~1,933~~163
Additions to warranty reserve, net of reversals	~~(117)~~15
Adjustments to pre-existing warranties	~~(66)~~(63)

~~Warranty claims settled~~	~~(997)~~
~~July 3, 2020~~April 2, 2021	$	~~753~~115

~~- 17 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

(11.) EARNINGS PER SHARE (“EPS”)

The following table sets forth a reconciliation of the information used in computing basic and diluted EPS (in thousands, except per share amounts):

Three Months Ended Six Months Ended
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Numerator for basic and diluted EPS:
Income from continuing operations $ 389 $ 28,222 $ 31,489 $ 49,588
Income from discontinued operations — 4,835 — 5,138
Net income $ 389 $ 33,057 $ 31,489 $ 54,726
Denominator for basic and diluted EPS:
Weighted average shares outstanding - Basic 32,834 32,621 32,820 32,579
Dilutive effect of share-based awards 295 388 303 416
Weighted average shares outstanding - Diluted 33,129 33,009 33,123 32,995
Basic earnings per share:
Income from continuing operations $ 0.01 $ 0.87 $ 0.96 $ 1.52
Income from discontinued operations — 0.15 — 0.16
Basic earnings per share 0.01 1.01 0.96 1.68
Diluted earnings per share:
Income from continuing operations $ 0.01 $ 0.85 $ 0.95 $ 1.50
Income from discontinued operations — 0.15 — 0.16
Diluted earnings per share 0.01 1.00 0.95 1.66


	Three Months Ended
		April 2, 2021		April 3, 2020
Numerator for basic and diluted EPS:


Net income		$	21,520	$	31,100

Denominator for basic and diluted EPS:
Weighted average shares outstanding - Basic		32,957		32,807
Dilutive effect of share-based awards		231		310
Weighted average shares outstanding - Diluted		33,188		33,117




Basic EPS		$	0.65	$	0.95




Diluted EPS		$	0.65	$	0.94

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the EPS calculations or the performance criteria have not been met (in thousands):

Three Months Ended Six Months Ended
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Time-vested stock options, RSAs and RSUs 146 53 131 56
Performance-vested restricted stock and PRSUs 12 48 16 47


	Three Months Ended
		April 2, 2021	April 3, 2020
Time-vested RSUs		10	101
PRSUs		64	24

- 1815 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(12.) STOCKHOLDERS’ EQUITY

The following is a summary of the number of shares of common stock issued, treasury stock and common stock outstanding for the ~~six~~three month periods ended ~~July~~April 2, 2021 and April 3, ~~2020 and June 28, 2019:~~2020:

Six Months Ended July 3, 2020 Six Months Ended June 28, 2019
Issued Treasury Stock Outstanding Issued Treasury Stock Outstanding
Balance, beginning of period 32,847,017 (146,546) 32,700,471 32,624,494 (151,327) 32,473,167
Stock options exercised — 66,131 66,131 93,472 — 93,472
RSAs issued, net of forfeitures,
and vesting of RSUs — 71,950 71,950 98,656 (24,681) 73,975
Balance, end of period 32,847,017 (8,465) 32,838,552 32,816,622 (176,008) 32,640,614


	Issued	Treasury Stock	Outstanding
Shares outstanding at December 31, 2020	32,908,178	0	32,908,178
Stock options exercised	4,229	0	4,229
Vesting of RSUs, net of shares withheld to cover taxes	62,295	0	62,295
Shares outstanding at April 2, 2021	32,974,702	0	32,974,702

Shares outstanding at December 31, 2019	32,847,017	(146,546)	32,700,471
Stock options exercised	0	58,658	58,658
Vesting of RSUs, net of shares withheld to cover taxes	0	66,876	66,876
Shares outstanding at April 3, 2020	32,847,017	(21,012)	32,826,005

Accumulated Other Comprehensive Income (Loss) (“AOCI”) comprises the following (in thousands):

Defined
Benefit
Plan
Liability Cash
Flow
Hedges Foreign
Currency
Translation
Adjustment Total
Pre-Tax
Amount Tax Net-of-Tax
Amount
April 3, 2020 $ (912) $ (13,281) $ 10,607 $ (3,586) $ 2,913 $ (673)
Unrealized gain on cash flow hedges — 1,493 — 1,493 (314) 1,179
Realized loss on foreign currency hedges — 680 — 680 (142) 538
Realized loss on interest rate swap hedge — 617 — 617 (130) 487
Foreign currency translation gain — — 12,948 12,948 — 12,948
July 3, 2020 $ (912) $ (10,491) $ 23,555 $ 12,152 $ 2,327 $ 14,479
December 31, 2019 $ (912) $ (2,358) $ 22,639 $ 19,369 $ 619 $ 19,988
Unrealized loss on cash flow hedges — (9,981) — (9,981) 2,096 (7,885)
Realized loss on foreign currency hedges — 483 — 483 (101) 382
Realized loss on interest rate swap hedges — 1,365 — 1,365 (287) 1,078
Foreign currency translation gain — — 916 916 — 916
July 3, 2020 $ (912) $ (10,491) $ 23,555 $ 12,152 $ 2,327 $ 14,479


	Defined Benefit Plan Liability		Cash Flow Hedges		Foreign Currency Translation Adjustment		Total Pre-Tax Amount		Tax		Net-of-Tax Amount








December 31, 2020	$	(1,095)	$	(4,956)	$	57,546	$	51,495	$	1,197	$	52,692
Unrealized loss on cash flow hedges	—		(1,269)		—		(1,269)		266		(1,003)
Realized gain on foreign currency hedges	—		(659)		—		(659)		139		(520)
Realized loss on interest rate swap hedges	—		1,034		—		1,034		(217)		817
Foreign currency translation loss	—		—		(16,364)		(16,364)		0		(16,364)

April 2, 2021	$	(1,095)	$	(5,850)	$	41,182	$	34,237	$	1,385	$	35,622

March 29, 2019 $ (295) $ 2,551 $ 23,701 $ 25,957 $ (493) $ 25,464
Unrealized loss on cash flow hedges — (4,415) — (4,415) 927 (3,488)
Realized loss on foreign currency hedges — 11 — 11 (2) 9
Realized gain on interest rate swap hedges — (714) — (714) 150 (564)
Foreign currency translation gain — — 4,510 4,510 — 4,510
June 28, 2019 $ (295) $ (2,567) $ 28,211 $ 25,349 $ 582 $ 25,931
December 28, 2018 $ (295) $ 3,439 $ 30,539 $ 33,683 $ (679) $ 33,004
Unrealized loss on cash flow hedges — (4,569) — (4,569) 959 (3,610)
Realized gain on foreign currency hedges — (34) — (34) 7 (27)
Realized gain on interest rate swap hedge — (1,403) — (1,403) 295 (1,108)
Foreign currency translation loss — — (2,328) (2,328) — (2,328)
June 28, 2019 $ (295) $ (2,567) $ 28,211 $ 25,349 $ 582 $ 25,931











December 31, 2019	$	(912)	$	(2,358)	$	22,639	$	19,369	$	619	$	19,988
Unrealized loss on cash flow hedges	—		(11,474)		—		(11,474)		2,410		(9,064)
Realized gain on foreign currency hedges	—		(197)		—		(197)		41		(156)
Realized loss on interest rate swap hedges	—		748		—		748		(157)		591
Foreign currency translation loss	—		—		(12,032)		(12,032)		0		(12,032)

April 3, 2020	$	(912)	$	(13,281)	$	10,607	$	(3,586)	$	2,913	$	(673)

- 1916 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments and contingent consideration. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.

The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates, and uses derivatives to manage these exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. All derivatives are recorded at fair value on the ~~balance sheet.~~Condensed Consolidated Balance Sheets.

The following tables provide information regarding assets and liabilities recorded at fair value on a recurring basis (in thousands):

Fair Value Quoted
Prices in
Active
Markets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
July 3, 2020
Liabilities: Foreign currency contracts $ 1,398 $ — $ 1,398 $ —
Liabilities: Interest rate swaps 9,093 — 9,093 —
Liabilities: Contingent consideration (Note 2) 5,387 — — 5,387
Liabilities: Contingent consideration (Note 5) 500 — — 500
December 31, 2019
Assets: Foreign currency contracts $ 710 $ — $ 710 $ —
Liabilities: Interest rate swaps 3,068 — 3,068 —
Liabilities: Contingent consideration (Note 2) 4,200 — — 4,200


	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
April 2, 2021

Assets: Foreign currency contracts	$	28	$	0	$	28	$	0
Liabilities: Foreign currency contracts	152		0		152		0
Liabilities: Interest rate swap	5,726		0		5,726		0
Liabilities: Contingent consideration	2,281		0		0		2,281


December 31, 2020
Assets: Foreign currency contracts	$	2,070	$	0	$	2,070	$	0
Liabilities: Interest rate swap	7,026		0		7,026		0
Liabilities: Contingent consideration	3,900		0		0		3,900

Interest Rate Swaps

The Company periodically enters into interest rate swap agreements in order to reduce the cash flow risk caused by interest rate changes on its outstanding floating rate borrowings. Under these swap agreements, the Company pays a fixed rate of interest and receives a floating rate equal to one-month LIBOR. The variable rate received from the swap agreements and the variable rate paid on the outstanding debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The Company has designated these swap agreements as cash flow hedges based on concluding the hedged forecasted transaction is probable of occurring within the period the cash flow hedge is anticipated to affect earnings.

Information regarding the Company’s outstanding interest rate ~~swaps~~swap designated as cash flow hedges as of ~~July 3,~~April 2, 2021 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location



$	150,000	Jun 2020	Jun 2023	2.1785	%	0.1091	%	$	(5,726)	Other long-term liabilities

Information regarding the Company’s outstanding interest rate swap designated as cash flow hedges as of December 31, 2020 is as follows (dollars in thousands):


Notional Amount	Notional Amount	Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location	Notional Amount	Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location

$	45,000	Jul 2019	Jul 2020	1.8900	%	0.1836	%	$	(51)	Accrued expenses and other current liabilities	200,000	Jun 2020	Jun 2023	2.1785	%	0.1480	%	$	(7,026)	Other long-term liabilities

200,000		Jun 2020	Jun 2023	2.1785		0.1803		(9,042)		Other long-term liabilities

- 2017 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

~~Information regarding the Company’s outstanding interest rate swaps designated as cash flow hedges as of December 31, 2019 is as follows (dollars in thousands):~~

Notional Amount Start Date End
Date Pay Fixed Rate Receive Current Floating Rate Fair Value Balance Sheet Location
$ 200,000 Jun 2017 Jun 2020 1.1325 % 1.7920 % $ 543 Accrued expenses and other current liabilities
65,000 Jul 2019 Jul 2020 1.8900 1.7920 (72) Accrued expenses and other current liabilities
400,000 Apr 2019 Apr 2020 2.4150 1.7101 (730) Accrued expenses and other current liabilities
200,000 Jun 2020 Jun 2023 2.1785
^(a)
(2,809) Other long-term liabilities

^__________

^(a)~~The interest rate swap did not take effect until June 2020.~~

Foreign Currency Contracts

The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges. Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of April 2, 2021 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	$/Foreign Currency		Fair Value		Balance Sheet Location


$	1,553	Apr 2021	Aug 2021	0.0232	UYU Peso	$	30	Prepaid expenses and other current assets
3,270		Apr 2021	Nov 2021	0.0227	UYU Peso	10		Prepaid expenses and other current assets
2,048		Jul 2021	Dec 2021	0.0228	UYU Peso	(12)		Prepaid expenses and other current assets
8,973		Apr 2021	Sep 2021	1.1949	Euro	(133)		Accrued expenses and other current liabilities
6,101		Apr 2021	Sep 2021	0.0454	MXN Peso	480		Accrued expenses and other current liabilities
7,269		Apr 2021	Dec 2021	0.0485	MXN Peso	(1)		Accrued expenses and other current liabilities
10,985		Apr 2021	Dec 2021	1.2206	Euro	(362)		Accrued expenses and other current liabilities
9,069		Apr 2021	Dec 2021	0.0490	MXN Peso	(136)		Accrued expenses and other current liabilities

Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of ~~July 3,~~December 31, 2020 is as follows (dollars in thousands):

Notional Amount Start
Date End
Date $/Foreign Currency Fair Value Balance Sheet Location
$ 8,756 Apr 2020 Sep 2020 1.0945 Euro $ 250 Prepaid expenses and other current assets
15,332 Jul 2020 Dec 2020 0.0491 MXN Peso (1,559) Accrued expenses and other current liabilities
4,285 Mar 2020 Dec 2020 0.0241 UYU Peso (89) Accrued expenses and other current liabilities

~~Information regarding outstanding foreign currency contracts designated as cash flow hedges as of December 31, 2019 is as follows (dollars in thousands):~~

Notional Amount Start
Date End
Date $/Foreign Currency Fair Value Balance Sheet Location
$ 11,166 Jan 2020 Jun 2020 0.0490 MXN Peso $ 710 Prepaid expenses and other current assets

~~Contingent Consideration~~

The Company estimated the original fair value of the contingent consideration liabilities for the InoMec and USB acquisitions using a Monte Carlo simulation in order to forecast the value of the potential future payment. In periods subsequent to the initial measurement, contingent consideration liabilities are remeasured to fair value each reporting period until the contingent consideration is settled using various assumptions including estimated revenues (based on internal operational budgets and long-range strategic plans), discount rates, revenue volatility and projected payment dates. The assumptions used in the determination of fair value of contingent consideration liabilities are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy. The contingent consideration liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets. Adjustments to the fair value of contingent consideration liabilities are included in Other operating expenses in the Company’s Condensed Consolidated Statements of Operations.

For the February 19, 2020 InoMec acquisition, additional purchase price payments ranging from 0 to $3.5 million are contingent upon the achievement of certain revenue targets through February 29, 2024. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $1.7 million. At July 3, 2020, the estimated fair value of the contingent consideration associated with the InoMec acquisition was $1.7 million.

~~- 21 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)~~

For the October 7, 2019 USB acquisition, additional purchase price payments ranging from 0 to $5.5 million are contingent upon the achievement of certain revenue targets through December 31, 2023. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $4.2 million. During the six months ended July 3, 2020, the Company recognized a gain from the fair value adjustment of contingent consideration of $0.5 million. The fair value adjustment for the six months ended July 3, 2020 was due to a change in the timing of the projected future revenues, rise in the estimated revenue volatility, and increase in the discount rate used to calculate the present value of the contingent consideration liability. At July 3, 2020, the estimated fair value of the contingent consideration associated with the USB acquisition was $3.7 million.

During the first quarter of 2020, the Company acquired a set of similar identifiable intangible assets relating to a license to use technology within its Non-Medical segment. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $1.0 million. During the second quarter of 2020, the Company paid $0.5 million to settle a portion of this contingent consideration arrangement. At July 3, 2020, the estimated fair value of the contingent consideration associated with the license to use technology was $0.5 million, which represents the estimated fair value of contingent consideration payable upon completion of certain milestones.

The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the six months ended July 3, 2020 (in thousands):


~~December 31, 2019~~	$	~~4,200~~
~~Contingent consideration liabilities recorded for acquisitions~~	~~2,700~~
~~Fair value adjustment included in Other operating expenses~~	~~(500)~~
~~Settlements~~	~~(500)~~
~~Foreign currency translation~~	~~(13)~~
~~July 3, 2020~~	$	~~5,887~~


Notional Amount		Start Date	End Date	$/Foreign Currency		Fair Value		Balance Sheet Location


$	16,132	Nov 2020	Sep 2021	1.1949	Euro	$	399	Prepaid expenses and other current assets
10,224		Jan 2021	Sep 2021	0.0454	MXN Peso	922		Prepaid expenses and other current assets
2,656		Jan 2021	Mar 2021	0.0443	MXN Peso	341		Prepaid expenses and other current assets
7,269		Apr 2021	Dec 2021	0.0485	MXN Peso	77		Prepaid expenses and other current assets
3,252		Jan 2021	Aug 2021	0.0232	UYU Peso	165		Prepaid expenses and other current assets
3,966		Jan 2021	Nov 2021	0.0227	UYU Peso	166		Prepaid expenses and other current assets

Derivative Instruments with Hedge Accounting Designation

The following ~~table presents~~tables present the ~~impact~~effect of cash flow hedge derivative instruments on other comprehensive income (loss) (“OCI”),

AOCI and the Company’s Condensed Consolidated ~~Statement~~Statements of Operations for the three ~~and six~~ months ended ~~July~~April 2, 2021 and April 3, 2020 ~~and June 28, 2019~~ (in thousands):


		Three Months Ended															Three Months Ended
		July 3, 2020						June 28, 2019							April 2, 2021				April 3, 2020
		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity			Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales	Sales	$	240,115	$	87	$	314,194	$	(473)	Sales	$	290,467	$	8	$	328,426	$	(128)
Cost of sales	Cost of sales	182,252		(733)		217,210		462		Cost of sales	205,981		624		231,724		325
Operating expenses	Operating expenses	48,678		(34)		47,647		—		Operating expenses	49,878		27		52,626		0
Interest expense	Interest expense	9,273		(617)		13,612		714		Interest expense	8,532		(1,034)		10,361		(748)

Six Months Ended
July 3, 2020 June 28, 2019
Total Amount of Loss on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales $ 568,541 $ (41) $ 628,870 $ (794)
Cost of sales 413,976 (408) 443,276 828
Operating expenses 101,304 (34) 97,088 —
Interest expense 19,634 (1,365) 27,442 1,403

- 18 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)


	Unrealized Gain (Loss) Recognized in OCI				Realized Gain (Loss) Reclassified from AOCI
	Three months ended,				Location in Statements of Operations and Comprehensive Income	Three months ended,
	April 2, 2021		April 3, 2020			April 2, 2021		April 3, 2020
Interest rate swap	$	266	$	(6,387)	Interest expense	$	(1,034)	$	(748)
Foreign exchange forwards	(886)		(274)		Sales	8		(128)
Foreign exchange forwards	(559)		(4,813)		Cost of sales	624		325
Foreign exchange forwards	(90)		0		Operating expenses	27		0

The Company expects to reclassify net losses totaling $3.2 millionrelated to its cash flow hedges from AOCI into earnings during the next twelve months.

Contingent Consideration


	Three Months Ended
				April 2, 2021			April 3, 2020
Fair value measurement at beginning of period		$	3,900		$	4,200
Amount recorded for acquisitions				0			2,700
Fair value measurement adjustment				0			(500)
Payments(1)				(1,621)			0
Foreign currency translation				2			0
Fair value measurement at end of period		$	2,281		$	6,400

__________

(1)Consists of payments associated with the Company’s acquisitions of InoMec and USB, resulting from achievement of revenue-based goals for the period from March 1, 2020 to February 28, 2021 for InoMec and January 1, 2020 to December 31, 2020 for USB.

On February 19, 2020, the Company acquired certain assets and liabilities of InoMec. See Note 2 “Business Acquisition” for additional information about the InoMec acquisition. On October 7, 2019, the Company acquired certain assets and liabilities of USB, a privately-held developer and manufacturer of complex braided biomedical structures for disposable and implantable medical devices. The contingent consideration at April 2, 2021 is the estimated fair value of the Company’s obligations, under the asset purchase agreements for InoMec and USB, to make additional payments if certain revenue goals are met.

As of April 2, 2021, the current portion of contingent consideration liabilities is$1.0 millionand included in Accrued expenses and other current liabilities, and the non-current portion is $1.3 millionand included in Other long-term liabilities on the Condensed Consolidated Balance Sheets. As of December 31, 2020, the current portion of contingent consideration liabilities was $1.7 million and included in Accrued expenses and other current liabilities, and the non-current portion was $2.2 million and included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.

- 2219 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

The following ~~tables present~~table provides quantitative information associated with the ~~amounts affecting~~fair value measurement of the ~~Condensed Consolidated Statements~~Company’s liabilities for contingent consideration:


	April 2, 2021
Contingency Type	Maximum Payout (undiscounted)		Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average or Range
Revenue-based payments	$	6,750	$	2,281	Monte Carlo	Revenue volatility	35.0	%
						Discount rate	4.0	%
						Projected year(s) of payment	2022-2024


	December 31, 2020
Contingency Type	Maximum Payout (undiscounted)		Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average or Range
Revenue-based payments	$	9,000	$	3,900	Monte Carlo	Revenue volatility	35.0	%
						Discount rate	4.0	%
						Projected year(s) of payment	2021-2024

During the first quarter of ~~Operations and Condensed Consolidated Statements~~2020, the Company acquired a set of ~~Comprehensive Income for~~similar identifiable intangible assets relating to a license to use technology within its Non-Medical segment. At the ~~three and six months ended July 3,~~date of acquisition, the Company estimated the original fair value of the contingent consideration to be $1.0 million, which was paid during 2020 ~~and June 28, 2019 (in thousands):~~

Unrealized Gain (Loss) Recognized in OCI Realized Gain (Loss) Reclassified from AOCI
Three months ended, Location in Statement of Operations Three months ended,
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Interest rate swap $ (1,003) $ (5,151) Interest expense $ (617) $ 714
Foreign exchange forwards 483 1 Sales 87 (473)
Foreign exchange forwards 2,085 735 Cost of sales (733) 462
Foreign exchange forwards (72) — Operating expenses (34) —

Unrealized Gain (Loss) Recognized in OCI Realized Gain (Loss) Reclassified from AOCI
Six Months Ended Location in Statement of Operations Six Months Ended
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Interest rate swaps $ (7,390) $ (5,599) Interest expense $ (1,365) $ 1,403
Foreign exchange contracts 209 (699) Sales (41) (794)
Foreign exchange contracts (2,728) 1,729 Cost of sales (408) 828
Foreign exchange forwards (72) — Operating expenses (34) —

~~The Company expects to reclassify net losses totaling $5.3 million related to its cash flow hedges from AOCI into earnings during~~upon achievement of the ~~next twelve months.~~applicable milestones.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these items.

Borrowings under the Company’s Revolving Credit Facility, TLA Facility and TLB Facility accrue interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments.

Equity Investments

The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other ~~Long-Term Assets~~long-term assets on the Condensed Consolidated Balance Sheets. Non-marketable equity securities are equity securities without readily determinable fair value. The Company has elected the practicability exception to use an alternative approach that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. If an impairment is recognized on the Company’s non-marketable equity securities during the period, these assets are classified as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.

Equity investments ~~are comprised of~~comprise the following (in thousands):


		July 3, 2020		December 31, 2019			April 2, 2021		December 31, 2020
Equity method investment	Equity method investment	$	17,888	$	16,167	Equity method investment	$	20,135	$	21,470
Non-marketable equity securities	Non-marketable equity securities	6,092		6,092		Non-marketable equity securities	5,723		5,723
Total equity investments	Total equity investments	$	23,980	$	22,259	Total equity investments	$	25,858	$	27,193

- 2320 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

The components of (Gain) ~~Loss~~loss on ~~Equity Investments, Net~~equity investments for each period were as follows (in thousands):

Three Months Ended Six Months Ended
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Equity method investment (income) loss $ 205 $ 36 $ (1,720) $ 77
Impairment charges — 1,575 — 1,575
Total (gain) loss on equity investments, net $ 205 $ 1,611 $ (1,720) $ 1,652


	Three Months Ended
		April 2, 2021		April 3, 2020
Equity method investment (gain) loss		$	1,335	$	(1,925)

The Company’s equity method investment is in a ~~Chinese~~ venture capital fund focused on investing in life sciences companies. As of ~~July 3, 2020,~~April 2, 2021, the Company owned 6.6% of this fund.

(14.) SEGMENT INFORMATION

The Company organizes its business into 2 reportable segments: (1) Medical and (2) Non-Medical. This segment structure reflects the financial information and reports used by the Company’s management, specifically its Chief Operating Decision Maker, to make decisions regarding the Company’s business, including resource allocations and performance assessments. This segment structure reflects the Company’s current operating focus in compliance with ASC 280, Segment Reporting. For purposes of segment reporting, intercompany sales between segments are not material.

The following table presents sales ~~from continuing operations~~ by product line (in thousands).


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Segment sales from continuing operations by product line:
Segment sales by product line:										Segment sales by product line:
Medical	Medical									Medical
Cardio & Vascular	Cardio & Vascular	$	129,084	$	150,397	$	308,289	$	302,971	Cardio & Vascular	$	149,165	$	179,205
Cardiac & Neuromodulation	Cardiac & Neuromodulation	71,675		114,488		179,495		231,399		Cardiac & Neuromodulation	108,408		107,820
Advanced Surgical, Orthopedics & Portable Medical	Advanced Surgical, Orthopedics & Portable Medical	30,625		32,646		61,862		64,234		Advanced Surgical, Orthopedics & Portable Medical	25,392		31,237

Total Medical	Total Medical	231,384		297,531		549,646		598,604		Total Medical	282,965		318,262
Non-Medical	Non-Medical	8,731		16,663		18,895		30,266		Non-Medical	7,502		10,164
Total sales from continuing operations		$	240,115	$	314,194	$	568,541	$	628,870
Total sales										Total sales	$	290,467	$	328,426

The following table presents income ~~from continuing operations~~ for the Company’s reportable segments (in thousands).


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Segment income from continuing operations:
Segment income:										Segment income:
Medical	Medical	$	26,910	$	63,706	$	92,126	$	120,086	Medical	$	55,525	$	65,216
Non-Medical	Non-Medical	2,467		5,298		3,680		9,609		Non-Medical	2		1,213
Total segment income	Total segment income	29,377		69,004		95,806		129,695		Total segment income	55,527		66,429
Unallocated operating expenses	Unallocated operating expenses	(20,192)		(19,667)		(42,545)		(41,189)		Unallocated operating expenses	(20,919)		(22,353)
Operating income	Operating income	9,185		49,337		53,261		88,506		Operating income	34,608		44,076
Unallocated expenses, net	Unallocated expenses, net	(9,020)		(14,505)		(16,457)		(28,542)		Unallocated expenses, net	(9,630)		(7,437)
Income from continuing operations before taxes		$	165	$	34,832	$	36,804	$	59,964
Income before taxes										Income before taxes	$	24,978	$	36,639

- 2421 -

INTEGER HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(15.) REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment’s results of operations. For a summary by disaggregated product line sales for each segment, refer to Note 14, “Segment Information.”

Revenue recognized from products and services transferred to customers over time ~~for the three~~represented 35% and six months ended July 3, 2020 represented 25% and 28%, respectively, of total revenue. Revenue recognized from products and services transferred to customers over time for the three and six months ended June 28, 2019 represented 10% and 12%30%, respectively, of total revenue for the three months ended April 2, 2021 and April 3, 2020. All revenue recognized from products and services transferred to customers over time during the periods presented was within the Medical segment.

The following table presents revenues by significant customers, which are defined as any customer who individually represents 10% or more of a segment’s total revenues.

Three Months Ended

July 3, 2020

June 28, 2019

April 2, 2021

April 3, 2020

Customer

Medical

Non-Medical

Medical

Non-Medical

Customer

Medical

Non-Medical

Medical

Non-Medical

Customer A

23%

21%

Customer A

22%

20%

Customer B

16%

18%

Customer B

13%

18%

Customer C

10%

13%

Customer C

17%

16%

Customer D

23%

25%

Customer D

26%

19%

Customer E

15%

All other customers

51%

62%

48%

75%

All other customers

48%

74%

46%

81%

Six Months Ended
July 3, 2020 June 28, 2019
Customer Medical Non-Medical Medical Non-Medical
Customer A 21% * 23% *
Customer B 16% * 18% *
Customer C 14% * 12% *
Customer D * 21% * 25%
Customer E 12% * *
All other customers 49% 67% 47% 75%

^__________

* Less than 10% of segment’s total revenues for the period.

~~The following tables present revenues by significant ship to location, which is defined as any country where 10% or more of a segment’s total revenues are shipped.~~

Three Months Ended
July 3, 2020 June 28, 2019
Ship to Location Medical Non-Medical Medical Non-Medical
United States 55% 54% 56% 56%
Puerto Rico * * 12% *
Singapore * 11% * 10%
Canada * 14% * 14%
All other countries 45% 21% 32% 20%

~~- 25 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(15.) REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)~~

Six Months Ended
July 3, 2020 June 28, 2019
Ship to Location Medical Non-Medical Medical Non-Medical
United States 55% 49% 56% 56%
Puerto Rico 11% * 13% *
United Kingdom * 12% * *
Singapore * 12% * *
Canada * 13% * 14%
All other countries 34% 14% 31% 30%

^__________

* Less than 10% of segment’s total revenues for the period.

The following tables present revenues by significant ship to location, which is defined as any country where 10% or more of a segment’s total revenues are shipped.

Three Months Ended

April 2, 2021

April 3, 2020

Ship to Location

Medical

Non-Medical

Medical

Non-Medical

United States

53%

69%

55%

44%

Puerto Rico

12%

United Kingdom

10%

15%

Singapore

14%

Canada

11%

12%

All other countries

47%

10%

33%

15%

__________

* Less than 10% of segment’s total revenues for the period.

Contract Balances

The opening and closing balances of the Company’s contract assets and contract liabilities are as follows (in thousands):


		July 3, 2020		December 31, 2019			April 2, 2021		December 31, 2020

Contract assets	Contract assets	$	37,389	$	24,767	Contract assets	$	44,686	$	40,218
Contract liabilities included in accrued expenses and other current liabilities		$	2,415	$	1,975
Contract liabilities						Contract liabilities	2,379		2,498

Contract assets at ~~July 3, 2020,~~April 2, 2021, increased ~~$12.6~~$4.5 million from December 31, ~~2019,~~2020, due to a ~~new~~ contract ~~with a customer where control is transferred over time.~~modification to add existing products and extend the contractual term. During the three ~~and six~~ months ended ~~July 3, 2020,~~April 2, 2021, the Company recognized ~~$1.0~~$0.9 million ~~and $1.1 million, respectively,~~ of revenue that was included in the contract liability balance as of December 31, ~~2019.~~2020. During the three ~~and six~~ months ended ~~June 28, 2019,~~April 3, 2020, the Company recognized $0.1 million ~~and $0.4 million, respectively,~~ of revenue that was included in the contract liability balance as of December ~~28, 2018.~~31, 2019.

- ~~26 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~

~~(16.)DISCONTINUED OPERATIONS~~

On July 2, 2018, the Company completed the sale of its AS&O Product Line to Viant. In connection with the sale, the parties executed a transition services agreement whereby the Company would provide certain corporate services (including accounting, payroll, and information technology services) to Viant for a period of up to one year from the date of the closing to facilitate an orderly transfer of business operations. Viant paid Integer for these services as specified in the transition services agreement, which were complete as of June 28, 2019. For the performance of services during the three and six months ended June 28, 2019, the Company recognized $1.2 million and $2.9 million, respectively, of income under the transition services agreement. For the six months ended June 28, 2019, $0.1 million is within Cost of sales and for the three and six months ended June 28, 2019, $1.2 million and $2.8 million, is within Selling, general and administrative expenses.

During the quarter ended June 28, 2019, the Company received $4.8 million due to a net working capital adjustment agreed to with Viant. This was recognized as gain on sale from discontinued operations during the quarter ended June 28, 2019.

The operating results of the AS&O Product Line have been classified as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. The discontinued operations of the AS&O Product Line are reported in the Medical segment. Income from discontinued operations net of taxes, were as follows (in thousands):

Three Months Ended Six Months Ended
July 3,
2020 June 28,
2019 July 3,
2020 June 28,
2019
Gain on sale of discontinued operations $ — $ (4,974) $ — $ (4,974)
Other income, net — 44 — (342)
Provision for income taxes — 95 — 178
Income from discontinued operations $ — $ 4,835 $ — $ 5,138

~~Cash flow information from discontinued operations was as follows (in thousands):~~

~~Six Months Ended~~

July 3,
2020

June 28,
2019

~~Cash used in operating activities~~

—

~~(58)~~

~~Cash provided by investing activities~~

—

~~4,734~~

~~(17.) RECENT DEVELOPMENTS~~

Beginning in early March 2020, the global spread of the novel coronavirus (“COVID-19”), has created significant uncertainty and worldwide economic disruption. Specific impacts to the Company’s business include delayed or reduced customer orders and sales, restrictions on its associates’ ability to travel or work, delays in shipments to and from certain countries, and disruptions in its supply chain. Further, the collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has adversely impacted the demand for products in the Company’s Non-Medical reportable segment. Considering these events and circumstances, the Company elected to bypass a qualitative analysis of its Non-Medical reporting unit’s goodwill and performed a quantitative analysis as of the first quarter of 2020. The fair value of the Non-Medical reporting unit exceeded its carrying amount as of April 3, 2020.

In response to COVID-19 and the related uncertainty, the Company is taking prudent measures to improve its liquidity and strengthen its financial position. On April 10, 2020, the Company drew a $160 million portion of its Revolving Credit Facility to protect against a prolonged pandemic coupled with financial market illiquidity. Additionally, on July 13, 2020, the Company amended the terms of its senior secured credit facility to increase the total net leverage ratio.

The extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As pandemic-related events continue to evolve, additional impacts may arise that the Company is not aware of currently. Any prolonged material disruption of the Company’s associates, suppliers, manufacturing, or customers could materially impact its consolidated financial position, results of operations or cash flows.

~~- 27~~22 -

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q should be read in conjunction with the disclosures included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. In addition, please read this section in conjunction with our Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements contained herein.

Forward-Looking Statements

Some of the statements contained in this report and other written and oral statements made from time to time by us and our representatives are not statements of historical or current fact. As such, they are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations, and these statements are subject to known and unknown risks, uncertainties and assumptions. Forward-looking statements include statements relating to:

•the impact of the COVID-19 global pandemic;

•~~future sales, expenses, and profitability;~~

•future development and expected growth of our business and industry;

•our ability to execute our business model and our business strategy;

•having available sufficient cash and borrowing capacity to meet working capital, debt service and capital expenditure requirements for the next twelve months; and

•projected capital spending.

You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” ~~“potential”~~“potential,” “projects” or “continue” or ~~“variations”~~variations or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those stated or implied by these forward-looking statements. In evaluating these statements and our prospects, you should carefully consider the factors set forth below. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary factors and to others contained throughout this report.

Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors and other risks and uncertainties that arise from time to time are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in other periodic filings with the Securities and Exchange Commission and include the following:

•the ~~duration, scope and~~ impact of the COVID-19 ~~pandemic, including government, social, business and other actions taken in response to the pandemic and the effect of the pandemic on our associates, suppliers and customers as well as the~~ global ~~economy;~~pandemic;

•our dependence upon a limited number of customers;

•pricing pressures that we face from customers;

•~~our ability to respond to changes in technology;~~

•~~the intense competition we face and our ability to successfully market our products;~~

•~~our ability to develop new products and expand into new geographic and product markets;~~

•our reliance on third party suppliers for raw materials, key products and subcomponents;

•the potential for harm to our reputation caused by quality problems related to our products;

•~~regulatory issues resulting from products complaints, recalls or regulatory audits;~~the dependence of our energy market-related revenues on the conditions in the oil and natural gas industry;

•interruptions in our manufacturing operations;

•our dependence upon our information technology systems and our ability to prevent cyber-attacks and other failures;

•our dependence upon our senior management team and technical personnel;

•the ~~potential of becoming subject~~intense competition we face and our ability to ~~product liability claims;~~successfully market our products;

•our ability to ~~protect~~ respond to changes in technology;

•our ~~intellectual property~~ability to develop new products and ~~proprietary rights;~~expand into new geographic and product markets;

•our ability to successfully identify, make and integrate acquisitions to expand and develop our businesses in accordance with expectations;

•our significant amount of outstanding indebtedness and our ability to remain in compliance with financial and other covenants under our senior secured credit facilities;

•economic and credit market uncertainties that could interrupt our ~~ability~~access to ~~integrate acquisitions and operate acquired businesses in accordance with expectations;~~capital markets, borrowings or financial transactions;

•market and financial risks related to our ~~dependence upon our senior management team~~international operations and ~~technical personnel;~~

•~~our ability to realize the benefits from cost savings and consolidation initiatives;~~

•~~interruptions in our manufacturing operations;~~

•~~our ability to comply with environmental regulations;~~sales;

•our complex international tax profile;

•our ~~dependence upon our information technology systems and our~~ ability to ~~prevent cyber-attacks and other failures;~~realize the full value of our intangible assets

•~~market, financial and other risks related to our international operations and sales;~~regulatory issues resulting from products complaints, recalls or regulatory audits;

•~~global economic factors, including currency exchange rates~~the potential of becoming subject to product liability or intellectual property claims;

•our ability to protect our intellectual property and ~~interest rates;~~proprietary rights;

•our ability and the cost to comply with environmental regulations;

•our ability to comply with customer-driven policies and third-party standards or certification requirements;

•our ability to obtain necessary licenses for new technologies;

•legal and regulatory risks from our international operations; and

•the fact that the healthcare industry is highly regulated and subject to various regulatory ~~changes;~~

•~~the dependence of our energy market-related revenues on the conditions in the oil and natural gas industry; and~~changes.

- 2823 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

•other risks and uncertainties that arise from time to time and are described in Item 1A “Risk Factors” of our Annual Report on Form 10-K and in other periodic filings with the Securities and Exchange Commission.

Except as required by applicable law, the Company assumes no obligation to update forward-looking statements in this report whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.

In this Form 10-Q, references to “Integer,” “we,” “us,” “our” and the “Company” mean Integer Holdings Corporation and its subsidiaries, unless the context indicates otherwise.

Our Business

Integer Holdings Corporation is one of the largest medical device outsource (“MDO”) manufacturers in the world serving the cardiac, neuromodulation, vascular, orthopedics, advanced surgical and portable medical markets. We also develop batteries for high-end niche applications in the non-medical energy, military, and environmental markets. Our vision is to enhance the lives of patients worldwide by being our customers’ partner of choice for innovative technologies and services.

We organize our business into two reportable segments, Medical and Non-Medical, and derive our revenues from four principal product lines. The Medical segment includes the Cardio & Vascular, Cardiac & Neuromodulation and Advanced Surgical, Orthopedics & Portable Medical product lines and the Non-Medical segment comprises the Electrochem product line. For more information on our segments, please refer to Note 14 “Segment Information” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report.

The ~~second~~first quarter of 2021 ended on April 2 and consisted of 92 days, and the first ~~six months~~quarter of 2020 ended on ~~July~~April 3 ~~2020~~ and consisted of ~~91 days and 185 days, respectively. The second quarter and first six months~~94 days.

Impact of ~~2019 ended on June 28, 2019 and consisted of 91 days and 182 days, respectively.~~COVID-19

~~Recent Developments~~

~~We have continued to actively monitor~~Beginning in early March 2020, the global spread of the novel coronavirus ~~or COVID-19,~~(“COVID-19”) created significant uncertainty and although the magnitude of the COVID-19 pandemic remains unpredictable, we continue to take steps in response to the pandemic to mitigate the impact to us posed by its spread and related third party responses, including from government authorities, our associates, customers and suppliers. We continue to prioritize the safety of our associates while continuing to provide critical products that patients rely on every day. Additionally, we have implemented numerous cost reduction actions to reduce discretionary expenses for the balance of the year. The following is a summary of a variety of the actions we have taken and continue to take.

~~Governmental Actions~~

~~Regulatory authorities~~ worldwide have imposed various and fluctuating restrictions regarding the conduct of business and the movement of people. However, we have been able to continue our operations throughout the pandemic because of the essential nature of the products we develop and manufacture. In response to the pandemic, many governments have also recently enacted legislation designed to support businesses and workers impacted by COVID-19. While we will seek benefits under this legislation where available, we do not expect that such benefits will have a material impact on our operations and financial condition.

~~Associates~~

The health and safety of our associates is a priority for us. We have implemented measures to safeguard our associates from COVID-19 infection and exposure, consistent with guidelines promulgated by the World Health Organization, the United States Center for Disease Control, and other applicable regional authorities. These measures consist of policies, procedures, protocols, and guidance related to, among other things, COVID-19 symptom awareness, effective hygiene practices, travel restrictions, visitor restrictions, social distancing, face covering expectations, temperature and health screening, work-from-home requirements, absenteeism policies, enhanced workplace cleaning, and large-scale decontamination.

To balance cost management during what we expect to be temporary sales declines in certain areas, we are utilizing reductions-in-force, furloughs and temporary shutdowns to more closely align labor with customer demand, and we will continue to assess the need for further actions in this area. In doing so, we are monitoring benefits availableeconomic disruption. Specific impacts to our associates under various governmental programs, including assistance for associates unable to work for COVID-19 reasons. We have, and will continue to, seek to understand whether these benefits apply to our associates, how the available benefits support the best interests of our associates, and how the available benefits may impact our business ~~now and in the future as we return to more normalized operations.~~

~~- 29 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

~~Customers~~

Likewise, we remain in close contact with our customers to respond to increased critical needs such as ventilator and patient monitor components and to understand the impact of COVID-19 on their business. COVID-19 has introduced volatility and uncertainty to all of our customers, which has resulted in the need for us to react and respond. As expected, we did experience decreased sales in the second quarter of 2020, largely because of delays in medical procedures. Because of our position in the supply chain, anyinclude delayed or reduced customer ~~demand~~orders and sales, restrictions on our associates’ ability to travel or work, delays in shipments to and from certain countries, and disruptions in our supply chain. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and difficult to predict, including, among others, the duration of the outbreak, the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities to contain the pandemic or treat its impact. As pandemic-related events continue to evolve, additional impacts may arise that we continue to experience will likely lag any similar delay or reduction in sales by our customers to their customers. This impact could be mitigated or enhanced depending on the various inventory management approaches utilized by our customers. We have had, and will continue to have, close conversation with our customers to be in the best possible position to respond to their needs.

~~Supply Chain~~

~~Our suppliers~~ are ~~also experiencing the impact~~not aware of ~~COVID-19 on their businesses. Because~~currently. Any prolonged material disruption of our ~~ability to continue to operate under government rules relating to essential~~associates, suppliers, manufacturing, or ~~permitted businesses and services,~~customers could materially impact our suppliers also have generally been permitted to continue conducting business to the extent they support our work. However, our suppliers also have had challenges in maintaining an adequate workforce, securing materials from their own suppliers, implementing workplace safety practices, and have instituted periodic closures as a result of COVID-19. We are taking steps to validate our suppliers’ ability to continue to deliver to us on time, which may also be affected by the impact of COVID-19 on their ownconsolidated financial ~~condition.~~

~~Internal Controls over Financial Reporting and Disclosure Controls~~

We have taken proactive measures to ensure we have maintained an appropriate internal control environment while certain of our workforce continue to work from home, in response to various government orders to “stay in place” or “shelter in place”. Our control environment allows access to technology and online communications that has not required a change in controls. We believe our existing disclosure controls are appropriate to address the financial reporting implications as a result of the COVID-19 pandemic.

~~Governance~~

We are conducting regular leadership calls with global and regional leaders to review the effectiveness of associate safety measures, monitor the spread of the virus in the geographies in which we operate, discuss the evolving availability of testing and therapeutic medicine, and assess the impact of the pandemic on our business. These meetings also serve to identify actions we must take to manage COVID-19 risks or opportunities on an enterprise-wide or on a regional basis, and to ensure that progress is made on actions to which we have previously committed. Moreover, through formal meetings and other communications, we are in regular contact with our Board of Directors and Committees of the Board of Directors on the COVID-19 pandemic risks. This regular contact provides opportunities to ensure our board members remain informed, and can perform their duties of risk oversight. This communication also allows management to gain the valuable business and governance perspectives of our board members. Most importantly, we have been communicating with all associates regularly regarding, among other things, the steps we are taking to safeguard their health and safety, the flexible work and pay arrangements we have instituted as result of the COVID-19 pandemic, and the progress we are making in managing the effects of the pandemic on our business.

~~Discontinued Operations~~

On July 2, 2018, we completed the sale of the Advanced Surgical and Orthopedic product lines (the “AS&O Product Line”) to Viant. In connection with the sale, the parties executed a transition services agreement whereby we provided certain corporate services (including accounting, payroll, and information technology services) to Viant to facilitate an orderly transfer of business operations. Viant paid us for these services as specified in the transition services agreement, which were complete as of June 28, 2019. Theposition, results of operations of the AS&O Product Line were classified as discontinued operations. All results and information presented exclude discontinued operations unless otherwise noted. Refer to Note 16 “Discontinued Operations” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information.or cash flows.

Recent Business ~~Acquisitions~~Acquisition

On February 19, 2020, we acquired certain assets and liabilities of InoMec Ltd. (“InoMec”), a privately-held company based in Israel that specializes in the research, development and manufacturing of medical devices, including minimally invasive tools, delivery systems, tubing and catheters, surgery tools, drug-device combination, laser combined devices, and tooling and production. The acquisition enables us to create a research and development center in Israel, closer to the customer base in the region.

In October 2019, we purchased certain assets and liabilities of US BioDesign, LLC (“USB”), a privately-held developer and manufacturer of complex braided biomedical structures for disposable and implantable medical devices. The acquisition added a differentiated capability related to the development and manufacture of complex braided and formed biomedical structures to our broad portfolio, that we believe further positions us as a partner of choice for innovative medical technologies.

~~- 30 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

Refer to Note 2 “Business ~~Acquisitions”~~Acquisition” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information about ~~these acquisitions.~~this acquisition.

- 24 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Strategic Overview

We continue to take steps to better align our resources in order to invest to grow and protect, and preserve our portfolio of products. In addition to our portfolio strategy, we ~~have launched the execution of~~continue to execute our six key operational strategic imperatives designed to drive excellence in everything we do:

•Sales Force Excellence: We are ~~changing~~focusing our efforts within the ~~organizational structure~~commercial organization to ~~match~~further improve our efficiency and effectiveness and to align with product line growth strategies and customer needs. ~~This change is~~These activities are about getting more out of the capabilities we already have, and ~~will increase~~increasing individual accountability and clarity of ownership, while serving customers more effectively.

•Market Focused Innovation: We are ensuring we get the most return on our research and development investments. ~~Integer is currently focusing~~We are focused on ~~getting~~having a ~~clearer~~clear picture of how we spend our money ~~and ensuring we are spending it in the right places~~ so we can increase investments to drive future growth.

•Manufacturing Excellence: The goal is to deliver world-class operational performance in the areas of safety, quality, delivery and overall efficiency. We want to transition our manufacturing into a competitive advantage through a single, enterprise-wide manufacturing structure known as the Integer Production System. This system will provide standardized systems and processes by leveraging best practices and applying them across all of our global sites.

•Business Process Excellence: ~~Integer is~~We are taking a systematic approach to driving excellence in everything we do by standardizing, optimizing and ultimately sustaining all of our processes.

•Leadership Capability: We have a robust plan to make leadership a competitive advantage for ~~Integer,~~us, and ~~since~~as the success rate is higher with internal hires, we are focusing on finding and developing leaders from within the Company to build critical capabilities for future success.

•Performance Excellence: We are raising the bar on associate performance to maximize our impact. This includes aligning key roles with critical capabilities, positioning the best talent against the biggest work, and putting tools and processes in place to provide higher financial rewards for top performers, so our top performers can see increased results in pay for increased results in their performance.

We believe ~~Integer is~~we are well-positioned within the medical technology and MDO manufacturing market and that there is a robust pipeline of opportunities to pursue. We have expanded our medical device capabilities and are excited about opportunities to partner with customers to drive innovation. We believe we have the scale and global presence, supported by world-class manufacturing and quality capabilities, to capture these opportunities. We are confident in our capabilities as one of the largest MDO manufacturers, with a long history of successfully integrating companies, driving down costs and growing revenues over the long-term. Ultimately, our strategic vision is to drive shareholder value by enhancing the lives of patients worldwide by being our customers’ partner of choice for innovative technologies and services.

~~- 31 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

Financial Overview ~~of Continuing Operations~~

~~Income from continuing operations~~Net income for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 was ~~$0.4~~$21.5 million, or ~~$0.01~~$0.65 per diluted share, ~~and $31.5~~compared to $31.1 million, or ~~$0.95 per diluted share, respectively, compared to income from continuing operations of $28.2 million, or $0.85 per diluted share, and $49.6 million, or $1.50~~$0.94 per diluted share for the ~~second~~first quarter ~~and first six months~~ of ~~2019, respectively.~~2020. These variances are primarily the result of the following:

•Sales for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 decreased ~~$74.1~~$38.0 million ~~and $60.3 million, respectively,~~ when compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to the ~~impact~~on-going impacts of the COVID-19 pandemic.

•Gross profit for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 decreased ~~$39.1~~$12.2 million, ~~and $31.0 million, respectively,~~ primarily ~~due to the~~from a decrease in sales ~~due to the impact of the COVID-19 pandemic~~volume and price reductions ~~given~~ to our ~~customers, partially offset by production efficiencies resulting from our Manufacturing Excellence strategic imperative.~~customers.

•Operating expenses for the first quarter ~~and first six months~~ of ~~2020 increased $1.0~~2021 decreased $2.7 million, ~~and $4.2 million, respectively,~~ compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to ~~increases~~decreases of $1.0 million in Selling, general and administrative expenses and ~~Research, development and engineering costs, partially offset by decreases~~$2.0 million in Other operating expenses.

•Interest expense for the first quarter ~~and first six months~~ of ~~2020~~2021 decreased ~~$4.3~~$1.8 million, ~~and $7.8 million, respectively,~~ compared to the same ~~periods~~period in ~~2019,~~2020, primarily due to lower interest ~~rates.~~rates and lower outstanding debt balances.

•During the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, we recognized a ~~net~~ loss on equity investments of ~~$0.2~~$1.3 million, ~~and~~compared to a ~~net~~ gain of ~~$1.7 million, respectively, compared to net losses of $1.6 million and $1.7~~$1.9 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019, respectively.~~2020. Gains and losses on equity investments are generally unpredictable in nature.

•Other income, net for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 was ~~$0.5~~$0.2 million ~~and $1.5 million, respectively,~~ compared to ~~$0.7~~$1.0 million ~~and $0.6 million, respectively,~~ for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, primarily due to ~~higher~~fluctuations in foreign currency gains and losses in the ~~2020 periods compared to the same periods in 2019~~.respective periods.

•We recorded ~~an income tax benefit for the second quarter of 2020 of $0.2 million and a provision for income taxes of $5.3 million for the first six months of 2020, compared with~~ provisions for income taxes for the first quarter of ~~$6.6~~2021 and 2020 of $3.5 million and ~~$10.4~~$5.5 million, ~~during the same periods in 2019.~~respectively. The ~~changes~~change in income tax ~~were~~was primarily due to relative changes in pre-tax ~~income.~~income and the impact of discrete tax items.

- 3225 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Our Financial Results ~~of Continuing Operations~~

The following tables present selected financial information ~~from continuing operations~~ derived from our Condensed Consolidated Financial Statements, contained in Item 1 of this report, for the periods presented (dollars in thousands, except per share). ~~All financial information presented is from continuing operations unless otherwise specified.~~


		Three Months Ended														Three Months Ended
		July 3,			June 28,			Change								April 2,			April 3,		Change
		2020			2019			$		%			2021			2020			$		%
Medical Sales:	Medical Sales:											Medical Sales:
Cardio & Vascular	Cardio & Vascular	129,084			$	150,397		$	(21,313)	(14.2)	%	Cardio & Vascular	149,165			$	179,205		$	(30,040)	(16.8)	%
Cardiac & Neuromodulation	Cardiac & Neuromodulation	71,675			114,488			(42,813)		(37.4)	%	Cardiac & Neuromodulation	108,408			107,820			588		0.5	%
Advanced Surgical, Orthopedics & Portable Medical	Advanced Surgical, Orthopedics & Portable Medical	30,625			32,646			(2,021)		(6.2)	%	Advanced Surgical, Orthopedics & Portable Medical	25,392			31,237			(5,845)		(18.7)	%

Total Medical Sales	Total Medical Sales	231,384			297,531			(66,147)		(22.2)	%	Total Medical Sales	282,965			318,262			(35,297)		(11.1)	%
Non-Medical	Non-Medical	8,731			16,663			(7,932)		(47.6)	%	Non-Medical	7,502			10,164			(2,662)		(26.2)	%
Sales		240,115			314,194			(74,079)		(23.6)	%
Total sales												Total sales	290,467			328,426			(37,959)		(11.6)	%
Cost of sales	Cost of sales	182,252			217,210			(34,958)		(16.1)	%	Cost of sales	205,981			231,724			(25,743)		(11.1)	%
Gross profit	Gross profit	57,863			96,984			(39,121)		(40.3)	%	Gross profit	84,486			96,702			(12,216)		(12.6)	%
Gross profit as a % of sales	Gross profit as a % of sales	24.1		%	30.9		%					Gross profit as a % of sales	29.1		%	29.4		%
Selling, general and administrative expenses (“SG&A”)		33,903			33,143			760		2.3	%
Operating expenses:												Operating expenses:
Selling, general and administrative (“SG&A”)												Selling, general and administrative (“SG&A”)	35,502			36,457			(955)		(2.6)	%
SG&A as a % of sales	SG&A as a % of sales	14.1		%	10.5		%					SG&A as a % of sales	12.2		%	11.1		%
Research, development and engineering costs (“RD&E”)		12,746			11,396			1,350		11.8	%
Research, development and engineering (“RD&E”)												Research, development and engineering (“RD&E”)	13,461			13,241			220		1.7	%
RD&E as a % of sales	RD&E as a % of sales	5.3		%	3.6		%					RD&E as a % of sales	4.6		%	4.0		%
Other operating expenses	Other operating expenses	2,029			3,108			(1,079)		(34.7)	%	Other operating expenses	915			2,928			(2,013)		(68.8)	%
Total operating expenses												Total operating expenses	49,878			52,626			(2,748)		(5.2)	%
Operating income	Operating income	9,185			49,337			(40,152)		(81.4)	%	Operating income	34,608			44,076			(9,468)		(21.5)	%
Operating margin		3.8		%	15.7		%
Operating income as a % of sales												Operating income as a % of sales	11.9		%	13.4		%
Interest expense	Interest expense	9,273			13,612			(4,339)		(31.9)	%	Interest expense	8,532			10,361			(1,829)		(17.7)	%
Loss on equity investments, net		205			1,611			(1,406)		(87.3)	%
(Gain) loss on equity investments												(Gain) loss on equity investments	1,335			(1,925)			3,260		NM
Other income, net	Other income, net	(458)			(718)			260		(36.2)	%	Other income, net	(237)			(999)			762		(76.3)	%
Income from continuing operations before taxes		165			34,832			(34,667)		(99.5)	%
Provision (benefit) for income taxes		(224)			6,610			(6,834)		(103.4)	%
Income before taxes												Income before taxes	24,978			36,639			(11,661)		(31.8)	%
Provision for income taxes												Provision for income taxes	3,458			5,539			(2,081)		(37.6)	%
Effective tax rate	Effective tax rate	(135.8)		%	19.0		%					Effective tax rate	13.8		%	15.1		%
Income from continuing operations		$	389		$	28,222		$	(27,833)	(98.6)	%
Income from continuing operations as a % of sales		0.2		%	9.0		%
Diluted earnings per share from continuing operations		$	0.01		$	0.85		$	(0.84)	(98.8)	%
Net income												Net income	$	21,520		$	31,100		$	(9,580)	(30.8)	%
Net income as a % of sales												Net income as a % of sales	7.4		%	9.5		%
Diluted earnings per share												Diluted earnings per share	$	0.65		$	0.94		$	(0.29)	(30.9)	%

^NM Calculated amount not meaningful

~~- 33 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

Six Months Ended
July 3, June 28, Change
2020 2019 $ %
Medical Sales:
Cardio & Vascular $ 308,289 $ 302,971 $ 5,318 1.8 %
Cardiac & Neuromodulation 179,495 231,399 (51,904) (22.4) %
Advanced Surgical, Orthopedics & Portable Medical 61,862 64,234 (2,372) (3.7) %
Total Medical Sales 549,646 598,604 (48,958) (8.2) %
Non-Medical 18,895 30,266 (11,371) (37.6) %
Total Sales 568,541 628,870 (60,329) (9.6) %
Cost of sales 413,976 443,276 (29,300) (6.6) %
Gross profit 154,565 185,594 (31,029) (16.7) %
Gross profit as a % of sales 27.2 % 29.5 %
SG&A 70,360 68,099 2,261 3.3 %
SG&A as a % of sales 12.4 % 10.8 %
RD&E 25,987 22,991 2,996 13.0 %
RD&E, Net as a % of sales 4.6 % 3.7 %
Other operating expenses 4,957 5,998 (1,041) (17.4) %
Operating income 53,261 88,506 (35,245) (39.8) %
Operating margin 9.4 % 14.1 %
Interest expense 19,634 27,442 (7,808) (28.5) %
(Gain) loss on equity investments, net (1,720) 1,652 (3,372)
^NM
Other income, net (1,457) (552) (905)
^NM
Income from continuing operations before taxes 36,804 59,964 (23,160) (38.6) %
Provision for income taxes 5,315 10,376 (5,061) (48.8) %
Effective tax rate 14.4 % 17.3 %
Income from continuing operations $ 31,489 $ 49,588 $ (18,099) (36.5) %
Income from continuing operations as a % of sales 5.5 % 7.9 %
Diluted earnings per share from continuing operations $ 0.95 $ 1.50 $ (0.55) (36.7) %

- 3426 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Product Line Sales ~~from Continuing Operations~~

For the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, Cardio & Vascular sales decreased ~~$21.3~~$30.0 million, or ~~14%~~17%, ~~and increased $5.3 million or 2%, respectively,~~ versus the comparable ~~2019 periods.~~2020 period. Cardio & Vascular sales for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 were negatively impacted by the COVID-19 pandemic and ~~a blend of our customers’ responses across nearly all Cardio & Vascular markets, though structural heart continued to grow~~also declined due to ~~development programs.~~ the first quarter of 2020 which included the discrete benefit from the signing of a customer contract on existing business. During the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, price reductions lowered Cardio & Vascular sales by ~~$1.8~~$1.1 million ~~and $3.8 million, respectively,~~ in comparison to the ~~2019 periods.~~2020 period. Foreign currency exchange rate fluctuations ~~decreased~~increased Cardio & Vascular sales for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 by ~~$0.2~~$1.0 million ~~and $0.5 million, respectively,~~ in comparison to the ~~2019 periods~~2020 period, primarily due to U.S. dollar fluctuations relative to the Euro.

For the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, Cardiac & Neuromodulation sales ~~decreased 42.8~~increased $0.6 million, or ~~37%~~1%, ~~and $51.9 million or 22%, respectively,~~ versus the comparable ~~2019 periods.~~ 2020 period. Cardiac & Neuromodulation sales for the ~~second~~first quarter ~~and first six months~~ of ~~2020 declined commensurate with the market impact and a blend of our customers’ responses. Additionally, the Nuvectra bankruptcy created a $7 million headwind.~~2021 continued to be negatively impacted by COVID-19. During the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, price reductions lowered Cardiac & Neuromodulation sales by ~~$2.7~~$3.6 million ~~and $4.7 million, respectively,~~ in comparison to the ~~2019 periods.~~2020 period. Foreign currency exchange rate fluctuations did not have a material impact on Cardiac & Neuromodulation sales during the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 in comparison to the ~~2019 periods.~~2020 period.

In addition to Portable Medical sales, Advanced Surgical, Orthopedic & Portable Medical includes sales to the acquirer of our former AS&O Product Line, ~~Viant,~~ under ~~long-term~~ supply agreements entered into as part of the ~~closing of the divestiture for the sale of products by the Company to Viant.~~divestiture. For the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, Advanced Surgical, Orthopedic & Portable Medical sales decreased ~~$2.0~~$5.8 million, or 6%19%, ~~and$2.4 million~~or4%, ~~respectively,~~ versus the comparable ~~2019 periods,~~2020 period, driven by the impact of ~~COVID-19~~COVID-19. Price reductions and a blend of our customers’ responses, partially offset by increased demand for ventilator and patient monitoring components. During the second quarter and first six months of 2020, price reductions lowered Advanced Surgical, Orthopedic & Portable Medical sales by $0.5 million and $1.0 million, respectively, in comparison to the 2019 periods. Foreignforeign currency exchange rate fluctuations did not have a material impact on Advanced Surgical, Orthopedic & Portable Medical ~~sales.~~sales during the first quarter of 2021 in comparison to the 2020 period.

For the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, Non-Medical sales decreased ~~$7.9~~$2.7 million, or ~~48%~~26%, ~~and $11.4 million or 38%, respectively,~~ versus the comparable ~~2019 periods,~~2020 period, driven by a ~~severe~~continued decline in the energy market and demand fall-out from the COVID-19 pandemic. Price reductions and foreign currency exchange rate fluctuations did not have a material impact on Non-Medical sales during the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 in comparison to the ~~2019 periods.~~2020 period.

Gross Profit

Changes to gross profit as a percentage of sales (“Gross Margin”) from the prior year were due to the following:

Change From Prior Year
Three Months Six Months
Price^(a)
(2.1) % (1.7) %
Mix^(b)
(1.1) (0.7)
Volume Leverage^(c)
(3.6) 0.2
Nuvectra Bankruptcy^(d)
— (0.1)
Total percentage point change to gross profit as a percentage of sales (6.8) % (2.3) %



	Change From Prior Year Three Months
Price(a)	(1.1)	%
Mix(b)	0.6
Volume Leverage	(0.1)

Customer Bankruptcy(c)	0.3

Total percentage point change to gross profit as a percentage of sales	(0.3)	%

^__________

^(a)Our Gross Margin for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 was negatively impacted by price reductions given to our larger OEM customers in return for long-term volume commitments.

^(b)Amounts represent the impact to our Gross Margin attributable to changes in the mix of product sales during the periods.

^(c)~~Our gross margin for~~In November 2019, one of our customers, Nuvectra Corporation, filed a voluntary Chapter 11 bankruptcy petition (the “Customer Bankruptcy”). During the ~~second~~first quarter ~~and first six months~~ of 2020, ~~was negatively impacted by lower~~we incurred costs and recorded charges associated with the Customer Bankruptcy, primarily consisting of charges related to inventory recorded in cost of sales ~~from the COVID-19 pandemic. Given~~in our indirect labor and overhead costs are less variable, and in most cases fixed, the reduction in sales negatively impacted gross margin. However, we continue to execute on our Manufacturing Excellence strategic imperative and maintain our facility infrastructure as we expect the sales decline to be temporary.

^(d)~~Amount represents the impact to our Gross Margin~~condensed consolidated statement of ~~$0.8 million of pre-tax charges attributable to the Nuvectra Bankruptcy for the second quarter and first six months of 2020.~~operations.

- 3527 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

SG&A Expenses

Changes to SG&A expenses from the prior year were due to the following (in thousands):

Change From Prior Year
Three Months Six Months
Transition services agreement^(a)
$ 1,184 $ 2,733
Professional fees^(b)
(264) (1,178)
All other SG&A^(c)
(160) 706
Net increase in SG&A Expenses $ 760 $ 2,261


	Change From Prior Year Three Months


Professional fees(a)	$	(1,261)
Compensation and benefit costs(b)	1,451
Travel and entertainment(c)	(904)
All other SG&A(d)	(241)
Net decrease in SG&A expenses	$	(955)

^__________

^(a)Represents the amount included in SG&A Expenses which was charged to Viant for transition services during the second quarter and first six months of 2019. We executed a transition services agreement in conjunction with the sale of the AS&O Product Line, whereby we agreed to provide certain corporate services (including accounting, payroll, and information technology services) to Viant to facilitate an orderly transfer of business operations. This provision of services under the agreement was completed during the second quarter of 2019.

^(b)Professional fees decreased during the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 compared to the ~~same~~ prior year ~~periods,~~period, primarily due to lower ~~consulting and~~ legal costs.

^{(b)Compensation and benefits costs increased during the first quarter of 2021 compared to the prior year period, primarily due to higher stock-based compensation expense.}

(c)Travel and entertainment expenses decreased as a result of the reduction in travel due to the COVID-19 pandemic.

(d)The net decrease in all other SG&A for the ~~second~~first quarter of ~~2020~~2021 compared to the ~~second quarter~~same period of ~~2019~~2020 is primarily attributable to lower ~~travel related expenses~~expense for supplies and depreciation expense, partially offset by an increase in amortization. The net increase for the first six months of 2020 compared to the same prior year period is primarily from increases in amortization and contract services, partially offset by a decrease in depreciation expense.depreciation.

RD&E

RD&E costs for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 were ~~$12.7~~$13.5 million ~~and $26.0 million, respectively,~~ compared to ~~$11.4 million and $23.0~~$13.2 million for the ~~second~~first quarter ~~and first six months~~ of 2019. The increase in RD&E costs for the second quarter and first six months compared to the same prior year periods is primarily attributable to increased compensation and benefits costs, consistent with our strategy to invest in capabilities for growth.2020. RD&E expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations.

- 3628 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Other Operating Expenses

~~Refer to Note 8 “Other Operating Expenses” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for further information related to these initiatives.~~ Other ~~Operating Expenses~~operating expenses (“OOE”) ~~consist of~~comprise the following (in thousands):


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2020		June 28, 2019		July 3, 2020		June 28, 2019			April 2, 2021		April 3, 2020
Strategic reorganization and alignment^(a)		$	138	$	1,656	$	686	$	3,390
Manufacturing alignment to support growth^(b)		60		561		188		1,146
2020 restructuring plan^(c)		443		—		1,417		—
Operational excellence(a)										Operational excellence(a)	$	654	$	974
Strategic reorganization and alignment(b)										Strategic reorganization and alignment(b)	—		548
Manufacturing alignment to support growth(c)										Manufacturing alignment to support growth(c)	—		128

Acquisition and integration expenses^(d)	Acquisition and integration expenses^(d)	47		—		403		—		Acquisition and integration expenses(d)	84		356
Other general expenses^(e)	Other general expenses^(e)	1,341		891		2,263		1,462		Other general expenses(e)	177		922
Total other operating expenses	Total other operating expenses	$	2,029	$	3,108	$	4,957	$	5,998	Total other operating expenses	$	915	$	2,928

^__________

^(a)As a result of the strategic review of our customers, competitors and markets, we began taking steps in 2017 to better align our resources in order to enhance the profitability of our portfolio of products. These initiatives include improving our business processes and redirecting investments away from projects where the market does not justify the investment, as well as aligning resources with market conditions and our future strategic direction. Expenses for the second quarter and first six months of 2020 and 2019 primarily consist of severance costs.

^(b)In 2017, we initiated several initiatives designed to reduce costs, improve operating efficiencies and increase manufacturing capacity to accommodate growth. The plan involves the relocation of certain manufacturing operations and expansion of certain of our facilities.

^(c)~~Our 2020 restructuring plan mainly consists of costs associated with executing our imperatives for sales force excellence, manufacturing excellence and business process excellence.~~ These projects focus on changing our organizational structure to match product line growth strategies and customer needs, transitioning our manufacturing process into a competitive advantage and standardizing and optimizing our business processes. Expenses for the first quarter of 2021 and 2020 primarily consist of termination benefits.

^{(b)These initiatives primarily included aligning resources with our strategic direction, improving profitability to invest in accelerated growth and the expansion of a facility. These actions began in 2017 and were completed during the second quarter of 2020.}

(c)These initiatives were designed to reduce costs, increase manufacturing capacity to accommodate growth and improve operating efficiencies by relocating certain manufacturing operations and expanding certain facilities. These actions began in 2017 and were completed during the fourth quarter of 2020.

(d)Amounts include expenses related to the purchase of certain assets and liabilities from ~~USB and InoMec, net of~~business acquisitions. The 2020 amount also includes a $0.5 million adjustment to reduce the fair value of acquisition-related contingent consideration liabilities. See Note 13 “Financial Instruments and Fair Value Measurements” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information related to the fair value measurement of the contingent consideration.

^(e)Amounts include expenses related to other initiatives not described above, which relate primarily to ~~actions to align labor with customer demand as a result of COVID-19 and the decline of the energy market,~~ integration and operational initiatives to reduce future costs and improve ~~operational~~ efficiencies. The ~~2020~~2021 and ~~2019~~2020 amounts primarily include severance, information technology systems conversion expenses, expenses incurred in connection with the Customer Bankruptcy, and expenses related to the restructuring of certain legal entities of the Company.

~~We continually evaluate our operating structure~~Refer to Note 8 “Other Operating Expenses” of the Notes to Condensed Consolidated Financial Statements contained in ~~order to maximize efficiencies and drive margin expansion.~~Item 1 of this report for additional information regarding these initiatives.

Interest Expense, Net

Interest expense consists primarily of cash interest and debt related charges, such as amortization of debt issuance costs and original issue discount. For the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, interest expense decreased ~~$4.3~~$1.8 million, ~~and $7.8 million, respectively~~ versus the comparable ~~2019 periods,~~2020 period, primarily from ~~less~~a decrease in cash ~~interest.~~interest due to lower amount of debt outstanding and lower interest rates. The weighted average interest rates ~~paid~~ on outstanding borrowings for the three ~~and six~~ months ended ~~July 3, 2020~~April 2, 2021 was ~~3.60% and 3.94%~~3.92%, ~~respectively,~~ compared to ~~5.16% and 5.14%~~4.28% for the comparable ~~periods~~period in ~~2019.~~2020. The weighted average interest ~~rates~~rate paid in ~~2020~~2021 reflects decreases in ~~LIBOR subsequent to the~~LIBOR.

Debt related charges included in interest expense were $1.4 million during first quarter of 2019 and reductions to the applicable interest rate margin of our Term Loan A facility. In November 2019, we reduced the applicable interest rate margins by amending our Senior Secured Credit Facilities. In addition, our average principal amount of debt outstanding was $7.5 million more and $46.8 million less, respectively, in the second quarter and first six months of 20202021 compared to ~~the second quarter and first six months of 2019. The $46.8~~$1.0 million decrease in average principal amount of debt outstanding for the first six months of 2020 as compared to the first six months of 2019 is primarily due to accelerated payments on our Senior Secured Credit Facilities during the ~~last six months of 2019, partially offset by borrowing an additional $160 million of our Revolving Credit Facility~~same period in ~~the second quarter of~~ 2020, ~~to protect against a prolonged pandemic coupled with financial market illiquidity.~~

~~- 37 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

~~Debt related charges decreased $0.9 million and $1.6 million, respectively, during second quarter and first six months of 2020 when compared to the same periods in 2019,~~ primarily attributable to ~~lower~~higher accelerated write-offs (losses from extinguishment of debt) of deferred ~~fees~~issuance costs and ~~original issue discount~~unamortized discounts related to prepayments of portions of our Term Loan B facility. We had no$0.3 million of losses from extinguishment of debt during the first ~~six months~~quarter of ~~2020~~2021 compared to ~~$0.6 million and $1.0 million, respectively,~~no losses inthe ~~second~~first quarter ~~and first six months~~ of ~~2019.~~of 2020. See Note 6 “Debt” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information pertaining to our debt.

As of ~~July 3, 2020,~~April 2, 2021, approximately ~~75%~~22% of our principal amount of debt ~~outstanding was subject~~has been converted to ~~variable rates,~~fixed-rate borrowings with interest rate swaps, in comparison to approximately ~~20%~~27% as of December 31, ~~2019.~~2020. We ~~have entered~~enter into interest rate swap agreements ~~that~~in order to reduce our exposure to fluctuations in the LIBOR rate. See Note 13 “Financial Instruments and Fair Value Measurements” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information pertaining to our interest rate swap agreements.

- 29 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Gain) Loss on Equity Investments ~~Net~~

During the ~~second~~first quarter ~~and first six months~~ of ~~2020,~~2021, we recognized ~~net losses~~a loss on equity investments of ~~$0.2~~$1.3 million, ~~and net gains of $1.7 million, respectively,~~ compared to ~~net losses~~a gain of ~~$1.6 million and $1.7~~$1.9 million during the ~~second~~first quarter ~~and first six months~~ of ~~2019, respectively, on our equity investments.~~2020. Gains and losses on equity investments are generally unpredictable in nature. The amounts for both ~~2020~~2021 and ~~2019~~2020 relate to our share of equity method investee gains/losses including unrealized appreciation of the underlying interests of the investee. As of ~~July 3, 2020~~April 2, 2021 and December 31, ~~2019,~~2020, the carrying value of our equity investments were ~~$24.0~~$25.9 million and ~~$22.3~~$27.2 million, respectively. See Note 13 “Financial Instruments and Fair Value Measurements” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for further details regarding these investments.

Other Income, Net

Other ~~Income, Net~~income, net for the ~~second~~first quarter ~~and first six months~~ of ~~2020~~2021 was ~~$0.5~~$0.2 million, ~~and $1.5 million, respectively,~~ compared to ~~$0.7 million and $0.6~~$1.0 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019, respectively.~~2020. Other ~~Income, Net~~income, net primarily ~~comprises~~includes gains/losses from the impact of exchange rates on transactions denominated in foreign currencies. Our foreign currency transaction gains/losses are based primarily on fluctuations of the U.S. dollar relative to the Euro, Mexican peso, Uruguayan ~~pesos,~~peso, Malaysian ringgits, or Israeli shekel.

The impact of exchange rates on transactions denominated in foreign currencies included in Other ~~Income, Net~~income, net for the ~~second quarter~~first quarters of 2021 and ~~first six months of~~ 2020 were gains of ~~$0.5 million and $1.5 million, respectively, compared to~~ $0.3 million and ~~$0.1~~$1.0 million, ~~for the second quarter and first six months of 2019,~~ respectively. We continually monitor our foreign currency exposures and seek to take steps to mitigate these risks. However, fluctuations in exchange rates could have a significant impact, positive or negative, on our financial results in the future.

Provision for Income Taxes

We recognized an income tax ~~benefit~~expense of ~~$0.2~~$3.5 million for the ~~second~~first quarter of 2020 on ~~$0.2~~$25.0 million of income ~~from continuing operations~~ before taxes (effective tax rate of ~~(135.8)%~~13.8%), compared to income tax expense of ~~$6.6~~$5.5 million on ~~$34.8~~$36.6 million of income ~~from continuing operations~~ before taxes (effective tax rate of ~~19.0%~~15.1%) for the same period of 2019. The income tax expense for the first six months of 2020 was $5.3 million on income from continuing operations before taxes of $36.8 million (effective tax rate of 14.4%), compared to $10.4 million on income from continuing operations before taxes of $60.0 million (effective tax rate of 17.3%) for the same period of 2019.

2020. There is a potential for volatility in our effective tax rate due to several factors including changes in the mix of pre-tax income ~~from continuing operations~~ and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, business reorganizations, and settlements with taxing authorities and foreign currency fluctuations. We currently have various tax planning initiatives in place and continuously evaluate planning strategies aimed at reducing our effective tax rate over the long term. This includes strategies to realize deferred tax assets that would otherwise expire unutilized.

Our effective tax rate for ~~2020~~2021 differs from the U.S. federal statutory tax rate of 21% due principally to the net impact of the Company’s earnings outside the U.S., which are generally taxed at rates that differ from the U.S federal rate, the Global Intangible Low-Taxed Income (“GILTI”) tax, ~~and~~ the availability of tax ~~credits.~~

~~- 38 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

credits, and discrete tax benefits. The discrete tax benefits for 2021 are predominately related to excess tax benefits recognized upon vesting of RSUs or exercise of stock options.

Our earnings outside the U.S. are generally taxed at blended rates that are marginally lower than the U.S. federal rate. The GILTI provisions require us to include foreign subsidiary earnings in excess of a deemed return on the foreign subsidiary’s tangible assets in our U.S. income tax return. The foreign jurisdictions in which we operate and where our foreign earnings are primarily derived, include Switzerland, Mexico, Uruguay, Malaysia and Ireland. While we are not currently aware of any material trends in these jurisdictions that are likely to impact our current or future tax expense, our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower effective tax rates and higher than anticipated in countries where we have higher effective tax rates, or by changes in tax laws or regulations. We regularly assess any significant exposure associated with increases in tax rates in international jurisdictions and adjustments are made as events occur that warrant adjustment to our tax provisions.

- 30 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Liquidity and Capital Resources


(dollars in thousands)	(dollars in thousands)	July 3, 2020		December 31, 2019		(dollars in thousands)	April 2, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	206,244	$	13,535	Cash and cash equivalents	$	28,402	$	49,206
Working capital	Working capital	425,854		236,317		Working capital	$	247,686	$	256,746
Current ratio	Current ratio	3.77		2.32		Current ratio	2.53		2.64

Cash and cash equivalents at ~~July 3, 2020 increased~~April 2, 2021 decreased by ~~$192.7~~$20.8 million from December 31, ~~2019,~~2020, primarily as a result of ~~borrowings on our Senior Secured Credit Facility and~~financing activity cash ~~generated~~payments in the quarter totaling $49.6 million, mainly from ~~operating activities, inclusive of proceeds from the sale of accounts receivable under a supplier financing program,~~an accelerated debt payment, partially offset by ~~purchases~~cash generated by operating activities of ~~property, plant and equipment. As of July 3,~~$36.4 million.

Working capital decreased by $9.1 million from December 31, 2020, ~~we had $90.0 million of cash and cash equivalents held in time-deposits with original maturities that were less than 90 days. The increase~~primarily from fluctuations in cash and cash equivalents ~~is consistent~~and accounts payable aggregating to $31.6 million which were partially offset by positive working capital fluctuations associated with ~~our actions to increase liquidity given the uncertainty surrounding the COVID-19 pandemic.~~

During the first six months of 2020, we began utilizing supplier financing arrangements with financial institution to sell certain accounts receivable on a non-recourse basis. These transactions are treated as a sale of, and are accounted for as a reduction to, accounts receivable. The agreement transfers control and risk related to the receivables to the respective financial institution. We have no continuing involvement in the transferred receivables subsequent to the sale. We sold and de-recognized accounts receivable and ~~collected cash of $30.9 million under these agreements during the first six months of 2020.~~

~~Working capital increased by $189.5 million from December 31, 2019, primarily due~~accrued expenses aggregating to ~~an increase in cash~~$16.3 million. Cash and cash equivalents decreased primarily from ~~borrowings on our Senior Secured Credit Facility, and cash generated~~accelerated debt payments in the first quarter of 2021 while accounts payable increased mainly from ~~operating activities.~~the timing of supplier payments. Accounts receivable ~~declined~~increased in the ~~period but was mostly offset by an increase in contract assets, decreases in~~first quarter of 2021 mainly from higher sequential sales while accrued expenses ~~and accounts payable~~decreased primarily from the payment of accrued incentive ~~compensation, and lower inventory purchases.~~compensation.

At ~~July 3, 2020, $9.9~~ April 2, 2021, $10.0million of our cash and cash equivalents were held by foreign subsidiaries. We intend to limit our distributions from foreign subsidiaries to previously taxed income or current period earnings. If distributions are made utilizing current period earnings, we will record foreign withholding taxes in the period of the distribution.

Summary of Cash Flow

~~The following cash flow summary information includes cash flows related to discontinued operations (in thousands):~~

Six Months Ended
(in thousands) July 3,
2020 June 28,
2019
Cash provided by (used in):
Operating activities $ 77,954 $ 67,550
Investing activities (35,954) (11,094)
Financing activities 150,945 (66,273)
Effect of foreign currency exchange rates on cash and cash equivalents (236) 170
Net change in cash and cash equivalents $ 192,709 $ (9,647)

~~- 39 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~


	Three Months Ended
(in thousands)	April 2, 2021		April 3, 2020
Cash provided by (used in):
Operating activities	$	36,429	$	32,397
Investing activities	(7,645)		(23,592)
Financing activities	(49,562)		15,162
Effect of foreign currency exchange rates on cash and cash equivalents	(26)		(243)
Net change in cash and cash equivalents	$	(20,804)	$	23,724

Operating Activities – During the first ~~six~~three months of ~~2020,~~2021, we generated cash from operations of ~~$78.0~~$36.4 million, compared to ~~$67.6~~$32.4 million for the first ~~six~~three months of ~~2019.~~2020. The increase of ~~$10.4~~$4.0 million was due to an increase of ~~$33.1~~$5.9 million in cash flow provided by ~~working capital~~changes in operating assets and liabilities, offset by a decrease of ~~$22.7~~$1.9 million in ~~cash~~ net income ~~(net income plus adjustments to reconcile net income to net cash provided by operating activities).~~ adjusted for non-cash items such as depreciation and amortization.

The increase in cash flow ~~from working capital~~provided by changes in operating assets and liabilities is the result of ~~changes~~the decline in ~~certain assets and liabilities affecting cash flows, primarily an increase in cash flows from~~the build of accounts receivable ~~of $74.7 million, which decreased~~and contract assets compared with the prior year period, mainly due to lower sales and a discrete benefit in the ~~first six months~~prior year from the signing of ~~2020~~a customer contract on existing business, and lower accrued incentive compensation payments in the current period. These favorable impacts were partially offset with accounts payable fluctuations based on timing of supplier payments. The decrease in net income adjusted for non-cash items such as depreciation and amortization is primarily from lower sales, ~~and supplier financing, partially~~which was mostly offset by ~~a decrease in cash flows from accounts payable, accrued~~lower operating expenses, interest expense, and ~~inventory of $22.1 million, $9.6 million, an $8.8 million, respectively.~~income tax expense.

Investing Activities – The ~~$24.9~~$15.9 million ~~increase~~decrease in net cash used in investing activities was primarily attributable to ~~increased~~decreased purchases of property, plant, and equipment of ~~$11.2~~$7.3 million, intangible assets of ~~$4.1~~$3.5 million, and cash paid of ~~$5.3~~$5.2 million for the acquisition of certain assets and liabilities from InoMec Ltd. in the first quarter of 2020.

Financing Activities – Net cash used in financing activities for first three months of 2021, was $49.6 million compared to $15.2 million provided by financing activities for the first ~~quarter of 2020, was $150.9 million compared to $66.3 million used in financing activities for the first six~~three months of ~~2019.~~2020. Financing activities during the first ~~six~~three months of ~~2020~~2021 primarily included ~~net borrowings~~payments of ~~$151.3~~$45.4 million, compared to net ~~payments~~borrowings of ~~$65.8~~$15.6 million for the comparable ~~2019~~2020 period.

~~On April 10, 2020, we borrowed an additional $160 million of our Revolving Credit Facility to protect against a prolonged pandemic coupled with financial market illiquidity.~~

- 31 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Capital Structure – As of ~~July 3, 2020,~~April 2, 2021, our capital structure consists of ~~$968~~$687 million of debt, net of deferred debt issuance costs and unamortized discounts, outstanding under our Senior Secured Credit Facilities and 33 million shares of common stock outstanding. Total debt outstanding includes $160 million borrowed under our Revolving Credit Facility in the second quarter of 2020 to protect against a prolonged pandemic coupled with potential financial market illiquidity. We continue to have access to ~~$23.3~~$193.3 million of borrowing capacity under our Revolving Credit Facility, available for normal course of business and letters of credit.We are also authorized to issue up to 100 million shares of common stock and 100 million shares of preferred stock. As of ~~July 3, 2020,~~April 2, 2021, our contractual debt service obligations for the remainder of ~~2020,~~2021, consisting of principal and interest on our outstanding debt, are estimated to be approximately ~~$36~~$45 million. Actual principal and interest payments may be higher if, for instance, the applicable interest rates on our Senior Secured Credit Facilities increase, we borrow additional amounts on our Revolving Credit Facility, or we pay principal amounts in excess of the required minimums reflected in the contractual debt service obligations above.

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents and borrowings under our Revolving Credit Facility are sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months. If our future financing needs increase, we may need to arrange additional debt or equity financing. We continually evaluate and consider various financing alternatives to enhance or supplement our existing financial resources, including our Senior Secured Credit Facilities. However, we cannot be assured that we will be able to enter into any such arrangements on acceptable terms or at all. In addition, the ~~recent~~ COVID-19 pandemic, which has caused disruption in the capital markets, could make any such financing more difficult and/or expensive.

Credit Facilities - As of ~~July 3, 2020,~~April 2, 2021, we had Senior Secured Credit Facilities that consist of (i) a $200 million revolving credit facility (the “Revolving Credit Facility”) ~~with outstanding borrowings~~, which had available borrowing capacity of ~~$170~~$193.3 million, (ii) a term loan A facility (the “TLA Facility”) with outstanding principal balance of ~~$248~~$220 million, and (iii) a term loan B facility (the “TLB Facility”) with outstanding principal balance of ~~$558~~$472 million. The Senior Secured Credit Facilities will mature on October 27, 2022. The Senior Secured Credit Facilities include a mandatory prepayment provision customary for credit facilities of its nature.

~~As of July 3, 2020, the~~The Revolving Credit Facility and TLA Facility contain covenants requiring (A) a maximum total net leverage ratio of ~~4.00:1.0,~~4.75:1.00 subject to a step down to 4.50 to 1.00 for the third fiscal quarter of 2021, and reverting to and remaining at 4.00 to 1.00 beginning with the fourth quarter of 2021 through maturity, and (B) a minimum interest coverage ratio of adjusted EBITDA (as defined in the Senior Secured Credit Facilities) to interest expense of 3.0:1.0. Additionally, the total net leverage ratio can be increased by 0.50 for up to four consecutive quarters commencing in any fiscal quarter in which we consummate an Eligible Adjustment Acquisition (as defined in the Amendment) with a $40 million or greater purchase price. As of April 2, 2021, the Company was in compliance with these financial covenants. The TLB Facility does not contain any financial maintenance covenants. As of ~~July 3, 2020,~~April 2, 2021, our total net leverage ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately ~~3.5~~3.2 to 1.0. For the twelve month period ended ~~July 3, 2020,~~April 2, 2021, our ratio of adjusted EBITDA to interest expense, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately ~~7.0~~6.8 to 1.0.

On July 13, 2020, the Company amended the Senior Secured Credit Facilities to increase the Total Net Leverage Ratio. The amendment increases the Total Net Leverage Ratio from a ratio to 4.75 to 1.00 for the period beginning with the third fiscal quarter of 2020 through the second fiscal quarter of 2021. The Total Net Leverage Ratio steps down to 4.50 to 1.00 for the third fiscal quarter of 2021 and reverts to and remains at 4.00 to 1.00 beginning with the fourth quarter of 2021 through maturity.

~~- 40 -~~

~~INTEGER HOLDINGS CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

Failure to comply with these financial covenants would result in an event of default as defined under the Revolving Credit Facility and TLA Facility unless waived by the lenders. An event of default may result in the acceleration of our indebtedness. As a result, management believes that compliance with these covenants is material to us. As of ~~July 3, 2020, we were in full compliance with the financial covenants described above. As of July 3, 2020,~~April 2, 2021, our adjusted EBITDA (as defined in the Senior Secured Credit Facilities) would have to decline by approximately ~~$36~~$70 million, or approximately ~~13%~~33%, in order for us to not be in compliance with our financial covenants. ~~The Revolving Credit Facility is supported by a consortium of fourteen lenders with no lender controlling more than 27% of the facility.~~

See Note 6 “Debt” of the Notes to the Condensed Consolidated Financial Statements contained in Item 1 of this report for a further information on the Company’s outstanding debt.

Off-Balance Sheet Arrangements

We do not currently have ~~no off-balance~~off balance sheet arrangements ~~within the meaning of Item 303(a)(4) of Regulation S-K.~~that have or are reasonably likely to have a material current or future effect on our Condensed Consolidated Financial Statements.

Impact of Recently Issued Accounting Standards

In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board, Securities and Exchange Commission, or other authoritative accounting bodies to determine the potential impact they may have on our Condensed Consolidated Financial Statements. See Note 1 “Basis of Presentation” of the Notes to Condensed Consolidated Financial Statements contained in Item 1 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.

- 32 -

INTEGER HOLDINGS CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

Contractual Obligations

~~Other than the $160.0 million draw down on our Revolving Credit Facility, there~~There have been no significant changes to our contractual obligations during the quarter ended ~~July 3, 2020~~April 2, 2021 as compared to those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2019. The Revolving Credit Facility was amended effective July 13, 2020, as described under “Liquidity and Capital Resources – Credit Facilities.”~~2020.

Critical Accounting Policies and Estimates

The preparation of our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Our estimates, assumptions and judgments are based on historical experience and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Making estimates, assumptions and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Management believes the estimates, assumptions and judgments employed and resulting balances reported in the Condensed Consolidated Financial Statements are reasonable; however, actual results could differ materially.

There have been no significant changes to the critical accounting policies and estimates as compared to those disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

- 4133 -

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to information appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Other than the uncertainties resulting from the global pandemic, there have been no material changes in reported market risk since the inclusion of this discussion in the Company’s Annual Report on Form 10-K referenced above.

ITEM 4. CONTROLS AND PROCEDURES

a. Evaluation of Disclosure Controls and Procedures

Our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the Securities and Exchange Commission as of ~~July 3, 2020.~~April 2, 2021. These disclosure controls and procedures have been designed to provide reasonable assurance that material information relating to us, including our subsidiaries, is made known to our management, including these officers, by our employees, and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on their evaluation, as of ~~July 3, 2020,~~April 2, 2021, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.

b. Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

- 4234 -

PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

InThere were no new material legal proceedings that are required to be reported in the quarter ended April ~~2013,~~2, 2021, and no material developments during the ~~Company commenced an action against AVX Corporation and AVX Filters Corporation (collectively “AVX”) alleging that AVX had infringed on~~quarter in the Company’s ~~patents by manufacturing and selling filtered feedthrough assemblies used~~legal proceedings as previously disclosed in ~~implantable pacemakers and cardioverter defibrillators that incorporate~~ the Company’s ~~patented technology. Following four trials, the Company was awarded approximately $27 million in damages. AVX filed a notice of appeal in August 2019. In July 2020, the United States Court of Appeals~~Annual Report on Form 10-K for the ~~Federal Circuit affirmed, in all respects, the judgment in favor of the Company.~~

year ended December 31, 2020.

ITEM 1A.RISK FACTORS

~~Information concerning our~~There have been no material changes to the Company’s risk factors ~~is contained~~as previously disclosed in ~~Item 1A of our~~the Company’s Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~April 3,~~December 31, 2020 ~~and is incorporated by reference herein.~~

~~- 43 -~~

ITEM 6.EXHIBITS


Exhibit Number						Description

10.1#*						~~Employment Offer Letter, dated February 6, 2018, between Integer Holdings Corporation and Payman Khales.~~

10.2#*						~~Employment Offer Letter, dated April 16, 2019, between Integer Holdings Corporation and Carter Houghton~~.



31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32.1**						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*						XBRL Extension Schema Document

101.CAL*						XBRL Extension Calculation Linkbase Document

101.LAB*						XBRL Extension Label Linkbase Document

101.PRE*						XBRL Extension Presentation Linkbase Document

101.DEF*						XBRL Extension Definition Linkbase Document

104						Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).


*			Filed herewith.
**			Furnished herewith.
#			Indicates exhibits that are management contracts or compensation plans or arrangements.

- 4435 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:

~~July 30, 2020~~April 29, 2021

INTEGER HOLDINGS CORPORATION

By:

/s/ Joseph W. Dziedzic

Joseph W. Dziedzic

President and Chief Executive Officer

(Principal Executive Officer)

By:

/s/ Jason K. Garland

Jason K. Garland

Executive Vice President and
Chief Financial Officer

(Principal Financial Officer)

By:

/s/ Tom P. Thomas

Tom P. Thomas

Vice President, Corporate Controller

(Principal Accounting Officer)

- 4536 -


	Remainder of 2020		2021	2022	2023	2024	After 2024
Amortization Expense	$	20,289	40,766	39,727	38,320	37,378	495,666


	Severance and Retention		Other		Total
December 31, 2019	$	1,389	$	596	$	1,985
Restructuring charges	1,637		654		2,291

Cash payments	(2,466)		(1,248)		(3,714)
July 3, 2020	$	560	$	2	$	562


	Six Months Ended July 3, 2020					Six Months Ended June 28, 2019
	Issued	Treasury Stock	Outstanding	Issued	Treasury Stock	Outstanding
Balance, beginning of period	32,847,017	(146,546)	32,700,471	32,624,494	(151,327)	32,473,167
Stock options exercised	—	66,131	66,131	93,472	—	93,472



RSAs issued, net of forfeitures, and vesting of RSUs	—	71,950	71,950	98,656	(24,681)	73,975
Balance, end of period	32,847,017	(8,465)	32,838,552	32,816,622	(176,008)	32,640,614



March 29, 2019	$	(295)	$	2,551	$	23,701	$	25,957	$	(493)	$	25,464
Unrealized loss on cash flow hedges	—		(4,415)		—		(4,415)		927		(3,488)
Realized loss on foreign currency hedges	—		11		—		11		(2)		9
Realized gain on interest rate swap hedges	—		(714)		—		(714)		150		(564)
Foreign currency translation gain	—		—		4,510		4,510		—		4,510

June 28, 2019	$	(295)	$	(2,567)	$	28,211	$	25,349	$	582	$	25,931

December 28, 2018	$	(295)	$	3,439	$	30,539	$	33,683	$	(679)	$	33,004
Unrealized loss on cash flow hedges	—		(4,569)		—		(4,569)		959		(3,610)
Realized gain on foreign currency hedges	—		(34)		—		(34)		7		(27)
Realized gain on interest rate swap hedge	—		(1,403)		—		(1,403)		295		(1,108)
Foreign currency translation loss	—		—		(2,328)		(2,328)		—		(2,328)

June 28, 2019	$	(295)	$	(2,567)	$	28,211	$	25,349	$	582	$	25,931


	Change From Prior Year
	Three Months		Six Months
Price^(a)	(2.1)	%	(1.7)	%
Mix^(b)	(1.1)		(0.7)
Volume Leverage^(c)	(3.6)		0.2

Nuvectra Bankruptcy^(d)	—		(0.1)

Total percentage point change to gross profit as a percentage of sales	(6.8)	%	(2.3)	%