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 May 3, 2018, the Company entered into a definitive agreement to sell the Advanced Surgical and Orthopedic product lines (the “AS&O Product Line”) within its Medical segment to Viant (formerly MedPlast, LLC), and on July 2, 2018 completed the sale. 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 Condensed Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations due to Integer’s centralized treasury and cash management processes, and, accordingly, cash flow amounts for discontinued operations are disclosed in Note 2 “Discontinued Operations and Divestiture.” All results and information in the condensed consolidated financial statements are presented as continuing operations and exclude the AS&O Product Line unless otherwise noted specifically as discontinued operations. Refer to Note 2 “Discontinued Operations and Divestiture” for additional information.
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 28, 2018
.
The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31. The
second
quarter of
2019
and
2018
each contained 13 weeks and ended on
June 28
and
June 29,
respectively. The Company’s 2019 fiscal year will end on January 3, 2020 and will be a fifty-three week period. Fiscal year 2018 ended on December 28, 2018 and was a fifty-two week period.
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 result 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 fiscal year ended December 28, 2018, that are of significance, or potential significance, to the Company.
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1.)
BASIS OF PRESENTATION (Continued)
Recently Adopted Accounting Guidance
Adoption of ASC Topic 842
Effective December 29, 2018, the Company adopted ASC 842,
Leases,
which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company elected to transition to ASC 842 using the option to not restate comparative periods and apply the standard as of the date of initial application. In addition, certain practical expedients were elected which permit the Company to not reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, and to not reassess initial direct costs for any existing leases. The Company also elected the practical expedient to not separate lease and non-lease components for all classes of underlying assets and the practical expedient related to land easements, allowing the Company to carry-forward its accounting treatment for land easements on existing agreements. The Company did not elect the practical expedient pertaining to the use of hindsight. The Company also made an accounting policy election to keep leases with an initial term of 12 months or less and no purchase option the Company is reasonably certain to exercise off the balance sheet for all classes of underlying assets.
As a result of the adoption of ASC 842, the Company recognized operating lease right-of-use assets of $40.9 million and lease liabilities of $43.4 million on December 29, 2018. The difference between the lease assets and lease liabilities primarily represents the existing prepaid rent assets, deferred rent liabilities, and tenant improvement allowances, along with a cumulative-effect adjustment to beginning retained earnings. The adoption of ASC 842 did not have a material impact on the Company’s Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for the periods presented.
Refer to Note 11 “Leases” for additional information on the Company’s leases.
Adoption of ASU 2017-12 and ASU 2018-16
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. ASU 2017-12 amends the designation and measurement guidance for qualifying hedging transactions and the presentation of hedge results in an entity’s financial statements. The new guidance removes the concept of separately measuring and reporting hedge ineffectiveness and requires a company to present the earnings effect of the hedging instrument, including any ineffectiveness, in the same income statement line item in which the earnings effect of the hedged item is reported.
ASU 2017-12 continues to allow an entity to exclude the time value of options and forward points from the assessment of hedge effectiveness. For excluded components in cash flow hedges, the base recognition model under this ASU is an amortization approach. An entity still may elect to record changes in the fair value of the excluded component currently in earnings; however, such an election will need to be applied consistently to similar hedges. The Company has elected to continue to record changes in the fair value of the excluded components of its derivative instruments currently in earnings given their highly effective nature.
Finally, this ASU continues to require an initial prospective quantitative hedge effectiveness assessment and documentation at hedge inception. However, if certain criteria are met, entities can elect to subsequently perform prospective and retrospective effectiveness assessments qualitatively, unless facts and circumstances change, and the hedge effectiveness assessment generally does not need to be completed until the first quarterly hedge effectiveness assessment date (i.e., up to three months).
The Company adopted ASU 2017-12 on December 29, 2018, the first day of the Company’s 2019 fiscal year, which did not materially affect the Company’s results of operations. The Company adopted the guidance on the modified retrospective basis and did not recognize a cumulative effect adjustment upon adoption as the Company had not recognized ineffectiveness on any of the hedging instruments existing as of the date of adoption. Refer to Note 14 “Financial Instruments and Fair Value Measurements” for additional information and disclosures of the Company’s derivatives and hedging activities.
In October 2018, the FASB issued ASU 2018-16,
Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
. The amendments in ASU 2018-16 permit the use of the OIS rate based on SOFR as a benchmark interest rate for hedge accounting purposes under Topic 815. The amendments in this update were effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance prospectively as of December 29, 2018, concurrent with the adoption of ASU 2017-12, to be applied on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. Adoption of this guidance had no impact on the Condensed Consolidated Financial Statements.
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(2.)
DISCONTINUED OPERATIONS AND DIVESTITURE
On May 3, 2018, the Company entered into a definitive agreement to sell its AS&O Product Line to Viant, and on July 2, 2018, completed the sale, collecting cash proceeds of approximately
$581 million
, which is net of transaction costs and adjustments set forth in the definitive agreement. 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 ended during the second quarter of 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 recorded as a reduction of Cost of sales and for the three and
six
months ended
June 28, 2019
,
$1.2 million
and
$2.8 million
, respectively, is recorded as a reduction of Selling, general and administrative expenses. In addition, the parties executed long-term supply agreements under which the Company and Viant have agreed to supply the other with certain products at prices specified in the agreements for a term of
three years
.
In connection with the closing of the transaction but prior to a net working capital adjustment, the Company recognized a pre-tax gain on sale of discontinued operations of
$195.0 million
during the year ended December 28, 2018. 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 (loss) from discontinued operations net of taxes, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Sales
|
$
|
—
|
|
|
$
|
88,701
|
|
|
$
|
—
|
|
|
$
|
178,020
|
|
Cost of sales
|
—
|
|
|
71,276
|
|
|
—
|
|
|
148,357
|
|
Gross profit
|
—
|
|
|
17,425
|
|
|
—
|
|
|
29,663
|
|
Selling, general and administrative expenses
|
—
|
|
|
4,096
|
|
|
—
|
|
|
8,905
|
|
Research, development and engineering costs
|
—
|
|
|
1,090
|
|
|
—
|
|
|
2,352
|
|
Other operating expenses
|
—
|
|
|
2,497
|
|
|
—
|
|
|
3,990
|
|
Interest expense
|
—
|
|
|
11,007
|
|
|
—
|
|
|
21,857
|
|
Gain on sale of discontinued operations
|
(4,974
|
)
|
|
—
|
|
|
(4,974
|
)
|
|
—
|
|
Other (income) loss, net
|
44
|
|
|
109
|
|
|
(342
|
)
|
|
182
|
|
Income (loss) from discontinued operations
before taxes
|
4,930
|
|
|
(1,374
|
)
|
|
5,316
|
|
|
(7,623
|
)
|
Provision for income taxes
|
95
|
|
|
1,660
|
|
|
178
|
|
|
377
|
|
Income (loss) from discontinued operations
|
$
|
4,835
|
|
|
$
|
(3,034
|
)
|
|
$
|
5,138
|
|
|
$
|
(8,000
|
)
|
Cash flow information from discontinued operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
Cash used in operating activities
|
$
|
(58
|
)
|
|
$
|
(5,465
|
)
|
Cash provided by (used in) investing activities
|
4,734
|
|
|
(3,596
|
)
|
|
|
|
|
|
Depreciation and amortization
|
$
|
—
|
|
|
$
|
7,450
|
|
Capital expenditures
|
—
|
|
|
3,610
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
|
(3.)
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
The following is supplemental information relating to the Condensed Consolidated Statements of Cash Flows, including information related to discontinued operations:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
(in thousands)
|
June 28,
2019
|
|
June 29,
2018
|
Noncash investing and financing activities:
|
|
|
|
Property, plant and equipment purchases included in accounts payable
|
$
|
2,297
|
|
|
$
|
3,002
|
|
Refer to Note 2 “Discontinued Operations and Divestiture” for additional supplemental cash flow information pertaining to discontinued operations and Note 11 “Leases” for additional supplemental cash flow information pertaining to leases.
(4.) INVENTORIES
Inventories are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 28,
2019
|
|
December 28,
2018
|
Raw materials
|
$
|
81,155
|
|
|
$
|
80,213
|
|
Work-in-process
|
73,999
|
|
|
75,711
|
|
Finished goods
|
32,000
|
|
|
34,152
|
|
Total
|
$
|
187,154
|
|
|
$
|
190,076
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(5.) GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the six months ended
June 28, 2019
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
Non- Medical
|
|
Total
|
December 28, 2018
|
$
|
815,338
|
|
|
$
|
17,000
|
|
|
$
|
832,338
|
|
Foreign currency translation
|
(970
|
)
|
|
—
|
|
|
(970
|
)
|
June 28, 2019
|
$
|
814,368
|
|
|
$
|
17,000
|
|
|
$
|
831,368
|
|
Intangible Assets
Intangible assets at
June 28, 2019
and December 28, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
June 28, 2019
|
|
|
|
|
|
Definite-lived:
|
|
|
|
|
|
Purchased technology and patents
|
$
|
241,473
|
|
|
$
|
(131,882
|
)
|
|
$
|
109,591
|
|
Customer lists
|
709,344
|
|
|
(117,759
|
)
|
|
591,585
|
|
Other
|
3,503
|
|
|
(3,495
|
)
|
|
8
|
|
Total
|
$
|
954,320
|
|
|
$
|
(253,136
|
)
|
|
$
|
701,184
|
|
Indefinite-lived:
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
$
|
90,288
|
|
|
|
|
|
|
|
December 28, 2018
|
|
|
|
|
|
Definite-lived:
|
|
|
|
|
|
Purchased technology and patents
|
$
|
241,726
|
|
|
$
|
(125,540
|
)
|
|
$
|
116,186
|
|
Customer lists
|
710,406
|
|
|
(104,556
|
)
|
|
605,850
|
|
Other
|
3,503
|
|
|
(3,489
|
)
|
|
14
|
|
Total
|
$
|
955,635
|
|
|
$
|
(233,585
|
)
|
|
$
|
722,050
|
|
Indefinite-lived:
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
$
|
90,288
|
|
Aggregate intangible asset amortization expense is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Cost of sales
|
$
|
3,195
|
|
|
$
|
3,673
|
|
|
$
|
6,457
|
|
|
$
|
7,389
|
|
Selling, general and administrative expenses
|
6,636
|
|
|
6,808
|
|
|
13,228
|
|
|
13,706
|
|
Research, development and engineering costs
|
—
|
|
|
38
|
|
|
—
|
|
|
77
|
|
Discontinued operations
|
—
|
|
|
350
|
|
|
—
|
|
|
1,410
|
|
Total intangible asset amortization expense
|
$
|
9,831
|
|
|
$
|
10,869
|
|
|
$
|
19,685
|
|
|
$
|
22,582
|
|
Estimated future intangible asset amortization expense based on the carrying value as of
June 28, 2019
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
After 2023
|
Amortization Expense
|
$
|
20,427
|
|
|
40,449
|
|
|
39,597
|
|
|
38,564
|
|
|
36,721
|
|
|
525,426
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(6.) DEBT
Long-term debt is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 28,
2019
|
|
December 28,
2018
|
Senior secured term loan A
|
$
|
285,937
|
|
|
$
|
304,687
|
|
Senior secured term loan B
|
580,286
|
|
|
632,286
|
|
Revolving line of credit
|
10,000
|
|
|
5,000
|
|
Unamortized discount on term loan B and debt issuance costs
|
(13,285
|
)
|
|
(16,466
|
)
|
Total debt
|
862,938
|
|
|
925,507
|
|
Current portion of long-term debt
|
(37,500
|
)
|
|
(37,500
|
)
|
Total long-term debt
|
$
|
825,438
|
|
|
$
|
888,007
|
|
The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”) consisting of (i) a revolving credit facility (the “Revolving Credit Facility”) with
$200 million
borrowing capacity as described below, (ii) a
$286 million
term loan A facility (the “TLA Facility”), and (iii) a
$580 million
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, 2020
. 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). 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
0.75%
and
2.25%
, based on the Company’s Total Net Leverage Ratio, or (ii) the applicable LIBOR rate plus the applicable margin, which will range between
1.75%
and
3.25%
, based on the Company’s Total Net Leverage Ratio.
As of
June 28, 2019
, the Company had
$10 million
of outstanding borrowings on the Revolving Credit Facility and an available borrowing capacity of
$183.2
million after giving effect to
$6.8
million of outstanding standby letters of credit. As of
June 28, 2019
, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was
4.91%
.
Term Loan Facilities
The TLA Facility and TLB Facility mature on
October 27, 2021
and
October 27, 2022
, respectively. Interest rates on the TLB Facility are, at the Company’s option, either at: (i) the prime rate plus
2.00%
or (ii) the applicable LIBOR rate plus
3.00%
, with LIBOR subject to a
1.00%
floor. As of
June 28, 2019
, the interest rates on the TLA Facility and TLB Facility were
4.91%
and
5.42%
, respectively.
Covenants
The Revolving Credit Facility and TLA Facility contain covenants requiring (A) a maximum Total Net Leverage Ratio of
5.00
:1.00, subject to periodic step downs beginning in the third quarter of 2019 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
June 28, 2019
, the Company was in compliance with these financial covenants.
Contractual maturities under the Senior Secured Credit Facilities for the remainder of 2019 and the next three years (through maturity), excluding any discounts or premiums, as of
June 28, 2019
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
Future minimum principal payments
|
|
$
|
18,750
|
|
|
47,500
|
|
|
229,687
|
|
|
580,286
|
|
The Company prepaid portions of its TLB Facility during 2019 and 2018. The Company recognized losses from extinguishment of debt during the three and
six
months ended
June 28, 2019
of
$0.6 million
and
$1.0 million
, respectively, and
$0.4 million
and
$1.5 million
, during the three and
six
months ended
June 29, 2018
, respectively. 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.
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(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 (“RSAs”), 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
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Stock options
|
$
|
102
|
|
|
$
|
197
|
|
|
$
|
203
|
|
|
$
|
511
|
|
RSAs and RSUs (time-based)
|
1,545
|
|
|
1,207
|
|
|
3,465
|
|
|
3,169
|
|
Performance-based RSUs (“PRSUs”)
|
1,073
|
|
|
796
|
|
|
1,765
|
|
|
1,503
|
|
Stock-based compensation expense - continuing operations
|
2,720
|
|
|
2,200
|
|
|
5,433
|
|
|
5,183
|
|
Discontinued operations
|
—
|
|
|
685
|
|
|
—
|
|
|
924
|
|
Total stock-based compensation expense
|
$
|
2,720
|
|
|
$
|
2,885
|
|
|
$
|
5,433
|
|
|
$
|
6,107
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
$
|
281
|
|
|
$
|
200
|
|
|
$
|
598
|
|
|
$
|
376
|
|
Selling, general and administrative expenses
|
2,334
|
|
|
1,968
|
|
|
4,664
|
|
|
4,747
|
|
Research, development and engineering costs
|
58
|
|
|
31
|
|
|
124
|
|
|
55
|
|
Other operating expenses
|
47
|
|
|
1
|
|
|
47
|
|
|
5
|
|
Discontinued operations
|
—
|
|
|
685
|
|
|
—
|
|
|
924
|
|
Total stock-based compensation expense
|
$
|
2,720
|
|
|
$
|
2,885
|
|
|
$
|
5,433
|
|
|
$
|
6,107
|
|
There were no stock options granted during the
six
months ended
June 28, 2019
. The weighted average fair value and assumptions used to value options granted during the
six
months ended
June 29, 2018
are as follows:
|
|
|
|
|
|
Weighted average fair value
|
|
$
|
14.89
|
|
Risk-free interest rate
|
|
2.21
|
%
|
Expected volatility
|
|
39
|
%
|
Expected life (in years)
|
|
4.0
|
|
Expected dividend yield
|
|
—
|
%
|
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 28, 2018
|
522,783
|
|
|
$
|
31.88
|
|
|
|
|
|
Exercised
|
(93,472
|
)
|
|
17.12
|
|
|
|
|
|
Outstanding at June 28, 2019
|
429,311
|
|
|
$
|
35.09
|
|
|
5.5
|
|
$
|
21.0
|
|
Exercisable at June 28, 2019
|
394,996
|
|
|
$
|
34.74
|
|
|
5.3
|
|
$
|
19.4
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7.) STOCK-BASED COMPENSATION (Continued)
During the six months ended
June 28, 2019
, the Company awarded grants to members of its Board of Directors and certain members of management. The Board of Directors received grants of RSUs that vest in equal quarterly installments of 25% on the first day of each quarter of the Company’s 2019 fiscal year. The members of management received either RSUs or a mix of RSUs and PRSUs. The RSUs vest ratably, subject to the recipient’s continuous service to the Company over a period of generally three to four 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 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 TSR awards. The grant-date fair value of all other restricted stock awards is equal to the closing market price of Integer common stock on the date of grant.
The weighted average fair value and assumptions used to value the TSR portion of the PRSUs granted are as follows:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
Weighted average fair value
|
$
|
117.03
|
|
|
$
|
37.46
|
|
Risk-free interest rate
|
2.46
|
%
|
|
2.28
|
%
|
Expected volatility
|
40
|
%
|
|
40
|
%
|
Expected life (in years)
|
2.8
|
|
|
2.9
|
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
The following table summarizes RSA and RSU activity:
|
|
|
|
|
|
|
|
|
Time-Vested
Activity
|
|
Weighted Average Fair Value
|
Nonvested at December 28, 2018
|
142,236
|
|
|
$
|
49.78
|
|
Granted
|
97,296
|
|
|
83.70
|
|
Vested
|
(18,310
|
)
|
|
59.66
|
|
Forfeited
|
(5,310
|
)
|
|
48.57
|
|
Nonvested at June 28, 2019
|
215,912
|
|
|
$
|
64.29
|
|
The following table summarizes PRSU activity:
|
|
|
|
|
|
|
|
|
Performance-
Vested
Activity
|
|
Weighted
Average
Fair Value
|
Nonvested at December 28, 2018
|
287,134
|
|
|
$
|
36.15
|
|
Granted
|
50,492
|
|
|
101.17
|
|
Vested
|
(75,008
|
)
|
|
28.41
|
|
Forfeited
|
(65,293
|
)
|
|
32.68
|
|
Nonvested at June 28, 2019
|
197,325
|
|
|
$
|
56.87
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(8.) OTHER OPERATING EXPENSES
Other Operating Expenses is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Strategic reorganization and alignment
|
$
|
1,656
|
|
|
$
|
3,727
|
|
|
$
|
3,390
|
|
|
$
|
5,781
|
|
Manufacturing alignment to support growth
|
561
|
|
|
1,103
|
|
|
1,146
|
|
|
1,616
|
|
Consolidation and optimization initiatives
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
561
|
|
Asset dispositions, severance and other
|
891
|
|
|
(124
|
)
|
|
1,462
|
|
|
518
|
|
Other operating expenses - continuing operations
|
3,108
|
|
|
4,692
|
|
|
5,998
|
|
|
8,476
|
|
Discontinued operations
|
—
|
|
|
2,497
|
|
|
—
|
|
|
3,990
|
|
Total other operating expenses
|
$
|
3,108
|
|
|
$
|
7,189
|
|
|
$
|
5,998
|
|
|
$
|
12,466
|
|
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
$20 million
to $
22 million
, of which an estimated
$16 million
to
$20 million
are expected to result in cash outlays. During the six months ended
June 28, 2019
, the Company incurred charges relating to this initiative, which primarily included severance and fees for professional services recorded within the Medical segment. As of
June 28, 2019
, total expense incurred for this initiative since inception, including amounts reported in discontinued operations, was
$19.9 million
.
These actions are expected to be substantially completed by 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
$7 million
to
$9 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
June 28, 2019
, total expense incurred for this initiative since inception, including amounts reported in discontinued operations, was
$4.6 million
. These actions are expected to be substantially completed by the end of 2019.
Consolidation and Optimization Initiatives
Costs related to the Company’s consolidation and optimization initiatives were primarily recorded within the Medical segment. The Company does not expect to incur any material additional costs associated with these activities.
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 28, 2018
|
$
|
1,668
|
|
|
$
|
202
|
|
|
$
|
1,870
|
|
Restructuring charges
|
1,263
|
|
|
3,273
|
|
|
4,536
|
|
Cash payments
|
(887
|
)
|
|
(3,469
|
)
|
|
(4,356
|
)
|
June 28, 2019
|
$
|
2,044
|
|
|
$
|
6
|
|
|
$
|
2,050
|
|
Asset Dispositions, Severance and Other
During the six months ended
June 28, 2019
and June 29, 2018, 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.
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(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, we continue to explore tax planning opportunities that may have a material impact on our effective tax rate.
The Company’s effective tax rate for continuing operations for the
second
quarter of 2019 was
19.0%
on
$34.8 million
of income from continuing operations before taxes compared to
27.5%
on
$31.8 million
of income from continuing operations before taxes for the same period in 2018. The Company’s effective tax rate for continuing operations for the first six months of 2019 was
17.3%
on
$60.0 million
of income from continuing operations before taxes compared to
28.1%
on
$50.3 million
of income from continuing operations before taxes for the same period of 2018. The difference between the Company’s effective tax rates and the U.S. federal statutory income tax rate of 21% for the
second
quarter and first six months of 2019 is primarily attributable to discrete tax benefits of
$0.4 million
and
$2.1 million
, respectively, as well as the estimated 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 the availability of certain tax credits. The discrete tax benefits for 2019 are predominately related to excess tax benefits recognized upon vesting of RSUs or exercise of stock options.
As of
June 28, 2019
, the balance of unrecognized tax benefits from continuing operations is approximately
$5.4 million
. It is reasonably possible that a reduction of up to
$0.9 million
of the balance of unrecognized tax benefits may occur within the next twelve months as a result of potential audit settlements. Approximately
$5.3 million
of the balance of unrecognized tax benefits would favorably impact the effective tax rate, net of federal benefit on state issues, if recognized.
(10.) COMMITMENTS AND CONTINGENCIES
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. That award is subject to post-trial proceedings. On July 31, 2019, the U. S. District Court for the District of Delaware entered an order in the AVX litigation denying AVX’s post-trial motion to overturn the jury verdict in favor of the Company. To date, the Company has recorded
no
gains in connection with this litigation.
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(10.) COMMITMENTS AND CONTINGENCIES (Continued)
Product Warranties
The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship.
The Company does not expect future product warranty claims will have a material effect on its condensed consolidated results of operations, financial position, or cash flows. However, there can be no assurance that any future customer complaints or negative regulatory actions regarding the Company’s products, which the Company currently believes to be immaterial, does not become material in the future. 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 28, 2018
|
$
|
2,600
|
|
Additions to warranty reserve
|
195
|
|
Adjustments to pre-existing warranties
|
(635
|
)
|
Warranty claims settled
|
(465
|
)
|
June 28, 2019
|
$
|
1,695
|
|
(11.) LEASES
The Company primarily leases certain office and manufacturing facilities under operating leases, with additional operating leases for machinery, office equipment and vehicles. An arrangement is considered to contain a lease if it conveys the right to use an identified asset for a period of time in exchange for consideration. If it is determined that an arrangement contains a lease, classification of a lease as operating or finance is determined by evaluating the five criteria outlined within ASC 842 at inception. The Company does not currently have any finance leases. The Company’s lease agreements do not contain any residual value guarantees or any material restrictive covenants.
Right-of-use (“ROU”) lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. Operating lease ROU assets are presented as Operating Lease Assets, the current portion of operating lease liabilities are presented within Accrued Expense and Other Current Liabilities, and the non-current portion of operating lease liabilities are presented as Operating Lease Liabilities on the Condensed Consolidated Balance Sheets. The current portion of operating lease liabilities was
$7.3 million
as of
June 28, 2019
. Leases with a term of 12 months or less are not recorded on the balance sheet.
The Company’s real estate leases often contain options to renew, and less frequently, termination options. The exercise of such renewal and termination options are generally at the Company’s sole discretion. The Company evaluates renewal and termination options at lease commencement to determine if such options are reasonably certain to be exercised based on economic factors.
For certain leases where rent escalates based upon a change in a financial index, such as the Consumer Price Index, the difference between the rate at lease inception and the subsequent fluctuations in that rate are included in variable lease costs. Additionally, because the Company has elected to not separate lease and non-lease components, variable costs also include payments to the landlord for common area maintenance, real estate taxes, insurance and other operating expenses. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.
The discount rate implicit within our leases is not readily determinable, and therefore, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate is determined based on the Company’s recent debt issuances, lease term and the currency in which lease payments are made.
The following table presents the weighted average remaining lease term and discount rate:
|
|
|
|
|
June 28,
2019
|
Weighted-average remaining lease term of operating leases (in years)
|
7.7
|
|
Weighted-average discount rate of operating leases
|
5.5
|
%
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(11.) LEASES (Continued)
The components and classification of lease cost are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 28, 2019
|
|
Six Months Ended
June 28, 2019
|
Operating lease cost
|
$
|
2,442
|
|
|
$
|
4,891
|
|
Short-term lease cost (leases with initial term of 12 months or less)
|
17
|
|
|
34
|
|
Variable lease cost
|
652
|
|
|
1,207
|
|
Sublease income
|
(478
|
)
|
|
(945
|
)
|
Total lease cost
|
$
|
2,633
|
|
|
$
|
5,187
|
|
|
|
|
|
Cost of sales
|
$
|
2,190
|
|
|
$
|
4,342
|
|
Selling, general and administrative expenses
|
297
|
|
|
552
|
|
Research, development and engineering costs
|
139
|
|
|
278
|
|
Other operating expenses
|
7
|
|
|
15
|
|
Total lease cost
|
$
|
2,633
|
|
|
$
|
5,187
|
|
The Company’s sublease income is derived primarily from certain real estate leases to several non-affiliated tenants under operating sublease arrangements.
At
June 28, 2019
, the maturities of operating lease liabilities were as follows (in thousands):
|
|
|
|
|
Remainder of 2019
|
$
|
5,178
|
|
2020
|
9,268
|
|
2021
|
8,964
|
|
2022
|
6,865
|
|
2023
|
6,119
|
|
2024
|
5,600
|
|
Thereafter
|
16,399
|
|
Total lease payments
|
58,393
|
|
Less imputed interest
|
(11,273
|
)
|
Total
|
$
|
47,120
|
|
As of
June 28, 2019
, the Company did not have any leases that have not yet commenced.
Supplemental cash flow information related to leases for the
six
months ended
June 28, 2019
is as follows (in thousands):
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
5,107
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
7,249
|
|
During the three months ended June 28, 2019, the Company extended the lease terms of three of its manufacturing facilities. As a result of these lease modifications, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates.
The Company’s future minimum lease commitments, net of sublease income, as of December 28, 2018, under ASC 840, the predecessor to ASC 842, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
After 2023
|
Future minimum lease payments
|
$
|
8,562
|
|
|
7,290
|
|
|
7,348
|
|
|
5,269
|
|
|
5,112
|
|
|
14,589
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(12.) EARNINGS (LOSS) 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
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Numerator for basic and diluted EPS:
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
28,222
|
|
|
$
|
23,056
|
|
|
$
|
49,588
|
|
|
$
|
36,140
|
|
Income (loss) from discontinued operations
|
4,835
|
|
|
(3,034
|
)
|
|
5,138
|
|
|
(8,000
|
)
|
Net income
|
$
|
33,057
|
|
|
$
|
20,022
|
|
|
$
|
54,726
|
|
|
$
|
28,140
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted EPS:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - Basic
|
32,621
|
|
|
32,038
|
|
|
32,579
|
|
|
31,970
|
|
Dilutive effect of assumed exercise of stock options, restricted stock and RSUs
|
388
|
|
|
682
|
|
|
416
|
|
|
602
|
|
Weighted average shares outstanding - Diluted
|
33,009
|
|
|
32,720
|
|
|
32,995
|
|
|
32,572
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.87
|
|
|
$
|
0.72
|
|
|
$
|
1.52
|
|
|
$
|
1.13
|
|
Income (loss) from discontinued operations
|
0.15
|
|
|
(0.09
|
)
|
|
0.16
|
|
|
(0.25
|
)
|
Basic earnings per share
|
1.01
|
|
|
0.62
|
|
|
1.68
|
|
|
0.88
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.85
|
|
|
$
|
0.70
|
|
|
$
|
1.50
|
|
|
$
|
1.11
|
|
Income (loss) from discontinued operations
|
0.15
|
|
|
(0.09
|
)
|
|
0.16
|
|
|
(0.25
|
)
|
Diluted earnings per share
|
1.00
|
|
|
0.61
|
|
|
1.66
|
|
|
0.86
|
|
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
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Time-vested stock options, restricted stock and RSUs
|
53
|
|
|
—
|
|
|
56
|
|
|
50
|
|
Performance-vested restricted stock and PRSUs
|
48
|
|
|
92
|
|
|
47
|
|
|
122
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(13.) 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 month periods ended June 28, 2019 and June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 28, 2019
|
|
Six months ended June 29, 2018
|
|
Issued
|
|
Treasury Stock
|
|
Outstanding
|
|
Issued
|
|
Treasury Stock
|
|
Outstanding
|
Balance, beginning of period
|
32,624,494
|
|
|
(151,327
|
)
|
|
32,473,167
|
|
|
31,977,953
|
|
|
(106,526
|
)
|
|
31,871,427
|
|
Stock options exercised
|
93,472
|
|
|
—
|
|
|
93,472
|
|
|
108,305
|
|
|
—
|
|
|
108,305
|
|
RSAs issued, net of forfeitures
|
(2,354
|
)
|
|
—
|
|
|
(2,354
|
)
|
|
(2,354
|
)
|
|
20,092
|
|
|
17,738
|
|
Vesting of RSUs
|
30,895
|
|
|
(3,683
|
)
|
|
27,212
|
|
|
7,113
|
|
|
2,766
|
|
|
9,879
|
|
Vesting of PSUs
|
70,115
|
|
|
(20,998
|
)
|
|
49,117
|
|
|
127,191
|
|
|
(38,103
|
)
|
|
89,088
|
|
Balance, end of period
|
32,816,622
|
|
|
(176,008
|
)
|
|
32,640,614
|
|
|
32,218,208
|
|
|
(121,771
|
)
|
|
32,096,437
|
|
Accumulated Other Comprehensive Income (“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
|
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 hedge
|
—
|
|
|
(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 hedges
|
—
|
|
|
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2018
|
$
|
(1,422
|
)
|
|
$
|
7,733
|
|
|
$
|
63,641
|
|
|
$
|
69,952
|
|
|
$
|
(923
|
)
|
|
$
|
69,029
|
|
Unrealized loss on cash flow hedges
|
—
|
|
|
(2,223
|
)
|
|
—
|
|
|
(2,223
|
)
|
|
467
|
|
|
(1,756
|
)
|
Realized gain on foreign currency hedges
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
3
|
|
|
(15
|
)
|
Realized gain on interest rate swap hedges
|
—
|
|
|
(398
|
)
|
|
—
|
|
|
(398
|
)
|
|
83
|
|
|
(315
|
)
|
Foreign currency translation loss
|
—
|
|
|
—
|
|
|
(25,885
|
)
|
|
(25,885
|
)
|
|
—
|
|
|
(25,885
|
)
|
June 29, 2018
|
$
|
(1,422
|
)
|
|
$
|
5,094
|
|
|
$
|
37,756
|
|
|
$
|
41,428
|
|
|
$
|
(370
|
)
|
|
$
|
41,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2017
|
$
|
(1,422
|
)
|
|
$
|
3,418
|
|
|
$
|
50,200
|
|
|
$
|
52,196
|
|
|
$
|
(17
|
)
|
|
$
|
52,179
|
|
Unrealized gain on cash flow hedges
|
—
|
|
|
2,901
|
|
|
—
|
|
|
2,901
|
|
|
(609
|
)
|
|
2,292
|
|
Realized gain on foreign currency hedges
|
—
|
|
|
(593
|
)
|
|
—
|
|
|
(593
|
)
|
|
124
|
|
|
(469
|
)
|
Realized gain on interest rate swap hedge
|
—
|
|
|
(632
|
)
|
|
—
|
|
|
(632
|
)
|
|
132
|
|
|
(500
|
)
|
Foreign currency translation loss
|
—
|
|
|
—
|
|
|
(12,444
|
)
|
|
(12,444
|
)
|
|
—
|
|
|
(12,444
|
)
|
June 29, 2018
|
$
|
(1,422
|
)
|
|
$
|
5,094
|
|
|
$
|
37,756
|
|
|
$
|
41,428
|
|
|
$
|
(370
|
)
|
|
$
|
41,058
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) 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. 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.
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 London Interbank Offered Rate (“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. The unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and are subsequently reclassified into earnings when interest on the related debt is accrued.
The fair value of the Company’s swap agreements are determined through the use of a cash flow model that utilizes observable market data inputs. These observable market data inputs include LIBOR, swap rates, and credit spread curves. In addition, the Company receives a fair value estimate from the swap agreement counterparty to verify the reasonableness of the Company’s estimate. The estimated fair value of the swap agreements represents the amount the Company would receive (pay) to terminate the contracts.
Information regarding the Company’s outstanding interest rate swaps designated as cash flow hedges as of
June 28, 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
|
%
|
|
2.4041
|
%
|
|
$
|
1,448
|
|
|
Accrued expenses and other current liabilities
|
200,000
|
|
|
Jun 2020
|
|
Jun 2023
|
|
2.1785
|
|
|
(a)
|
|
(2,794
|
)
|
|
Other long-term liabilities
|
400,000
|
|
|
Apr 2019
|
|
Apr 2020
|
|
2.4150
|
|
|
2.4185
|
|
|
(1,485
|
)
|
|
Accrued expenses and other current 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. The unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and are reclassified to earnings in the same periods during which the hedged transactions affect earnings.
Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of
June 28, 2019
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Start
Date
|
|
End
Date
|
|
$/Foreign Currency
|
|
Fair Value
|
|
Balance Sheet Location
|
$
|
11,337
|
|
|
Jul 2019
|
|
Sep 2019
|
|
1.1628
|
|
Euro
|
|
$
|
(195
|
)
|
|
Prepaid expenses and other current assets
|
10,499
|
|
|
Jul 2019
|
|
Dec 2019
|
|
0.0500
|
|
Peso
|
|
254
|
|
|
Prepaid expenses and other current assets
|
12,085
|
|
|
Jul 2019
|
|
Dec 2019
|
|
0.0504
|
|
Peso
|
|
205
|
|
|
Prepaid expenses and other current assets
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The fair value of foreign currency contracts are determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs include foreign exchange rates and credit spread curves. In addition, the Company receives fair value estimates from the foreign currency contract counterparties to verify the reasonableness of the Company’s estimates.
Derivative Instruments with Hedge Accounting Designation
The following tables present the fair values of derivative instruments formally designated as hedging instruments as of June 28, 2019 and December 28, 2018 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Fair Value Hierarchy
|
|
Assets
|
|
Liabilities
|
June 28, 2019
|
|
|
|
|
|
|
Interest rate swaps
|
|
Level 2
|
|
$
|
—
|
|
|
$
|
2,831
|
|
Foreign currency contracts
|
|
Level 2
|
|
264
|
|
|
—
|
|
|
|
|
|
|
|
|
December 28, 2018
|
|
|
|
|
|
|
Interest rate swaps
|
|
Level 2
|
|
$
|
4,171
|
|
|
$
|
—
|
|
Foreign currency contracts
|
|
Level 2
|
|
—
|
|
|
732
|
|
The following tables present the amounts in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the three and six months ended
June 28, 2019
and
June 29, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 28, 2019
|
|
June 29, 2018
|
|
|
Total
|
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
|
Total
|
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
Sales
|
|
$
|
314,194
|
|
|
$
|
(473
|
)
|
|
$
|
314,464
|
|
|
$
|
(141
|
)
|
Cost of sales
|
|
217,210
|
|
|
462
|
|
|
215,699
|
|
|
159
|
|
Interest expense
|
|
13,612
|
|
|
714
|
|
|
15,234
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 28, 2019
|
|
June 29, 2018
|
|
|
Total
|
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
|
Total
|
|
Amount of Gain (Loss) on Cash Flow Hedge Activity
|
Sales
|
|
$
|
628,870
|
|
|
$
|
(794
|
)
|
|
$
|
606,890
|
|
|
$
|
(2
|
)
|
Cost of sales
|
|
443,276
|
|
|
828
|
|
|
424,593
|
|
|
595
|
|
Interest expense
|
|
27,442
|
|
|
1,403
|
|
|
30,829
|
|
|
632
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The following tables present the amounts affecting the Condensed Consolidated Statements of Operations for the three and six months ended
June 28, 2019
and
June 29, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
Recognized in Other
Comprehensive Income (Loss) on Derivatives
|
|
Amount of Gain (Loss) Reclassified from
AOCI into Earnings
|
|
|
Three months ended,
|
|
Location of Gain (Loss)
Reclassified from AOCI into Earnings
|
|
Three months ended,
|
|
|
June 28,
2019
|
|
June 29,
2018
|
|
|
June 28,
2019
|
|
June 29,
2018
|
Interest rate swap
|
|
$
|
(5,151
|
)
|
|
$
|
610
|
|
|
Interest expense
|
|
$
|
714
|
|
|
$
|
398
|
|
Foreign exchange forwards
|
|
1
|
|
|
(1,114
|
)
|
|
Sales
|
|
(473
|
)
|
|
(141
|
)
|
Foreign exchange forwards
|
|
735
|
|
|
(1,719
|
)
|
|
Cost of sales
|
|
462
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended,
|
|
Location of Gain (Loss)
Reclassified from AOCI into Earnings
|
|
Six months ended,
|
|
|
June 28,
2019
|
|
June 29,
2018
|
|
|
June 28,
2019
|
|
June 29,
2018
|
Interest rate swap
|
|
$
|
(5,599
|
)
|
|
$
|
2,109
|
|
|
Interest expense
|
|
$
|
1,403
|
|
|
$
|
632
|
|
Foreign exchange forwards
|
|
(699
|
)
|
|
(476
|
)
|
|
Sales
|
|
(794
|
)
|
|
(2
|
)
|
Foreign exchange forwards
|
|
1,729
|
|
|
1,268
|
|
|
Cost of sales
|
|
828
|
|
|
595
|
|
The Company expects to reclassify net gains totaling
$0.2 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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28,
2019
|
|
December 28,
2018
|
Equity method investment
|
|
|
|
|
$
|
14,910
|
|
|
$
|
15,148
|
|
Non-marketable equity securities
|
|
|
|
|
6,092
|
|
|
7,667
|
|
Total equity investments
|
|
|
|
|
$
|
21,002
|
|
|
$
|
22,815
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The components of (Gain) Loss on Equity Investments, Net for each period were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Equity method investment (income) loss
|
$
|
36
|
|
|
$
|
(284
|
)
|
|
77
|
|
|
(5,254
|
)
|
Impairment charges
|
1,575
|
|
|
—
|
|
|
1,575
|
|
|
—
|
|
Observable price adjustments on non-marketable
equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total (gain) loss on equity investments, net
|
$
|
1,611
|
|
|
$
|
(284
|
)
|
|
$
|
1,652
|
|
|
$
|
(5,254
|
)
|
In May 2019, the Company determined that an investment in one of its non-marketable equity securities was impaired and determined the fair value to be zero based upon available market information. An impairment charge of
$1.6 million
was recognized during the second quarter of 2019. This assessment was based on qualitative indications of impairment. Factors that significantly influenced the determination of the impairment loss included the equity security’s investee’s financial condition, priority claims to the equity security, distributions rights and preferences, and status of the regulatory approval required to bring its product to market.
The Company’s equity method investment is in a Chinese venture capital fund focused on investing in life sciences companies. As of
June 28, 2019
, the Company owned
6.7%
of this fund.
(15.)
SEGMENT INFORMATION
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
. There were no sales between segments during the
six
months ended
June 28, 2019
and
June 29, 2018
.
The following table presents sales from continuing operations by product line (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Segment sales from continuing operations by product line:
|
|
|
|
|
|
|
Medical
|
|
|
|
|
|
|
|
Cardio & Vascular
|
$
|
150,397
|
|
|
$
|
148,766
|
|
|
$
|
302,971
|
|
|
$
|
285,629
|
|
Cardiac & Neuromodulation
|
114,488
|
|
|
115,941
|
|
|
231,399
|
|
|
224,851
|
|
Advanced Surgical, Orthopedics & Portable Medical
|
32,646
|
|
|
34,751
|
|
|
64,234
|
|
|
68,692
|
|
Total Medical
|
297,531
|
|
|
299,458
|
|
|
598,604
|
|
|
579,172
|
|
Non-Medical
|
16,663
|
|
|
15,006
|
|
|
30,266
|
|
|
27,718
|
|
Total sales from continuing operations
|
$
|
314,194
|
|
|
$
|
314,464
|
|
|
$
|
628,870
|
|
|
$
|
606,890
|
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(15.)
SEGMENT INFORMATION (Continued)
The following table presents income from continuing operations for the Company’s reportable segments (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Segment income from continuing operations:
|
|
|
|
|
|
|
|
Medical
|
$
|
63,706
|
|
|
$
|
61,179
|
|
|
$
|
120,086
|
|
|
$
|
108,694
|
|
Non-Medical
|
5,298
|
|
|
4,393
|
|
|
9,609
|
|
|
7,591
|
|
Total segment income from continuing operations
|
69,004
|
|
|
65,572
|
|
|
129,695
|
|
|
116,285
|
|
Unallocated operating expenses
|
(19,667
|
)
|
|
(21,214
|
)
|
|
(41,189
|
)
|
|
(41,884
|
)
|
Operating income from continuing operations
|
49,337
|
|
|
44,358
|
|
|
88,506
|
|
|
74,401
|
|
Unallocated expenses, net
|
(14,505
|
)
|
|
(12,563
|
)
|
|
(28,542
|
)
|
|
(24,148
|
)
|
Income before taxes from continuing operations
|
$
|
34,832
|
|
|
$
|
31,795
|
|
|
$
|
59,964
|
|
|
$
|
50,253
|
|
|
|
(16.)
|
REVENUE FROM CONTRACTS WITH CUSTOMERS
|
Revenue Recognition
The majority of the Company’s revenues consist of sales of various medical devices and products to large, multinational OEMs and their affiliated subsidiaries. Revenue is recognized when performance obligations are satisfied and the customer has obtained control of the products. Under the provisions of the majority of the Company’s contracts with customers, revenue is recognized at the point in time when title and risk of ownership transfers to the customer, which is primarily determined based upon the shipping terms. When contracts with customers for products that do not have an alternative use to the Company contain provisions that provide the Company with an enforceable right to payment for performance completed to date with a recapture of costs incurred plus an applicable margin throughout the duration of the contract, revenue is recognized over time as control is deemed to have transferred to the customer. The Company uses an input measure to determine progress towards completion and total estimated costs at completion. Under this method, sales and gross profit are recognized as work is performed generally based on actual costs incurred. For arrangements recognized over time, the Company records a contract asset for unbilled revenue associated with non-cancellable customer orders. Revenue is recognized net of sales tax, value-added taxes and other taxes.
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 15, “Segment Information.”
Revenue recognized from products and services transferred to customers over time represented
10%
and
12%
, respectively, of total revenue for the three and
six
months ended
June 28, 2019
, substantially all of which was within the Medical segment. The Company did not have any significant revenue related to contracts recognized over time for the
six
months ended
June 29, 2018
.
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
|
|
Six Months Ended
|
|
|
June 28, 2019
|
|
June 28, 2019
|
Customer
|
|
Medical
|
|
Non-Medical
|
|
Medical
|
|
Non-Medical
|
Customer A
|
|
21
|
%
|
|
|
|
|
23
|
%
|
|
|
Customer B
|
|
18
|
%
|
|
|
|
|
18
|
%
|
|
|
Customer C
|
|
13
|
%
|
|
|
|
|
12
|
%
|
|
|
Customer D
|
|
|
|
|
25
|
%
|
|
|
|
25
|
%
|
All other customers
|
|
48
|
%
|
|
75
|
%
|
|
47
|
%
|
|
75
|
%
|
INTEGER HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(16.)
REVENUE FROM CONTRACTS WITH CUSTOMERS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 29, 2018
|
Customer
|
|
Medical
|
|
Non-Medical
|
|
Medical
|
|
Non-Medical
|
Customer A
|
|
21
|
%
|
|
|
|
|
21
|
%
|
|
|
Customer B
|
|
20
|
%
|
|
|
|
|
20
|
%
|
|
|
Customer C
|
|
11
|
%
|
|
|
|
|
11
|
%
|
|
|
Customer D
|
|
|
|
|
35
|
%
|
|
|
|
28
|
%
|
All other customers
|
|
48
|
%
|
|
65
|
%
|
|
48
|
%
|
|
72
|
%
|
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 to.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 28, 2019
|
|
June 28, 2019
|
Ship to Location
|
|
Medical
|
|
Non-Medical
|
|
Medical
|
|
Non-Medical
|
United States
|
|
56%
|
|
56%
|
|
56%
|
|
56%
|
Puerto Rico
|
|
12%
|
|
|
|
13%
|
|
|
Canada
|
|
|
|
14%
|
|
|
|
14%
|
Singapore
|
|
|
|
10%
|
|
|
|
|
All other countries
|
|
32%
|
|
20%
|
|
31%
|
|
30%
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29, 2018
|
|
June 29, 2018
|
Ship to Location
|
|
Medical
|
|
Non-Medical
|
|
Medical
|
|
Non-Medical
|
United States
|
|
55%
|
|
69%
|
|
56%
|
|
69%
|
Puerto Rico
|
|
13%
|
|
|
|
13%
|
|
|
Canada
|
|
|
|
|
|
|
|
10%
|
All other countries
|
|
32%
|
|
31%
|
|
31%
|
|
21%
|
Contract Balances
The opening and closing balances of the Company's contract assets and contract liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 28,
2019
|
|
December 28,
2018
|
Contract assets included in prepaid expenses and other current assets
|
$
|
11,180
|
|
|
$
|
—
|
|
Contract liabilities included in accrued expenses and other current liabilities
|
2,363
|
|
|
2,264
|
|
During the three and
six
months ended
June 28, 2019
, 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. During the three and
six
months ended
June 29, 2018
, the Company recognized
$0.9 million
and
$1.3 million
, respectively, of revenue that was included in the contract liability balance as of December 29, 2017.