---

---

---

---

---

---

---

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 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”). 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.

The first quarter of 2020 ended on April 3 and consisted of 94 days, and the first quarter of 2019 ended on March 29 and consisted of 91 days.

Certain prior year amounts have been reclassified to conform to current year’s presentation, which management does not consider to be material.

Supplier Financing Arrangements

In the first quarter of 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 of, and are accounted for as a reduction to, accounts receivable. The agreements transfer control and risk related to the receivables to the financial institutions. The Company has no continuing involvement in the transferred receivables subsequent to the sale. In the first quarter of 2020, the Company sold and de-recognized accounts receivable and collected cash of $15.5 million. The costs associated with the supplier financing arrangements were not material for the three months ended April 3, 2020.

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 that are not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated results of operations, financial position and cash flows. With the exception of the accounting pronouncements adopted as discussed below, 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, that are of significance, or potential significance, to the Company.

---

(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.

Recent Accounting Pronouncements Not Yet Effective

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. The Company is evaluating the impact of ASU 2020-04 on its Condensed Consolidated Financial Statements.

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 based on specified conditions being met. Based on the preliminary 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 resulting from the working capital adjustment.

The amount allocated to goodwill for these acquisitions 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.

---

(2.)    BUSINESS ACQUISITIONS (Continued)

For segment reporting purposes, the results of operations and assets from these acquisitions have been included in the Company’s Medical segment since the respective acquisition dates. For the three months ended April 3, 2020, sales related to InoMec and USB were $1.4 million. Earnings related to the operations consisting of the assets and liabilities acquired from InoMec and USB for the three months ended April 3, 2020 were not material. Direct costs of these acquisitions of $0.8 million were expensed as incurred and included in Other Operating Expenses in the Condensed Consolidated Statement of Operations during the three months ended April 3, 2020.

Pro forma financial information has not been presented for these acquisitions as the net effects were neither significant nor material to the Company’s results of operations or financial position.

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

	Three Months Ended
	April 3, 2020				March 29, 2019
Noncash investing and financing activities:
Property, plant and equipment purchases included in accounts payable	$	4,481			$	2,146
Purchase of intangible asset included in accrued expenses	1,000				—
Supplemental lease disclosures:
Operating lease assets obtained in exchange for new or remeasured operating    lease liabilities	7,427				—

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

Inventories comprise the following (in thousands):

	April 3, 2020				December 31, 2019
Raw materials	$	83,078			$	79,742
Work-in-process	60,761				60,042
Finished goods	26,459				27,472
Total	$	170,298			$	167,256

Goodwill

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

	Medical				Non- Medical				Total
December 31, 2019	$	822,617			$	17,000			$	839,617
Foreign currency translation	(4,937		)		—				(4,937		)
Acquisitions and related adjustments (Note 2)	4,715				—				4,715
April 3, 2020	$	822,395			$	17,000			$	839,395

---

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

Intangible Assets

Intangible assets at April 3, 2020 and December 31, 2019 were as follows (in thousands):

	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
April 3, 2020
Definite-lived:
Purchased technology and patents	$	252,216			$	(141,279	)		$	110,937
Customer lists	702,422				(137,627		)		564,795
Other	4,067				(3,552		)		515
Total	$	958,705			$	(282,458	)		$	676,247
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

When acquiring certain assets, 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, and expects to pay $1.0 million in additional consideration subject to the completion of certain milestones. The $1.0 million of additional consideration is recorded within Accrued expenses and other current liabilities. The intangible asset 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.

Aggregate intangible asset amortization expense is comprised of the following (in thousands):

	Three Months Ended
	April 3, 2020				March 29, 2019
Cost of sales	$	3,269			$	3,262
Selling, general and administrative expenses	7,175				6,592
Total intangible asset amortization expense	$	10,444			$	9,854

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

	Remainder of 2020				2021			2022			2023			2024			After 2024
Amortization Expense	$	30,296			40,399			39,383			37,984			37,051			491,134

---

Long-term debt is comprised of the following (in thousands):

	April 3, 2020				December 31, 2019
Senior secured term loan A	$	257,813			$	267,188
Senior secured term loan B	558,286				558,286
Revolving line of credit	25,000				—
Unamortized discount on term loan B and debt issuance costs	(9,770		)		(10,702		)
Total debt	831,329				814,772
Current portion of long-term debt	(37,500		)		(37,500		)
Total long-term debt	$	793,829			$	777,272

The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”) as of April 3, 2020, 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 April 3, 2020, 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 plus the applicable margin, which will range between 1.50% and 3.00%, based on the Company’s Total Net Leverage Ratio.

As of April 3, 2020, the Company had available borrowing capacity on the Revolving Credit Facility of $168.3 million after giving effect to $25.0 million of outstanding borrowings and $6.7 million of outstanding standby letters of credit. As of April 3, 2020, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was 2.87%.

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 April 3, 2020, the interest rates on the TLA Facility and TLB Facility were 2.96% and 3.51%, respectively.

Covenants

The Revolving Credit Facility and TLA Facility contain covenants requiring (A) a maximum Total Net Leverage Ratio of 4.25:1.00, subject to a step down of 25 basis points to 4.00:1:00 beginning in the second quarter of 2020 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 April 3, 2020, the Company was in compliance with these financial covenants.

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

		2020				2021			2022
Future minimum principal payments		$	28,125			37,500			775,474

The Company prepaid portions of its TLB Facility during 2019. The Company recognized losses from extinguishment of debt during the three months ended March 29, 2019 of $0.4 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 in the accompanying Condensed Consolidated Statements of Operations.

---

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
	April 3, 2020				March 29, 2019
Stock options	$	13			$	101
RSUs	1,725				2,612
Total stock-based compensation expense	$	1,738			$	2,713
Cost of sales	$	454			$	317
Selling, general and administrative expenses	1,136				2,330
Research, development and engineering costs	148				66
Total stock-based compensation expense	$	1,738			$	2,713

The following table summarizes the Company’s stock option activity:

	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	(58,658	)		37.60
Outstanding at April 3, 2020	325,355			$	34.48			5.0		$	5.7
Exercisable at April 3, 2020	322,805			$	34.40			5.0		$	5.6

During the three months ended April 3, 2020, the Company awarded grants to certain members of management, consisting of either time-based RSUs or a mix of time-based RSUs and performance-based RSUs (“PRSUs”). The time-based RSUs 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.

---

(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:

	Three Months Ended
	April 3, 2020				March 29, 2019
Weighted average fair value	$	107.42			$	123.34
Risk-free interest rate	1.53		%		2.49		%
Expected volatility	30		%		40		%
Expected life (in years)	2.9				2.8
Expected dividend yield	—		%		—		%

The following table summarizes time-vested RSU activity:

	Time-Vested Activity			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	205,223			$	64.75
Granted	107,030			85.58
Vested	(64,334	)		54.89
Forfeited	(7,524	)		70.37
Nonvested at April 3, 2020	240,395			$	76.49

The following table summarizes PRSU activity:

	Performance- Vested Activity			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	191,592			$	56.30
Granted	66,690			95.15
Vested	(35,363	)		31.17
Forfeited	(4,106	)		51.54
Nonvested at April 3, 2020	218,813			$	72.29

Other Operating Expenses is comprised of the following (in thousands):

	Three Months Ended
	April 3, 2020				March 29, 2019
Strategic reorganization and alignment	$	548			$	1,734
Manufacturing alignment to support growth	128				585
2020 restructuring plan	974				—
Acquisition and integration expenses	356				—
Other general expenses	922				571
Total other operating expenses	$	2,928			$	2,890

---

(8.)     OTHER OPERATING EXPENSES (Continued)

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. These 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. The Company estimates that it will incur aggregate pre-tax charges in connection with the strategic reorganization and alignment plan, including projects reported in discontinued operations, of between approximately $22 million to $23 million, the majority of which are expected to be cash expenditures. During the three months ended April 3, 2020, the Company incurred charges relating to this initiative, which primarily included severance recorded within the Medical segment. As of April 3, 2020, total expense incurred for this initiative since inception, including amounts reported in discontinued operations, was $22.9 million. These actions were substantially completed at the end of 2019.

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 between approximately $6 million to $7 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 April 3, 2020, total expense incurred for this initiative since inception was $5.7 million. These actions were substantially completed at the end of 2019.

2020 restructuring plan

The Company’s 2020 restructuring plan mainly consists of costs associated with executing on its sales force excellence, manufacturing excellence and business process excellence 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. The Company estimates that it will incur aggregate pre-tax restructuring related charges in connection with the 2020 restructuring plan of between approximately $2 million to $3 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 April 3, 2020, total expense incurred for this initiative since inception was $1.0 million, which was primarily severance. These actions are expected to be substantially complete by the end of 2020.

The following table summarizes the change in accrued liabilities, presented within Accrued Expense 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	1,309				341				1,650
Cash payments	(1,927		)		(935		)		(2,862		)
April 3, 2020	$	771			$	2			$	773

Acquisition and integration expenses

During the three months ended April 3, 2020, acquisition and integration expenses included $0.9 million of expenses related to the acquisition of certain assets and liabilities of InoMec and USB, and a $0.5 million adjustment to reduce the fair value of acquisition-related contingent consideration liabilities. Acquisition and integration costs primarily include direct acquisition costs incurred which consist of professional fees and other costs.

Other general expenses

During the three months ended April 3, 2020 and March 29, 2019, the Company recorded expenses related to other initiatives not described above, which relate primarily to integration and operational initiatives to reduce future operating costs and improve operational efficiencies. The 2020 and 2019 amounts primarily include systems conversion expenses and expenses related to the restructuring of certain legal entities of the Company.

---

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 first quarter of 2020 was 15.1% on $36.6 million of income from continuing operations before taxes compared to 15.0% on $25.1 million of income from continuing operations before taxes for the same period in 2019. The difference between the Company’s effective tax rates and the U.S. federal statutory income tax rate of 21% for the first quarter of 2020 and 2019 is primarily attributable to the net impact of the Global Intangible Low-Taxed Income tax, the Company’s earnings outside the U.S., which are generally taxed at rates that differ from the U.S federal rate and discrete tax benefits of $1.0 million and $1.7 million, respectively. The discrete tax benefits for both periods are predominately related to excess tax benefits recognized upon vesting of RSUs or exercise of stock options.

As of April 3, 2020 and December 31, 2019, the Company had unrecognized tax benefits from continuing operations of approximately $4.6 million and $4.4 million, respectively. It is reasonably possible that a reduction of up to $0.6 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of potential audit settlements. As of April 3, 2020 and December 31, 2019, approximately $4.6 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.

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 tax laws. For the three months ended April 3, 2020, there were no material 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.

---

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. Two juries in the U.S. District Court for the District of Delaware have returned verdicts finding that AVX infringed on three of the Company’s patents and awarded the Company $37.5 million in damages. In March 2018, the U.S. District Court for the District of Delaware vacated the original damage award and ordered a retrial on damages. In the January 2019 retrial on damages, the jury awarded the Company $22.2 million in damages. On July 31, 2019, the U.S. District Court for the District of Delaware entered an order denying AVX’s post-trial motion to overturn the jury verdict in favor of the Company. On August 23, 2019, AVX filed its notice of appeal with the United States Court of Appeals for the Federal Circuit and on September 5, 2019, the Company filed its notice of cross-appeal with the United States Court of Appeals for the Federal Circuit. Briefs by both parties have been filed, but the United States Court of Appeals for the Federal Circuit has not yet set a date for oral argument. To date, the Company has recorded no 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 and 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	$	1,933
Additions to warranty reserve, net of reversals	14
Adjustments to pre-existing warranties	(66		)
Warranty claims settled	(997		)
April 3, 2020	$	884

---

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
	April 3, 2020				March 29, 2019
Numerator for basic and diluted EPS:
Income from continuing operations	$	31,100			$	21,366
Income from discontinued operations	—				303
Net income	$	31,100			$	21,669
Denominator for basic and diluted EPS:
Weighted average shares outstanding - Basic	32,807				32,536
Dilutive effect of share-based awards	310				444
Weighted average shares outstanding - Diluted	33,117				32,980
Basic earnings per share:
Income from continuing operations	$	0.95			$	0.66
Income from discontinued operations	—				0.01
Basic earnings per share	0.95				0.67
Diluted earnings per share:
Income from continuing operations	$	0.94			$	0.65
Income from discontinued operations	—				0.01
Diluted earnings per share	0.94				0.66

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
	April 3, 2020			March 29, 2019
Time-vested stock options, RSAs and RSUs	101			61
Performance-vested restricted stock and PRSUs	24			45

---

The following is a summary of the number of shares of common stock issued, treasury stock and common stock outstanding for the three month periods ended April 3, 2020 and March 29, 2019:

	Three Months Ended April 3, 2020									Three Months Ended March 29, 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	—			58,658			58,658			87,424			—			87,424
RSAs issued, net of forfeitures,   and vesting of RSUs	—			66,876			66,876			76,144			(19,494	)		56,650
Balance, end of period	32,847,017			(21,012	)		32,826,005			32,788,062			(170,821	)		32,617,241

Accumulated Other Comprehensive Income (Loss) (“AOCI”) is comprised of the following (in thousands):

	Defined Benefit Plan Liability				Cash Flow Hedges				Foreign Currency Translation Adjustment				Total Pre-Tax Amount				Tax				Net-of-Tax Amount
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		)		—				(12,032		)
April 3, 2020	$	(912	)		$	(13,281	)		$	10,607			$	(3,586	)		$	2,913			$	(673	)

December 28, 2018	$	(295	)		$	3,439			$	30,539			$	33,683			$	(679	)		$	33,004
Unrealized loss on cash flow hedges	—				(154		)		—				(154		)		32				(122		)
Realized gain on foreign currency hedges	—				(45		)		—				(45		)		9				(36		)
Realized gain on interest rate swap hedge	—				(689		)		—				(689		)		145				(544		)
Foreign currency translation loss	—				—				(6,838		)		(6,838		)		—				(6,838		)
March 29, 2019	$	(295	)		$	2,551			$	23,701			$	25,957			$	(493	)		$	25,464

---

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.

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)
April 3, 2020
Liabilities: Foreign currency contracts	$	4,574			$	—			$	4,574			$	—
Liabilities: Interest rate swaps	8,707				—				8,707				—
Liabilities: Contingent consideration (Note 2)	5,400				—				—				5,400
Liabilities: Contingent consideration (Note 5)	1,000				—				—				1,000
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

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 designated as cash flow hedges as of April 3, 2020 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	%		0.9591	%		$	(48	)		Accrued expenses and other current liabilities
55,000				Jul 2019		Jul 2020		1.8900			0.9591			(171		)		Accrued expenses and other current liabilities
400,000				Apr 2019		Apr 2020		2.4150			1.0051			(78		)		Accrued expenses and other current liabilities
200,000				Jun 2020		Jun 2023		2.1785			(a)			(8,410		)		Other long-term liabilities

^__________ 

^(a) The interest rate swap is not in effect until June 2020.

---

(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 is not in 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 3, 2020 is as follows (dollars in thousands):

Notional Amount				Start Date		End Date		$/Foreign Currency				Fair Value				Balance Sheet Location
$	5,583			Apr 2020		Jun 2020		0.0490		MXN Peso		$	(1,013	)		Accrued expenses and other current liabilities
17,512				Apr 2020		Sep 2020		1.0945		MXN Peso		(146		)		Accrued expenses and other current liabilities
15,332				Jul 2020		Dec 2020		0.0491		Euro		(3,035		)		Accrued expenses and other current liabilities
6,394				Mar 2020		Dec 2020		0.0241		UYU Peso		(380		)		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

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 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 three months ended April 3, 2020, the Company recorded additional business acquisition related contingent consideration liabilities totaling $1.7 million for the initial measurement of a business acquisition. For the three months ended April 3, 2020, the Company reduced the contingent consideration liability recorded for a previous acquisition by $0.5 million, 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.

---

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

Derivative Instruments with Hedge Accounting Designation

The following table presents the impact of cash flow hedge derivative instruments on other comprehensive income (“OCI”), AOCI and the Company’s Condensed Consolidated Statement of Operations for the three months ended April 3, 2020 and March 29, 2019 (in thousands):

		Three Months Ended
		April 3, 2020								March 29, 2019
		Total				Amount of Gain (Loss) on Cash Flow Hedge Activity				Total				Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales		$	328,426			$	(128	)		$	314,676			$	(321	)
Cost of sales		231,724				325				226,066				366
Interest expense		10,361				(748		)		13,830				689

The following tables present the amounts affecting the Condensed Consolidated Statements of Operations for the three months ended April 3, 2020 and March 29, 2019 (in thousands):

		Gain (Loss) Recognized in OCI								Gain (Loss) Reclassified from AOCI
		Three Months Ended								Location in Statement of Operations		Three Months Ended
		April 3, 2020				March 29, 2019						April 3, 2020				March 29, 2019
Interest rate swaps		$	(6,387	)		$	(448	)		Interest expense		$	(748	)		$	689
Foreign exchange contracts		(274		)		(700		)		Sales		(128		)		(321		)
Foreign exchange contracts		(4,813		)		994				Cost of sales		325				366

The Company expects to reclassify net losses totaling $8.3 million related to its cash flow hedges from AOCI into earnings during the next twelve months.

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.

---

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

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 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 the following (in thousands):

					April 3, 2020				December 31, 2019
Equity method investment					$	18,092			$	16,167
Non-marketable equity securities					6,092				6,092
Total equity investments					$	24,184			$	22,259

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

	Three Months Ended
	April 3, 2020				March 29, 2019
Equity method investment (income) loss	$	(1,925	)		$	41

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

---

The Company organizes its business into two 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
	April 3, 2020				March 29, 2019
Segment sales from continuing operations by product line:
Medical
Cardio & Vascular	$	179,205			$	152,574
Cardiac & Neuromodulation	107,820				116,911
Advanced Surgical, Orthopedics & Portable Medical	31,237				31,588
Total Medical	318,262				301,073
Non-Medical	10,164				13,603
Total sales from continuing operations	$	328,426			$	314,676

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

	Three Months Ended
	April 3, 2020				March 29, 2019
Segment income from continuing operations:
Medical	$	65,216			$	56,380
Non-Medical	1,213				4,311
Total segment income	66,429				60,691
Unallocated operating expenses	(22,353		)		(21,522		)
Operating income	44,076				39,169
Unallocated expenses, net	(7,437		)		(14,037		)
Income from continuing operations before taxes	$	36,639			$	25,132

---

(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 represented 30% and 14%, respectively, of total revenue for the three months ended April 3, 2020 and March 29, 2019, all of which 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
		April 3, 2020						March 29, 2019
Customer		Medical			Non-Medical			Medical			Non-Medical
Customer A		20	%		*			25	%		*
Customer B		18	%		*			12	%		*
Customer C		16	%		*			19	%		*
Customer D		*			19	%		*			24	%
All other customers		46	%		81	%		44	%		76	%

^__________ 

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

The following table presents 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 3, 2020				March 29, 2019
Ship to Location		Medical		Non-Medical		Medical		Non-Medical
United States		55%		44%		56%		57%
Puerto Rico		12%		*		15%		*
United Kingdom		*		15%
Singapore		*		14%
Canada		*		12%		*		13%
All other countries		33%		15%		29%		30%

^__________ 

* 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):

	April 3, 2020				December 31, 2019
Contract liabilities included in accrued expenses and other current liabilities	$	3,155			$	1,975

During the three months ended April 3, 2020, the Company recognized $0.1 million of revenue that was included in the contract liability balance as of December 31, 2019. During the three months ended March 29, 2019, the Company recognized $0.3 million of revenue that was included in the contract liability balance as of December 28, 2018.

---

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. The Company recognized $1.7 million of income under the transition services agreement for the performance of services during the three months ended March 29, 2019, of which $0.1 million is within Cost of sales and $1.6 million is within Selling, general and administrative expenses.

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
	April 3, 2020				March 29, 2019
Other income, net	—				(386		)
Provision for income taxes	—				83
Income from discontinued operations	$	—			$	303

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

	Three Months Ended
	April 3, 2020				March 29, 2019
Cash used in operating activities	$	—			$	(58	)

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 potentially include delayed or reduced customer orders, 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. 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.

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 events are rapidly changing, 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.

---

•	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.

•	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;

•	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 potential of becoming subject to product liability claims;

•	our ability to protect our intellectual property and proprietary rights;

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

•	our ability to integrate acquisitions and operate acquired businesses in accordance with expectations;

•	our dependence upon our senior management team 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;

•	our complex international tax profile;

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

•	market, financial and other risks related to our international operations and sales;

•	global economic factors, including currency exchange rates and interest rates;

•	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

•	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.

---

---

---

•	Sales Force Excellence: We are changing the organizational structure to match product line growth strategies and customer needs. This change is about getting more out of the capabilities we already have, and will increase 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 on getting a clearer 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 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, and since 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.

•	Sales for the first quarter of 2020 increased $13.8 million, or 4%, primarily driven by growth in Cardio & Vascular sales, partially offset by a decline in Cardiac & Neuromodulation sales.

•	Gross profit for the first quarter of 2020 increased $8.1 million, or 9%, primarily due to the increase in sales and production efficiencies resulting from our Manufacturing Excellence Strategic Imperative.

•	Operating expenses for the first quarter of 2020 increased $3.2 million, or 6%, primarily due to increases in SG&A and RD&E expenses.

•	Interest expense for the first quarter of 2020 decreased by $3.5 million, or 25%, primarily due to lower interest rates and outstanding debt balances.

•	We recognized a net gain on equity investments of $1.9 million in the first quarter of 2020, compared to a net loss on equity investments of $0.04 million for the first quarter of 2019. Gains and losses on equity investments are generally unpredictable in nature.

•	Other income, net for the first quarter of 2020 was $1.0 million, compared to other loss, net of $0.2 million for the first quarter of 2019 primarily due to foreign currency gains in 2020 compared to foreign currency losses in 2019.

•	We recorded provisions for income taxes for the first quarter of 2020 and 2019 of $5.5 million and $3.8 million, respectively. The increase in provisions for income taxes was primarily due to an increase in pre-tax income.

---

---

---

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

(b)	Amount represents the impact to our Gross Margin attributable to changes in the mix of product sales during the period.

(c)	Amount represents the impact to our Gross Margin of $0.8 million of pre-tax charges attributable to the Nuvectra Bankruptcy.

(d)	Represents various increases and decreases to our Gross Margin. Overall, our Gross Margin for the first quarter of 2020 was positively impacted by production efficiencies, mainly due to our Manufacturing Excellence imperative, as well as higher sales volume.

(a)

Represents the amount included in SG&A Expenses which was charged to Viant for transition services during the first quarter 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 first quarter of 2020 compared to the prior year period, primarily due to lower legal costs.

(c)	Represents net increases in other SG&A expenses, primarily increases in amortization and supplies and services, partially offset by a decrease in depreciation expense.

---

(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 first quarter 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 sales force excellence, manufacturing excellence and business process excellence imperatives. 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.

(d)	Amounts include expenses related to the purchase of certain assets and liabilities from USB and InoMec, net of a $0.5 million adjustment to the fair value of acquisition-related contingent consideration liabilities.

(e)	Amounts include expenses related to other initiatives not described above, which relate primarily to integration and operational initiatives to reduce costs and improve operational efficiencies. The 2020 and 2019 amounts primarily includes systems conversion expenses and expenses related to the restructuring of certain legal entities of the Company.

---

---

---

---

---

a.	Evaluation of Disclosure Controls and Procedures

b.	Changes in Internal Control Over Financial Reporting

---

ITEM 1.	LEGAL PROCEEDINGS

ITEM 1A.	RISK FACTORS

---

ITEM 6.	EXHIBITS

---