INTEGER HOLDINGS CORP, 10-K filed on 2/22/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 28, 2018
Feb. 15, 2019
Jun. 29, 2018
Document and Entity Information [Abstract]      
Entity Registrant Name Integer Holdings Corporation    
Entity Central Index Key 0001114483    
Document Type 10-K    
Document Period End Date Dec. 28, 2018    
Amendment Flag false    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-28    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 2,050
Entity Common Stock, Shares Outstanding   32,516,677  
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
v3.10.0.1
Consolidated Balance Sheets - USD ($)
Dec. 28, 2018
Dec. 29, 2017
Current assets:    
Cash and cash equivalents $ 25,569,000 $ 37,341,000
Accounts receivable, net of allowance for doubtful accounts of $0.6 million and $0.5 million, respectively 185,501,000 194,845,000
Inventories 190,076,000 176,738,000
Prepaid expenses and other current assets 15,104,000 16,239,000
Disposal Group, Including Discontinued Operation, Assets, Current 0 106,746,000
Total current assets 416,250,000 531,909,000
Property, plant and equipment, net 231,269,000 235,180,000
Goodwill 832,338,000 839,870,000
Other intangible assets, net 812,338,000 862,873,000
Deferred income taxes 3,937,000 3,451,000
Other assets 30,549,000 30,428,000
Disposal Group, Including Discontinued Operation, Assets, Noncurrent 0 344,634,000
Total assets 2,326,681,000 2,848,345,000
Current liabilities:    
Current portion of long-term debt 37,500,000 30,469,000
Accounts payable 57,187,000 64,551,000
Income taxes payable 9,393,000 5,904,000
Accrued expenses 60,490,000 60,376,000
Disposal Group, Including Discontinued Operation, Liabilities, Current 0 47,703,000
Total current liabilities 164,570,000 209,003,000
Long-term debt 888,007,000 1,578,696,000
Deferred income taxes 203,910,000.000 140,964,000.000
Other long-term liabilities 9,701,000 11,335,000
Disposal Group, Including Discontinued Operation, Liabilities, Noncurrent 0 14,966,000
Total liabilities 1,266,188,000 1,954,964,000
Commitments and contingencies
Stockholders’ equity:    
Preferred stock, $0.001 par value, authorized 100,000,000 shares; no shares issued or outstanding 0 0
Common stock, $0.001 par value; 100,000,000 shares authorized; 32,624,494 and 31,977,953 shares issued, respectively; 32,473,167 and 31,871,427 shares outstanding, respectively 33,000 32,000
Additional paid-in capital 691,083,000 669,756,000
Treasury stock, at cost, 151,327 and 106,526 shares, respectively (8,125,000) (4,654,000)
Retained earnings 344,498,000 176,068,000
Accumulated other comprehensive income 33,004,000 52,179,000
Total stockholders’ equity 1,060,493,000 893,381,000
Total liabilities and stockholders’ equity $ 2,326,681,000 $ 2,848,345,000
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 28, 2018
Dec. 29, 2017
Current assets:    
Allowance for doubtful accounts $ 0.6 $ 0.5
Stockholders’ equity:    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 100,000,000 100,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 32,624,494 31,977,953
Common stock, shares outstanding 32,473,167 31,871,427
Treasury stock, shares 151,327 106,526
v3.10.0.1
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 28, 2018
Dec. 29, 2017
Dec. 30, 2016
Income Statement [Abstract]      
Income (Loss) from Continuing Operations, Per Basic Share $ 1.46 $ 2.77 $ 0.81
Discontinued Operation, Income (Loss) from Discontinued Operation, Net of Tax, Per Basic Share $ 3.76 $ (0.65) $ (0.61)
Sales $ 1,215,012 $ 1,136,080 $ 1,075,502
Cost of sales 852,347 782,070 737,823
Gross profit 362,665 354,010 337,679
Operating expenses:      
Selling, general and administrative expenses 142,441 143,073 136,444
Research, development and engineering costs 48,604 48,850 47,899
Other operating expenses 16,065 36,438 60,413
Total operating expenses 207,110 228,361 244,756
Operating income 155,555 125,649 92,923
Interest expense 99,310 63,972 68,331
(Gain) loss on equity investments, net (5,623) 1,565 833
Other (income) loss, net 752 10,853 (4,406)
Income from continuing operations before taxes 61,116 49,259 28,165
Provision (benefit) for income taxes 14,083 (37,828) 3,287
Net income (loss) $ 167,964 $ 66,679 $ 5,961
Income (loss) from discontinued operations      
Basic (in dollars per share) $ 5.23 $ 2.12 $ 0.19
Income (Loss) from Continuing Operations, Per Diluted Share 1.44 2.72 0.80
Discontinued Operation, Income (Loss) from Discontinued Operation, Net of Tax, Per Diluted Share 3.71 (0.64) (0.61)
Diluted (in dollars per share) $ 5.15 $ 2.08 $ 0.19
Weighted average shares outstanding:      
Basic (in shares) 32,136 31,402 30,778
Diluted (in shares) 32,596 32,056 30,973
Comprehensive Income (Loss)      
Net income (loss) $ 167,964 $ 66,679 $ 5,961
Foreign currency translation gain (loss) (19,925) 65,860 (19,269)
Net change in cash flow hedges, net of tax 16 2,243 2,478
Defined benefit plan liability adjustment, net of tax 302 76 (579)
Other comprehensive income (loss), net (19,607) 68,179 (17,370)
Comprehensive income (loss) 148,357 134,858 (11,409)
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest 47,033 87,087 24,878
Discontinued Operation, Income (Loss) from Discontinued Operation, before Income Tax 188,313 (27,432) (26,980)
Discontinued Operation, Tax Effect of Discontinued Operation 67,382 (7,024) (8,063)
Income (Loss) from Discontinued Operations, Net of Tax, Attributable to Parent $ 120,931 $ (20,408) $ (18,917)
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 28, 2018
Dec. 29, 2017
Dec. 30, 2016
Cash flows from operating activities:      
Net income $ 167,964 $ 66,679 $ 5,961
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 88,988 102,796 90,524
Debt related charges included in interest expense 49,110 10,911 7,278
Stock-based compensation 10,470 14,680 8,408
Non-cash (gain) loss on equity investments (5,623) 2,965 1,495
Other non-cash losses 148 7,110 5,216
Deferred income taxes 61,126 (59,212) (7,350)
Disposal Group, Not Discontinued Operation, Gain (Loss) on Disposal (194,965) 0 0
Changes in operating assets and liabilities:      
Accounts receivable 9,289 (34,597) (2,169)
Inventories (16,094) (986) 22,170
Prepaid expenses and other assets 8,527 4,854 (3,846)
Accounts payable (94) 4,887 (1,127)
Accrued expenses (11,756) 14,977 (13,935)
Income taxes payable 209 14,293 (7,093)
Net cash provided by operating activities 167,299 149,357 105,532
Cash flows from investing activities:      
Acquisition of property, plant and equipment (44,908) (47,301) (58,632)
Proceeds from sale of property, plant and equipment 1,379 472 347
Purchase of equity investments (1,230) (1,316) (3,015)
Proceeds from Divestiture of Businesses 581,429 0 0
Other investing activities 0 209 (2,000)
Net cash provided by (used in) investing activities 536,670 (47,936) (63,300)
Cash flows from financing activities:      
Principal payments of long-term debt (705,469) (178,558) (46,000)
Proceeds from issuance of long-term debt 5,000 50,000 57,000
Proceeds from Stock Options Exercised 12,409 19,324 2,821
Payment of debt issuance and redemption costs (31,991) (2,360) (1,177)
Distribution of cash and cash equivalents to Nuvectra Corporation 0 0 (76,256)
Purchase of non-controlling interests 0 0 (6,818)
Payments Related to Tax Withholding for Share-based Compensation (5,029) (75) (3,982)
Other financing activities 0 0 2,266
Net cash used in financing activities (725,080) (111,669) (72,146)
Effect of foreign currency exchange rates on cash and cash equivalents 2,584 2,228 (448)
Net decrease in cash and cash equivalents (18,527) (8,020) (30,362)
Cash and cash equivalents, beginning of year 44,096 52,116 82,478
Cash and cash equivalents, end of year $ 25,569 $ 44,096 $ 52,116
v3.10.0.1
Consolidated Statement of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Jan. 01, 2016 $ 850,625 $ 31 $ 620,470 $ (3,100) $ 231,854 $ 1,370
Balance, shares at Jan. 01, 2016   30,664   (63)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 5,961       5,961  
Total other comprehensive income (loss) (17,370)         (17,370)
Stock-based compensation 8,408   8,408      
Net shares issued (acquired) (1,164) $ 0 1,570 $ (2,734)    
Net shares issued under stock incentive plans, shares   395   (71)    
Roll-over options issued in connection with acquisition 2,266   2,266      
Spin-off of Nuvectra Corporation (123,487)   5,241   (128,728)  
Balance at Dec. 30, 2016 725,239 $ 31 637,955 $ (5,834) 109,087 (16,000)
Balance, shares at Dec. 30, 2016   31,059   (134)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 66,679       66,679  
Total other comprehensive income (loss) 68,179         68,179
Stock-based compensation 14,680   14,680      
Net shares issued (acquired) 19,114 $ 1 17,933 $ 1,180    
Net shares issued under stock incentive plans, shares   919   27    
Balance at Dec. 29, 2017 893,381 $ 32 669,756 $ (4,654) 176,068 52,179
Balance, shares at Dec. 29, 2017   31,978   (107)    
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect adjustment of the adoption of ASU 2016-09 (510)   (812) $ 0 302 0
Net income 167,964          
Total other comprehensive income (loss) (19,607)         (19,607)
Accumulated Other Comprehensive Income, Reclassification To Earnings, Net of Tax 898          
Tax Cuts And Jobs Act Of 2017 Reclassification From AOCI To Retained Earnings 0       466 (466)
Stock-based compensation 10,470   10,470      
Net shares issued (acquired) 7,387 $ 1 10,857 $ (3,471)    
Net shares issued under stock incentive plans, shares   646   (44)    
Balance at Dec. 28, 2018 $ 1,060,493 $ 33 $ 691,083 $ (8,125) $ 344,498 $ 33,004
Balance, shares at Dec. 28, 2018   32,624   (151)    
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 28, 2018
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, orthopedics, vascular, 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 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.  On March 14, 2016, the Company completed the spin-off of a portion of its former QiG segment through a tax-free distribution of all of the shares of its former QiG Group, LLC subsidiary to the stockholders of Integer on a pro rata basis (the “Spin-off”). Refer to Note 2 “Discontinued Operations and Divestitures” for further details of these transactions.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Integer Holdings Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The results of operations of the AS&O Product Line are reported as discontinued operations in the Consolidated Statements of Operations for all periods presented and the related assets and liabilities associated with the discontinued operations are classified as held for sale in the Consolidated Balance Sheet as of December 29, 2017. The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations due to Integer’s (parent) centralized treasury and cash management processes, and, accordingly, cash flow amounts for discontinued operations are disclosed in Note 2 “Discontinued Operations and Divestitures.” All results and information in the consolidated financial statements are presented as continuing operations and exclude the AS&O Product Line unless otherwise noted specifically as discontinued operations.
The Company’s results for periods prior to the Spin-off on March 14, 2016 include the financial and operating results of QiG Group, LLC, which did not qualify for presentation as discontinued operations.
The Company organizes its business into two reportable segments: (1) Medical and (2) Non-Medical. The discontinued operations of the AS&O Product Line were reported in the Medical segment. Refer to Note 17 “Segment and Geographic Information,” for additional information on the Company’s reportable segments.
Fiscal Year
The Company utilizes a fifty-two or fifty-three week fiscal year ending on the Friday nearest December 31. Fiscal years 2018, 2017 and 2016 consisted of fifty-two weeks and ended on December 28, 2018December 29, 2017 and December 30, 2016, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of sales and expenses during the reporting periods. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid, short-term investments with maturities at the time of purchase of three months or less.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. A significant portion of the Company’s sales and accounts receivable are to four customers, all in the medical device industry, and, as such, the Company is directly affected by the condition of those customers and that industry. However, the credit risk associated with trade receivables is partially mitigated due to the stability of those customers. The Company performs on-going credit evaluations of its customers. Note 17 “Segment and Geographic Information” contains information on sales and accounts receivable for these customers. The Company maintains cash deposits with major banks, which from time to time may exceed insured limits. The Company performs on-going credit evaluations of its banks.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trade Accounts Receivable and Allowance for Doubtful Accounts
The Company provides credit, in the normal course of business, to its customers in the form of trade receivables. Credit is extended based on evaluation of a customer’s financial condition and collateral is not required. The Company maintains an allowance for those customer receivables that it does not expect to collect. The Company accrues its estimated losses from uncollectable accounts receivable to the allowance based upon recent historical experience, the length of time the receivable has been outstanding and other specific information as it becomes available. Provisions to the allowance for doubtful accounts are charged to current operating expenses. Actual losses are charged against this allowance when incurred.
Inventories
Inventories are stated at the lower of cost, determined using the first-in first-out method, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Write-downs for excess, obsolete or expired inventory are based primarily on how long the inventory has been held as well as estimates of forecasted net sales of that product. A significant change in the timing or level of demand for products may result in recording additional write-downs for excess, obsolete or expired inventory in the future. Note 4 “Inventories” contains additional information on the Company’s inventory.
Property, Plant and Equipment (“PP&E”)
PP&E is carried at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows: buildings and building improvements 12-30 years; machinery and equipment 3-10 years; office equipment 3-10 years; and leasehold improvements over the remaining lives of the improvements or the lease term, if less. The cost of repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Upon retirement or sale of an asset, its cost and related accumulated depreciation or amortization is removed from the accounts and any gain or loss is recorded in operating income or expense. The Company also reviews its PP&E for impairment when impairment indicators exist. When impairment indicators exist, the Company determines if the carrying value of its fixed asset(s) exceeds the related undiscounted future cash flows. In cases where the carrying value of the Company's long-lived assets or asset groups (excluding goodwill and indefinite-lived intangible assets) exceeds the related undiscounted cash flows, the carrying value is written down to fair value. Fair value is generally determined using a discounted cash flow analysis. Note 5 “Property, Plant and Equipment, Net” contains additional information on the Company’s PP&E.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 1 valuations do not entail a significant degree of judgment.
Level 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.
Level 3 – Valuation is based on unobservable inputs that are significant to the overall fair value measurement. The degree of judgment in determining fair value is greatest for Level 3 valuations.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions are required to reflect those that market participants would use in pricing the asset or liability at the measurement date. Note 16 “Fair Value Measurements” contains additional information on assets and liabilities recorded at fair value in the consolidated financial statements.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Acquisitions
Results of operations of acquired companies are included in the Company’s results of operations as of the respective acquisition dates. The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Any purchase price in excess of these net assets is recorded as goodwill. All direct acquisition-related costs are expensed as incurred. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.
Discontinued Operations
In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as a discontinued operation, the Company analyzes whether the group of assets being disposed of represented a component of the entity; that is, whether it had historic operations and cash flows that were clearly distinguished (both operationally and for financial reporting purposes). In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. When a portion of a goodwill reporting unit that constitutes a business is to be disposed of, the goodwill associated with that business is included in the carrying amount of the business based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained.  The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction.
Goodwill
Goodwill represents the excess of cost over the fair value of identifiable net assets of a business acquired and is assigned to one or more reporting units. The Company tests each reporting unit’s goodwill for impairment at least annually as of the last day of the fiscal year and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. In conducting its goodwill test, the Company first performs a qualitative assessment, which requires that it consider events or circumstances including, but not limited to, macro-economic conditions, market and industry conditions, cost factors, competitive environment, changes in strategy, changes in customers, changes in the Company’s stock price, results of the last impairment test, and the operational stability and the overall financial performance of the reporting units. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair values of its reporting units are greater than the carrying amounts, then the quantitative goodwill impairment test is not performed.
If the qualitative assessment indicates that the quantitative analysis should be performed, the Company then evaluates goodwill for impairment by comparing the fair value of each of its reporting units to its carrying value, including the associated goodwill. To determine the fair values, the Company uses a weighted combination of the market approach based on comparable publicly traded companies and the income approach based on estimated discounted future cash flows. The cash flow assumptions consider historical and forecasted revenue, operating costs and other relevant factors.
The Company completed its annual goodwill impairment test as of December 28, 2018 and determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each of its reporting units exceeds the respective carrying amounts. Accordingly, there was no indication of impairment and the quantitative goodwill impairment test was not performed. The Company does not believe that either of its reporting units are at risk for impairment.
Other Intangible Assets
Other intangible assets consist of purchased technology and patents, customer lists and trademarks. Definite-lived intangible assets are amortized on an accelerated or straight-line basis, which approximates the projected cash flows used to determine the fair value of those definite-lived intangible assets at the time of acquisition, as follows: purchased technology and patents 5-15 years; customer lists 7-20 years and other intangible assets 1-10 years. Certain trademark assets are considered indefinite-lived intangible assets and are not amortized. The Company expenses the costs incurred to renew or extend the term of intangible assets.
The Company reviews its definite-lived intangible assets for impairment when impairment indicators exist. When impairment indicators exist, the Company determines if the carrying value of its definite-lived intangible assets exceeds the related undiscounted future cash flows. In cases where the carrying value exceeds the undiscounted future cash flows, the carrying value is written down to fair value. Fair value is generally determined using a discounted cash flow analysis.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company assesses its indefinite-lived intangible assets for impairment periodically to determine if any adverse conditions exist that would indicate impairment or when impairment indicators exist. The Company assesses its indefinite-lived intangible assets for impairment at least annually by comparing the fair value of the indefinite-lived intangible asset to its carrying value. The fair value is determined using the income approach.
Refer to Note 6 “Goodwill and Other Intangible Assets, Net” for further details of the Company’s goodwill and other intangible assets.
Equity Investments
The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other Assets on the Consolidated Balance Sheets. Equity investments are measured and recorded as follows:
Non-marketable equity securities are equity securities without readily determinable fair value are measured and recorded at fair value with changes in fair value recognized within net income. The Company has elected the practicability exception to use an alternative that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. Prior to fiscal 2018, these securities were accounted for using the cost method of accounting, measured at cost less other-than-temporary impairment.
Equity method investments are equity securities in investees the Company does not control but over which it has the ability to exercise influence. Equity method investments are measured at cost minus impairment, if any, plus or minus our share of equity method investee income or loss.
Realized and unrealized gains and losses resulting from changes in fair value or the sale of these equity investments is recorded through (Gain) Loss on Equity Investments, Net. The carrying value of the Company’s non-marketable equity securities is adjusted for qualifying observable price changes resulting from the issuance of similar or identical securities by the same issuer. Determining whether an observed transaction is similar to a security within the Company’s portfolio requires judgment based on the rights and preferences of the securities. Recording upward and downward adjustments to the carrying value of the Company’s equity securities as a result of observable price changes requires quantitative assessments of the fair value of these securities using various valuation methodologies and involves the use of estimates.
Non-marketable equity securities and equity method investments (collectively referred to as non-marketable equity investments) are also subject to periodic impairment reviews. The Company’s quarterly impairment analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative factors considered include the investee's financial condition and business outlook, market for technology, operational and financing cash flow activities, technology and regulatory approval progress, and other relevant events and factors affecting the investee. When indicators of impairment exist, quantitative assessments of the fair value of the Company’s non-marketable equity investments are prepared.
To determine the fair value of these investments, the Company uses all pertinent financial information available related to the investees, including financial statements, market participant valuations from recent and proposed equity offerings, and other third-party data.
Non-marketable equity securities are tested for impairment using a qualitative model similar to the model used for goodwill and long-lived assets. Upon determining that an impairment may exist, the security's fair value is calculated and compared to its carrying value and an impairment is recognized immediately if the carrying value exceeds the fair value. Prior to 2018, non-marketable equity securities were tested for impairment using the other-than-temporary impairment model.
Equity method investments are subject to periodic impairment reviews using the other-than-temporary impairment model, which considers the severity and duration of a decline in fair value below cost and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery.
The Company has determined that its investments are not considered variable interest entities. The Company’s exposure related to these entities is limited to its recorded investment. These investments are in start-up research and development companies whose fair value is highly subjective in nature and subject to future fluctuations, which could be significant. Refer to Note 16 “Fair Value Measurements” for additional information on the Company’s equity investments.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debt Issuance Costs and Discounts
Debt issuance costs and discounts associated with the issuance of debt by the Company are deferred and amortized over the lives of the related debt. Debt issuance costs incurred in connection with the Company’s issuance of its revolving credit facility are classified within Other Assets and amortized to Interest Expense on a straight-line basis over the contractual term of the credit facility. Debt issuance costs and discounts related to the Company’s term-debt are recorded as a reduction of the carrying value of the related debt and are amortized to Interest Expense using the effective interest method over the period from the date of issuance to the put option date (if applicable) or the maturity date, whichever is earlier. The amortization of debt issuance costs and discounts are included in Debt Related Charges Included in Interest Expense in the Consolidated Statements of Cash Flows. Upon prepayment of the related debt, the Company accelerates the recognition of a proportionate amount of the costs as refinancing or extinguishment of debt. Note 8 “Debt” contains additional information on the Company’s debt issuance costs and discounts.
Income Taxes
The consolidated financial statements of the Company have been prepared using the asset and liability approach to account for income taxes, which requires the recognition of deferred income taxes for the expected future tax consequences of net operating losses, credits, and temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided on deferred tax assets if it is determined, within each taxing jurisdiction, that it is more likely than not that the asset will not be realized.
The Company accounts for uncertain tax positions using a more likely than not recognition threshold. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. These tax positions are evaluated on a quarterly basis. The Company recognizes interest expense related to uncertain tax positions as Provision (Benefit) for Income Taxes. Penalties, if incurred, are recognized as a component of Selling, General and Administrative Expenses (“SG&A”).
The Company and its subsidiaries file a consolidated U.S. federal income tax return. State tax returns are filed on a combined or separate basis depending on the applicable laws in the jurisdictions where the tax returns are filed. The Company also files foreign tax returns on a separate company basis in the countries in which it operates.
Derivative Financial Instruments
The Company recognizes all derivative financial instruments in its consolidated financial statements at fair value. Changes in the fair value of derivative instruments are recorded in earnings unless hedge accounting criteria are met. The Company designated its interest rate swap (refer to Note 8 “Debt”) and foreign currency contracts (refer to Note 13 “Commitments and Contingencies”) entered into as cash flow hedges. The effective portion of the changes in fair value of these cash flow hedges is recorded each period, net of tax, in Accumulated Other Comprehensive Income until the related hedged transaction occurs. Any ineffective portion of the changes in fair value of these cash flow hedges is recorded in earnings. In the event the hedged cash flow for forecasted transactions does not occur, or it becomes probable that they will not occur, the Company reclassifies the amount of any gain or loss on the related cash flow hedge to income (expense) at that time. Cash flows related to these derivative financial instruments are included in cash flows from operating activities. The cash flows from the termination of interest rate swap agreements are reported as operating activities in the Consolidated Statements of Cash Flows.
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. The Company considers the customer’s purchase order, which in some cases is governed by a long-term agreement, and the Company’s corresponding sales order acknowledgment as the contract with the customer. The Company has elected to adopt the practical expedient provided in ASC 340-40-25-4 and recognize the incremental costs of obtaining a contract, which are primarily sales commissions, as expense when incurred because the amortization period is less than one year.
The Company evaluates the pattern of revenue recognition as a performance obligation is satisfied and the customer has obtained control of the products. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product. The customer obtains control of the products when title and risk of ownership transfers to them, which is primarily based upon shipping terms. Accordingly, the majority of the Company’s revenues are recognized at the point of shipment. In instances where title and risk of ownership do not transfer to the customer until the products have reached the customer’s location, revenue is recognized at that point in time. Revenue is recognized net of sales tax, value-added taxes and other taxes.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Performance Obligations
The Company considers each shipment of an individual product included on a purchase order to be a separate performance obligation, as each shipment is separately identifiable and the customer can benefit from each individual product separately from the other products included on the purchase order. Accordingly, a contract can have one or more performance obligations to manufacture products. Standard payment terms range from 30 to 90 days and can include a discount for early payment.
The Company does not offer its customers a right of return. Rather, the Company warrants that each unit received by the customer will meet the agreed upon technical and quality specifications and requirements. Only when the delivered units do not meet these requirements can the customer return the non-compliant units as a corrective action under the warranty. The remedy offered to the customer is repair of the returned units or replacement if repair is not viable. Accordingly, the Company records a warranty reserve and any warranty activities are not considered to be a separate performance obligation.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and less frequently, unearned revenue. Accounts receivable are recorded when the right to consideration becomes unconditional. Unearned revenue is recorded when customers pay or are billed in advance of the Company’s satisfaction of performance obligations. Contract liabilities were $2.3 million and $2.2 million as of December 28, 2018 and December 29, 2017, respectively, and are classified as Accrued Expenses on the Consolidated Balance Sheets. During the year ended December 28, 2018, the Company recognized $1.9 million of revenue that was included in the contract liability balance as of December 29, 2017. The Company does not have any contract assets.
Transaction Price
Generally, the transaction price of the Company’s contracts consists of a unit price for each individual product included in the contract, which can be fixed or variable based on the number of units ordered. In some instances, the transaction price also includes a rebate for meeting certain volume-based targets over a specified period of time. The transaction price of a contract is determined based on the unit price and the number of units ordered, reduced by the rebate expected to be earned on those units. Rebates are estimated based on the expected achievement of the volume-based target using the most likely amount method and updated quarterly. Any adjustments to these estimates are recognized under the cumulative catch-up method, such that impact of the adjustment is recognized in the period in which it is identified. Volume discounts and rebates and other pricing concessions earned by customers are offset against their receivable balances.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. As the majority of products sold to customers are manufactured to meet the specific requirements and technical specifications of that customer, the products are considered unique to that customer and the unit price stated in the contract is considered the standalone selling price.
The Company has elected to adopt the practical expedient provided in ASC 606-10-50-14 and not disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations and an expectation of when those amounts are expected to be recognized as revenue because the majority of contracts have an original expected duration of one year or less.
Contract Modifications
Contract modifications, which can include a change in either or both scope and price, most often occur related to contracts that are governed by a long-term arrangement. Contract modifications typically relate to the same products already governed by the long-term arrangement, and therefore, are accounted for as part of the existing contract. If a contract modification is for additional products, it is accounted for as a separate contract.
Environmental Costs
Environmental expenditures that relate to an existing condition caused by past operations and that do not provide future benefits are expensed as incurred. Liabilities are recorded when environmental assessments are made, the requirement for remedial efforts is probable and the amount of the liability can be reasonably estimated. Liabilities are recorded generally no later than the completion of feasibility studies. The Company has an ongoing monitoring and identification process to assess how the activities, with respect to known exposures, are progressing against the recorded liabilities, as well as to identify other potential remediation sites that are presently unknown.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restructuring Expenses
The Company continually evaluates alternatives to align the business with the changing needs of its customers and to lower operating costs. This includes the realignment of its existing manufacturing capacity, facility closures, or similar actions, either in the normal course of business or pursuant to significant restructuring programs. These actions may result in employees receiving voluntary or involuntary employee termination benefits, which may be pursuant to contractual agreements. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. All other exit costs are expensed as incurred. Refer to Note 11 “Other Operating Expenses” for additional information.
Product Warranties
The Company allows customers to return defective or damaged products for credit, replacement, or repair. The Company warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The Company accrues its estimated exposure to warranty claims, through Cost of Sales, based upon recent historical experience and other specific information as it becomes available. Note 13 “Commitments and Contingencies” contains additional information on the Company’s product warranties.
Research, Development and Engineering Costs (“RD&E”)
RD&E costs are expensed as incurred. The primary costs are salary and benefits for personnel, material costs used in development projects and subcontracting costs.
Stock-Based Compensation
The Company recognizes stock-based compensation expense for its related compensation plans, which include stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”). For the Company's PRSUs, in addition to service conditions, the ultimate number of shares to be earned depends on the achievement of targets based on market-based conditions, such as total shareholder return, or financial metrics based on the Company’s operating results. The Company recognizes forfeitures of equity awards as incurred.
The fair value of the stock-based compensation is determined at the grant date. The Company uses the Black-Scholes standard option pricing model (“Black-Scholes model”) to determine the fair value of stock options. The fair value of each RSU and RSA is determined based on the Company's closing stock price on the date of grant. The fair value of each PRSU is determined based on either the Company's closing stock price on the date of grant or through a Monte Carlo simulation valuation model (“Monte Carlo model”) for those awards that include a market-based condition. In addition to the closing stock price on the date of grant, the determination of the fair value of awards using both the Black-Scholes and Monte Carlo models is affected by other assumptions, including the following:
Expected Term - The Company analyzes historical employee exercise and termination data to estimate the expected term assumption for stock options. For market-based awards, the term is commensurate with the performance period remaining as of the grant date.
Risk-free Interest Rate - A risk-free rate is based on the U.S. Treasury rates in effect on the grant date for a maturity equal to or approximating the expected term of the award.
Expected Volatility - For stock options, expected volatility is calculated using historical volatility based on the daily closing prices of the Company's common stock over a period equal to the expected term. For market-based awards, a combination of historical and implied volatilities for the Company and members of its peer group are used in developing the expected volatility assumption.
Dividend Yield - The dividend yield assumption is based on the Company’s history and the expected annual dividend yield on the grant date.
The Company recognizes compensation expense based on the fair value of the award on the date of grant. For stock options, RSAs and RSUs, compensation expense is recognized over the respective service period using the straight-line amortization method. Compensation expense for PRSUs with financial metrics is reassessed each reporting period and recognized based upon the probability that the performance targets will be achieved. Compensation expense for market-based awards is not adjusted based on actual achievement of the performance goals. Based on the vesting terms of the grant, compensation expense for PRSUs is amortized over the service period using either a graded vesting method or the straight-line amortization method. The actual expense recognized over the vesting period will only be for those awards that ultimately vest, excluding market-based award considerations.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
All stock option awards granted under the Company’s compensation plans have an exercise price equal to the closing stock price on the date of grant, a ten-year contractual life and generally, vest annually over a three-year vesting term. RSUs typically vest in equal annual installments over a three or four year period. Stock options and RSAs issued to members of the Company’s Board of Directors as a portion of their annual retainer vest quarterly over a one-year vesting term. Earned PRSUs typically vest two or three years from the date of grant.
The Company records deferred tax assets for awards that result in deductions on the Company's income tax returns, based on the amount of stock-based compensation expense recognized and the statutory tax rate in the jurisdiction in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the income tax return are recorded as a component of income tax expense in the Consolidated Statements of Operations. Note 10 “Stock-Based Compensation” contains additional information on the Company’s stock-based compensation.
Foreign Currency Translation and Remeasurement
The Company translates all assets and liabilities of its foreign subsidiaries, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translates income and expenses at the average exchange rates in effect during the period. The net effect of this translation is recorded in the consolidated financial statements as Accumulated Other Comprehensive Income. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in the Company’s foreign subsidiaries.
The Company has foreign operations in Ireland, Switzerland, Mexico, Uruguay, and Malaysia, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swiss francs, Mexican pesos, Uruguayan pesos, and Malaysian ringgits. To the extent that monetary assets and liabilities, including short-term and long-term intercompany loans, are recorded in a currency other than the functional currency of the subsidiary, these amounts are remeasured each period at the period-end exchange rate, with the resulting gain or loss being recorded in Other (Income) Loss, Net in the Consolidated Statements of Operations. Net foreign currency transaction gains (losses) included in Other (Income) Loss, Net amounted to $(1.6) million, $(10.9) million and $4.3 million for 2018, 2017 and 2016, respectively, and primarily related to the remeasurement of intercompany loans and the fluctuation of the U.S. dollar relative to the Euro.
Defined Benefit Plans
The Company recognizes in its balance sheet as an asset or liability the overfunded or underfunded status of its defined benefit plans provided to its employees located in Mexico and Switzerland. This asset or liability is measured as the difference between the fair value of plan assets, if any, and the benefit obligation of those plans. For these plans, the benefit obligation is the projected benefit obligation, which is calculated based on actuarial computations of current and future benefits for employees. Actuarial gains or losses and prior service costs or credits that arise during the period, but are not included as components of net periodic benefit expense, are recognized as a component of Accumulated Other Comprehensive Income. The Company records the service cost component of net benefit costs in Cost of Sales and Selling, General and Administrative expenses. The interest cost component of net benefit costs is recorded in Interest Expense and the remaining components of net benefit costs, amortization of net losses and expected return on plan assets, are recorded in Other (Income) Loss, Net. Note 9 “Benefit Plans” contains additional information on these costs.
Earnings (Loss) Per Share (“EPS”)
Basic EPS is calculated by dividing Net Income (Loss) by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by adjusting the weighted average number of shares outstanding for potential common shares if dilutive to the EPS calculation and consist of stock options, unvested RSAs and RSUs and, if applicable, contingently convertible instruments such as convertible debt. Note 14 “Earnings (Loss) Per Share” contains additional information on the computation of the Company’s EPS.
Comprehensive Income (Loss)
The Company’s comprehensive income (loss) as reported in the Consolidated Statements of Comprehensive Income (Loss) includes net income (loss), foreign currency translation adjustments, the net change in cash flow hedges, and defined benefit plan liability adjustments. The Consolidated Statements of Comprehensive Income (Loss) and Note 15 “Accumulated Other Comprehensive Income” contains additional information on the computation of the Company’s comprehensive income (loss).
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), Securities and Exchange Commission (“SEC”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s Consolidated Financial Statements.
Recently Adopted Accounting Guidance
On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” requiring an entity to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance provided alternative methods of adoption. Subsequent guidance issued after May 2014 did not change the core principle of ASU 2014-09.
The Company adopted the new guidance in the first quarter of fiscal 2018, using the modified retrospective transition method applied to those contracts which were not completed as of December 30, 2017.  Prior period amounts have not been adjusted and continue to be reflected in accordance with the Company’s historical accounting.  The adoption of this ASU did not have an impact on the consolidated financial statements and therefore no cumulative adjustment was recorded to equity. The Company has updated its internal controls for changes and expanded disclosures have been made in the Notes to the Financial Statements as a result of adopting the standard. Refer to Note 17, “Segment and Geographic Information for additional revenue disclosures.
ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities,” became effective prospectively for the Company in the first quarter of fiscal 2018. This ASU requires entities to carry all investments in equity securities, including other ownership interests such as partnerships, unincorporated joint ventures, and limited liability companies, at fair value with changes in fair value recognized within net income. This ASU does not apply to equity method investments, investments that result in consolidation of the investee or investments in certain investment companies.  For investments in equity securities without a readily determinable fair value, an entity is permitted to elect a practicability exception, under which the investment will be measured at cost, less impairment, plus or minus observable price changes from orderly transactions of an identical or similar investment of the same issuer.
Additionally, this ASU eliminated the requirement to assess whether an impairment of an equity investment is other than temporary. The impairment model for equity investments subject to this election is now a single-step model whereby an entity performs a qualitative assessment to identify impairment. If the qualitative assessment indicates that an impairment exists, the entity would estimate the fair value of the investment and recognize in net income an impairment loss equal to the difference between the fair value and the carrying amount of the equity investment.
The Company’s non-marketable equity securities formerly classified as cost method investments are measured and recorded using the measurement alternative. The Company has elected the practicability exception whereby these investments are measured at cost, less impairment, plus or minus observable price changes from orderly transactions of identical or similar investments of the same issuer. Refer to Note 16 “Fair Value Measurements” for additional information on the Company’s equity investments.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows for the reclassification of certain income tax effects related to the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) between accumulated other comprehensive income and retained earnings, thereby eliminating the stranded tax effects that were created as a result of the reduction of the U.S. federal corporate income tax rate. The effective date of this ASU for the Company is the first quarter of fiscal 2019, with early adoption permitted. The Company elected to early adopt this ASU during the fourth quarter of fiscal 2018 and reclassified the related tax effects from the change in the federal corporate tax from accumulated other comprehensive income to retained earnings. The reclassification was adopted on a prospective basis and is reflected in the Consolidated Statements of Stockholders’ Equity.
(1.)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements Not Yet Effective
On February 24, 2016, the FASB issued ASU 2016-02, “Leases,” requiring lessees to recognize in the statement of financial position a lease liability, which represents the obligation to make future payments, and a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, for all leases except short-term leases.  The classification of a lease as financing or operating will affect the pattern and classification of expense recognition in the statement of operations. 
The new standard offers several optional practical expedients in transition.  The Company plans to elect the “Package of Three,” which allows the Company to not reassess its prior conclusions regarding lease identification, lease classification and initial direct costs, and the practical expedient for short-term lease recognition exemption for all leases that qualify.  Additionally, in July 2018, the FASB issued ASU 2018-11, “Leases -Targeted Improvements,” which provides an alternative transition method that allows entities to initially apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The Company intends to adopt the new standard using this transition method.
This new guidance is effective for public companies in fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted.  This guidance was effective for the Company on December 29, 2018, the first day of fiscal 2019.
The Company has substantially completed its evaluation of the new accounting standard and its impact on the Company’s lease portfolio. The Company believes the largest impact will be the recognition of right-of-use assets and lease liabilities on the consolidated balance sheets, as the Company’s lease portfolio primarily consists of operating leases for facilities and equipment, which are not recognized on the consolidated balance sheets under current accounting standards.  The Company expects to recognize right-of-use assets and corresponding lease liabilities of approximately $40 million to $50 million at the date of adoption. The results of operations are not expected to change significantly as a result of adopting the new standard.  During the first quarter of fiscal 2019, the Company will finalize its accounting assessment and quantification of the impact of adoption on the Company’s financial statements and corresponding disclosures.
As the Company completes its evaluation, new information may arise that could change the Company’s current understanding of the impact of the new standard on its lease portfolio. The Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession, and adjust the Company’s assessment and adoption plans accordingly.
v3.10.0.1
Divestiture and Acquisition
12 Months Ended
Dec. 28, 2018
Divestiture and Acquisition [Abstract]  
DIVESTITURE AND ACQUISITION
(2.)    DISCONTINUED OPERATIONS AND DIVESTITURES
Discontinued Operations and Divestiture of AS&O Product Line
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 purchase agreement. In connection with the sale, the parties executed a transition services agreement whereby the Company will 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 will pay Integer for these services, with such payments varying in amount and length of time as specified in the transition services agreement. The Company recognized $3.6 million of income under the transition services agreement for the performance of services during 2018, of which $0.2 million is within Cost of Sales and $3.4 million is within Selling, General and Administrative expenses in the Consolidated Statement of Operations for the year ended December 28, 2018. 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, the Company recognized a pre-tax gain on sale of discontinued operations of $195.0 million. The Company is in the process of finalizing the net working capital adjustment with Viant as provided for in the definitive purchase agreement. The final net working capital adjustment, as determined through the established process outlined in the definitive purchase agreement, may be different from the Company’s estimates. The impact of any changes in the net working capital adjustment will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change occurs. Additionally, the income taxes associated with the gain will be impacted by the final allocation of the sales price, which must be agreed to with Viant as required in the definitive purchase agreement and may be materially different from the Company’s estimates. The impact of any changes in estimated income taxes will be recorded as an adjustment to discontinued operations in the period such change in estimate occurs.
As the AS&O Product Line was a portion of the Medical goodwill reporting unit, and management determined it met the definition of a business, goodwill was allocated to the AS&O Product Line on a relative fair value basis. The fair value of the AS&O Product Line assets was based primarily on the purchase price of $600 million prior to closing adjustments.
The carrying amounts of the AS&O Product Line assets and liabilities that were classified as assets and liabilities of discontinued operations held for sale were as follows (in thousands):
 
December 29,
2017
Cash and cash equivalents
$
6,755

Accounts receivable, net of allowance for doubtful accounts of $0.3 million
47,611

Inventories
50,796

Prepaid expenses and other current assets
1,584

Current assets of discontinued operations held for sale
106,746

Property, plant and equipment, net
135,195

Goodwill
150,368

Other intangible assets, net
57,520

Other noncurrent assets
1,551

Noncurrent assets of discontinued operations held for sale
344,634

Total assets
451,380

Accounts payable and other current liabilities held for sale
47,703

Deferred taxes and other long-term liabilities held for sale
14,966

Total liabilities
62,669

Net assets
$
388,711


(2.)    DISCONTINUED OPERATIONS AND DIVESTITURES (Continued)
Income (loss) from discontinued operations, net of taxes, for fiscal years 2018, 2017 and 2016 were as follows (in thousands):
 
2018
 
2017
 
2016
Sales
$
178,020

 
$
325,841

 
$
311,276

Cost of sales
148,357

 
286,300

 
270,656

Gross profit
29,663

 
39,541

 
40,620

Selling, general and administrative expenses
8,905

 
18,500

 
16,847

Research, development and engineering costs
2,352

 
6,397

 
7,102

Other operating expenses
1,805

 
854

 
1,324

Interest expense
22,833

 
42,488

 
42,939

Gain on sale of discontinued operations
(194,965
)
 

 

Other (income) loss, net
420

 
(1,266
)
 
(612
)
Income (loss) from discontinued operations before taxes
188,313

 
(27,432
)
 
(26,980
)
Provision (benefit) for income taxes
67,382

 
(7,024
)
 
(8,063
)
Income (loss) from discontinued operations
$
120,931

 
$
(20,408
)
 
$
(18,917
)

Interest expense included in discontinued operations reflects an estimate of interest expense related to the debt that was required to be repaid with the proceeds from the sale of the AS&O Product Line.
Cash flow information from discontinued operations for fiscal years 2018, 2017 and 2016 was as follows (in thousands):
 
2018
 
2017
 
2016
Cash used in operating activities
$
(12,498
)
 
$
3,167

 
$
3,596

Cash provided by (used in) investing activities
577,833

 
(16,771
)
 
(17,367
)
 
 
 
 
 
 
Depreciation and amortization
$
7,450

 
$
21,613

 
$
17,656

Capital expenditures
3,610

 
16,844

 
17,656

Spin-off of Nuvectra Corporation
On March 14, 2016, Integer completed the spin-off of a portion of its former QiG segment through a tax-free distribution of all of the shares of its former QiG Group, LLC subsidiary to the stockholders of Integer on a pro rata basis. Immediately prior to completion of the Spin-off, QiG Group, LLC was converted into a corporation organized under the laws of Delaware and changed its name to Nuvectra Corporation (“Nuvectra”). On March 14, 2016, each of the Company’s stockholders of record as of the close of business on March 7, 2016 (the “Record Date”) received one share of Nuvectra common stock for every three shares of Integer common stock held as of the Record Date. Upon completion of the Spin-off, Nuvectra became an independent publicly traded company whose common stock is listed on the Nasdaq stock exchange under the symbol “NVTR.”
The portion of the former QiG segment spun-off consisted of QiG Group, LLC and its subsidiaries: (i) Algostim, LLC (“Algostim”), (ii) PelviStim LLC (“PelviStim”), and (iii) the Company’s NeuroNexus Technologies (“NeuroNexus”) subsidiary. The operations of Centro de Construcción de Cardioestimuladores del Uruguay (“CCC”) and certain other existing QiG research and development capabilities were retained by the Company and not included as part of the Spin-off. As the Company continues to focus on the design and development of complete medical device systems and components, and more specifically on medical device systems and components in the neuromodulation market, the Spin-off was not considered a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the Spin-off is not presented as a discontinued operation in the Company’s Consolidated Financial Statements. The results of Nuvectra are included in the Consolidated Statements of Operations through the date of the Spin-off.
In connection with the Spin-off, during the first quarter of 2016, the Company made a cash capital contribution of $75 million to Nuvectra and divested assets of $130.8 million and liabilities of $2.1 million. Nuvectra contributed a pre-tax loss of $5.2 million to the Company’s results of operations for the fiscal year ended December 30, 2016.
v3.10.0.1
Supplemental Cash Flow Information
12 Months Ended
Dec. 28, 2018
Supplemental Cash Flow Elements [Abstract]  
SUPPLEMENTAL CASH FLOW INFORMATION
(3.)    SUPPLEMENTAL CASH FLOW INFORMATION
The following represents supplemental cash flow information, including supplemental information related to discontinued operations, for fiscal years 2018, 2017 and 2016 (in thousands):
 
2018
 
2017
 
2016
Noncash investing and financing activities:
 
 
 
 
 
Property, plant and equipment purchases included in accounts payable
$
2,303

 
$
3,474

 
$
3,499

Cash paid (refunded) during the year for:
 
 
 
 
 
Interest
79,661

 
93,839

 
106,475

Income taxes
23,155

 
(8,185
)
 
7,263

 
 
 
 
 
 
Cash and cash equivalents, end of period, are comprised of:
 
 
 
 
 
Cash and cash equivalents
$
25,569

 
$
37,341

 


Cash included in current assets of discontinued operations held for sale

 
6,755

 
 
Total cash and cash equivalents, end of period
$
25,569

 
$
44,096

 


v3.10.0.1
Inventories
12 Months Ended
Dec. 28, 2018
Inventory Disclosure [Abstract]  
INVENTORIES
(4.)     INVENTORIES
Inventories are comprised of the following (in thousands):
 
December 28,
2018
 
December 29,
2017
Raw materials
$
80,213

 
$
85,050

Work-in-process
75,711

 
63,620

Finished goods
34,152

 
28,068

Total
$
190,076

 
$
176,738

v3.10.0.1
Property, Plant and Equipment, Net
12 Months Ended
Dec. 28, 2018
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT AND EQUIPMENT, NET
(5.)     PROPERTY, PLANT AND EQUIPMENT, NET
PP&E is comprised of the following (in thousands):
 
December 28, 2018
 
December 29,
2017
Manufacturing machinery and equipment
$
261,912

 
$
249,233

Buildings and building improvements
95,886

 
97,346

Information technology hardware and software
60,901

 
54,302

Leasehold improvements
61,418

 
58,918

Furniture and fixtures
15,082

 
15,068

Land and land improvements
11,544

 
13,146

Construction work in process
23,886

 
19,758

Other
1,048

 
829

 
531,677

 
508,600

Accumulated depreciation
(300,408
)
 
(273,420
)
Total
$
231,269

 
$
235,180


Depreciation expense for PP&E was as follows for fiscal years 2018, 2017 and 2016 (in thousands):
 
2018
 
2017
 
2016
Depreciation expense
$
40,078

 
$
38,077

 
$
37,398

v3.10.0.1
Goodwill and Other Intangible Assets, Net
12 Months Ended
Dec. 28, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets, Net
(6.)     GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The change in the carrying amount of goodwill by reportable segment during fiscal year 2018 was as follows (in thousands):
 
Medical
 
Non-Medical
 
Total
December 29, 2017
$
822,870

 
$
17,000

 
$
839,870

Foreign currency translation
(7,532
)
 

 
(7,532
)
December 28, 2018
$
815,338

 
$
17,000

 
$
832,338


As of December 28, 2018, no accumulated impairment loss has been recognized for the goodwill allocated to the Company’s Medical or Non-Medical segments.
Intangible Assets
Intangible assets are comprised of the following (in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
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 amortizing intangible assets
$
955,635

 
$
(233,585
)
 
$
722,050

Indefinite-lived:
 
 
 
 
 
Trademarks and tradenames
 
 
 
 
$
90,288

 
 
 
 
 
 
December 29, 2017
 
 
 
 
 
Definite-lived:
 
 
 
 
 
Purchased technology and patents
$
243,679

 
$
(111,185
)
 
$
132,494

Customer lists
718,649

 
(78,621
)
 
640,028

Other
4,660

 
(4,597
)
 
63

Total amortizing intangible assets
$
966,988

 
$
(194,403
)
 
$
772,585

Indefinite-lived:
 
 
 
 
 
Trademarks and tradenames
 
 
 
 
$
90,288


Aggregate intangible asset amortization expense is comprised of the following for fiscal years 2018, 2017 and 2016 (in thousands):
 
2018
 
2017
 
2016
Cost of sales
$
14,134

 
$
15,183

 
$
15,368

SG&A
26,658

 
24,840

 
19,590

RD&E
154

 
545

 
512

Other Operating Expenses (“OOE”)
514

 
2,538

 

Total intangible asset amortization expense
$
41,460

 
$
43,106

 
$
35,470


Estimated future intangible asset amortization expense based upon the carrying value as of December 28, 2018 is as follows (in thousands):
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
Amortization Expense
$
40,200

 
$
40,511

 
$
39,658

 
$
38,623

 
$
36,779

 
$
526,279

v3.10.0.1
Accrued Expenses
12 Months Ended
Dec. 28, 2018
Accounts Payable and Accrued Liabilities [Abstract]  
ACCRUED EXPENSES
(7.)    ACCRUED EXPENSES
Accrued expenses are comprised of the following (in thousands):
 
December 28, 2018
 
December 29,
2017
Salaries and benefits
$
21,830

 
$
25,103

Profit sharing and bonuses
22,912

 
13,625

Product warranties
2,600

 
2,820

Deferred revenue
2,482

 
1,610

Accrued interest
1,944

 
8,523

Other
8,722

 
8,695

Total
$
60,490

 
$
60,376

v3.10.0.1
Debt
12 Months Ended
Dec. 28, 2018
Debt Disclosure [Abstract]  
DEBT
(8.)     DEBT
Long-term debt is comprised of the following (in thousands):
 
December 28, 2018
 
December 29,
2017
Senior secured term loan A
$
304,687

 
$
335,157

Senior secured term loan B
632,286

 
873,286

9.125% senior notes due 2023

 
360,000

Revolving line of credit
5,000

 
74,000

Unamortized discount on term loan B and debt issuance costs
(16,466
)
 
(33,278
)
Total debt
925,507

 
1,609,165

Current portion of long-term debt
(37,500
)
 
(30,469
)
Total long-term debt
$
888,007

 
$
1,578,696


Senior Secured Credit Facilities
The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”) consisting of (i) a $200 million revolving credit facility (the “Revolving Credit Facility”), (ii) a $305 million term loan A facility (the “TLA Facility”), and (iii) a $632 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.
On June 8, 2018, the Company amended the Senior Secured Credit Facilities to permit the sale of the AS&O Product Line. As required by the amended terms of the Company’s Senior Secured Credit Facilities, the Company paid down indebtedness as a result of the disposition of the AS&O Product Line. On July 10, 2018, the Company completed the redemption in full of its 9.125% senior notes due on November 1, 2023 (the “Senior Notes”) at a redemption price of 100% of the principal amount of the Senior Notes plus the applicable “make-whole” premium of $31.3 million and accrued and unpaid interest through the redemption date. Upon completion of the redemption of the Senior Notes, the indenture governing the Senior Notes was satisfied and discharged. The Company utilized the remaining net proceeds to pay down an additional $188 million outstanding under the Senior Secured Credit Facilities, consisting of $114 million on the TLB Facility and $74 million on the Revolving Credit Facility.
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.
(8.)     DEBT (Continued)
As of December 28, 2018, the Company had $5 million of outstanding borrowings on the Revolving Credit Facility and an available borrowing capacity of $188.2 million after giving effect to $6.8 million of outstanding standby letters of credit. As of December 28, 2018, the weighted average interest rate on outstanding borrowings under the Revolving Credit Facility was 5.01%.
Subject to certain conditions, commitments under the Revolving Credit Facility may be increased through an incremental revolving facility so long as, on a pro forma basis, the Company’s first lien net leverage ratio does not exceed 4.25:1.00.
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 December 28, 2018, the interest rates on the TLA Facility and TLB Facility were 5.01% and 5.39%, respectively.
Subject to certain conditions, one or more incremental term loan facilities may be added to the Term Loan Facilities so long as, on a pro forma basis, the Company’s first lien net leverage ratio does not exceed 4.25:1.00.
Covenants
The Revolving Credit Facility and the TLA Facility contain covenants requiring (A) a maximum total net leverage ratio of 5.50:1.0, subject to step downs beginning in the first 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 2.75:1.0, subject to step ups beginning in the first quarter of 2019. As of December 28, 2018, the Company was in compliance with these financial covenants. The TLB Facility does not contain any financial maintenance covenants.
The Senior Secured Credit Facilities also contain negative covenants that restrict the Company’s ability to (i) incur additional indebtedness; (ii) create certain liens; (iii) consolidate or merge; (iv) sell assets, including capital stock of the Company’s subsidiaries; (v) engage in transactions with the Company’s affiliates; (vi) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries; (vii) pay dividends on capital stock or redeem, repurchase or retire capital stock; (viii) pay, prepay, repurchase or retire certain subordinated indebtedness; (ix) make investments, loans, advances and acquisitions; (x) make certain amendments or modifications to the organizational documents of the Company or its subsidiaries or the documentation governing other senior indebtedness of the Company; and (xi) change the Company’s type of business. These negative covenants are subject to a number of limitations and exceptions that are described in the Senior Secured Credit Facilities agreement. As of December 28, 2018, the Company was in compliance with all negative covenants under the Senior Secured Credit Facilities.
The Senior Secured Credit Facilities provide for customary events of default. Upon the occurrence and during the continuance of an event of default, the outstanding advances and all other obligations under the Senior Secured Credit Facilities become immediately due and payable.
9.125% Senior Notes due 2023
On October 27, 2015, the Company completed a private offering of $360 million aggregate principal amount of 9.125% senior notes due on November 1, 2023. On July 10, 2018, the Company completed the redemption in full of the Senior Notes at a redemption price of 100% of the principal amount of the Senior Notes plus the applicable “make-whole” premium of $31.3 million and accrued and unpaid interest through the redemption date. The “make-whole” premium is included in Interest Expense in the accompanying Consolidated Statements of Operations. Upon completion of the redemption of the Senior Notes, the indenture governing the Senior Notes was satisfied and discharged.
As of December 28, 2018, the weighted average interest rate on all outstanding borrowings is 5.27%.
(8.)     DEBT (Continued)
Contractual maturities of the Company’s debt facilities for the next five years and thereafter, excluding any discounts or premiums, as of December 28, 2018 are as follows (in thousands):
 
2019
 
2020
 
2021
 
2022
 
After 2022
Future minimum principal payments
$
37,500

 
42,500

 
229,687

 
632,286

 


Debt Issuance Costs and Discounts
The Company incurred debt issuance costs in conjunction with the issuance of the Senior Secured Credit Facilities and the Senior Notes. The change in deferred debt issuance costs related to the Company’s Revolving Credit Facility is as follows (in thousands):
December 30, 2016
$
3,800

Amortization during the period
(992
)
December 29, 2017
2,808

Amortization during the period
(991
)
December 28, 2018
$
1,817

The change in unamortized discount and debt issuance costs related to the Term Loan Facilities and Senior Notes is as follows (in thousands):
 
Debt Issuance Costs
 
Unamortized Discount on TLB Facility
 
Total
December 30, 2016
$
32,096

 
$
8,741

 
$
40,837

Financing costs incurred
2,360

 

 
2,360

Write-off of debt issuance costs and unamortized discount(1)
(2,421
)
 
(1,104
)
 
(3,525
)
Amortization during the period
(5,146
)
 
(1,248
)
 
(6,394
)
December 29, 2017
26,889

 
6,389

 
33,278

Write-off of debt issuance costs and unamortized discount(1)
(9,757
)
 
(1,610
)
 
(11,367
)
Amortization during the period
(4,419
)
 
(1,026
)
 
(5,445
)
December 28, 2018
$
12,713

 
$
3,753

 
$
16,466


__________ 
(1) 
The Company redeemed its Senior Notes and prepaid portions of its TLB Facility during 2018 and 2017 and recognized losses from extinguishment of debt of $11.4 million and $3.5 million, respectively, which are included in Interest Expense, Net in the Consolidated Statements of Operations. The loss from extinguishment of debt represents the unamortized debt issuance costs related to the Senior Notes and 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 Consolidated Statements of Operations.
(8.)     DEBT (Continued)
Interest Rate Swap
During 2016, the Company entered into a three year $200 million interest rate swap to hedge against potential changes in cash flows on the outstanding variable rate debt, which is indexed to the one-month LIBOR rate. The variable rate received on the interest rate swap and the variable rate paid on the variable rate debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same day. The swap is being accounted for as a cash flow hedge.
Information regarding the Company’s outstanding interest rate swap designated as a cash flow hedge as of December 28, 2018 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-17
 
Jun-20
 
1.1325
%
 
2.5063%
 
$
4,171

 
Other Assets
The estimated fair value of the interest rate swap agreements represents the amount the Company expects to receive (pay) to terminate the contract. No portion of the change in fair value of the Company’s interest rate swaps during 2018, 2017, or 2016 were considered ineffective. The amount recorded to Interest Expense related to the Company’s interest rate swaps was a reduction of $1.7 million and $0.5 million during 2018 and 2017, respectively, and an increase of $0.1 million during 2016. The estimated Accumulated Other Comprehensive Income related to the Company’s interest rate swaps that is expected to be reclassified into earnings within the next twelve months is a $2.8 million gain.
v3.10.0.1
Benefit Plans
12 Months Ended
Dec. 28, 2018
Defined Benefit Plan [Abstract]  
BENEFIT PLANS
(9.)     BENEFIT PLANS
Savings Plan
The Company sponsors a defined contribution 401(k) plan (the “Plan”), for its U.S. based employees. The Plan provides for the deferral of employee compensation under Internal Revenue Code §401(k) and a Company match.
The Company matches $0.50 per dollar of participant deferral, up to 6% of the compensation of each participant. Contributions from employees, as well at those matched by the Company, vest immediately. Net costs related to defined contribution plans were $6.8 million in 2018, $6.0 million in 2017 and $4.6 million in 2016.
Defined Benefit Plans
The Company is required to provide its employees located in Switzerland and Mexico certain statutorily mandated defined benefits. Under these plans, benefits accrue to employees based upon years of service, position, age and compensation. The defined benefit pension plan provided to the Company’s employees located in Switzerland is a funded contributory plan, while the plans that provide benefits to the Company’s employees located in Mexico are unfunded and noncontributory. The assets of the Switzerland plan are held at an AA- rated insurance carrier who bears the pension risk and longevity risk, and will be used to cover the pension liability for the remaining retirees of the Swiss plan, as well as the remaining employees at that location. The liability and corresponding expense related to these benefit plans is based on actuarial computations of current and future benefits for employees.
(9.)     BENEFIT PLANS (Continued)
The Company’s fiscal year end dates are the measurement dates for its defined benefit plans. Information relating to the funding position of the Company’s defined benefit plans for fiscal years 2018 and 2017 were as follows (in thousands):
 
2018
 
2017
Change in projected benefit obligation:
 
 
 
Projected benefit obligation at beginning of year
$
2,608

 
$
2,285

Service cost
214

 
200

Interest cost
48

 
42

Plan participants’ contribution
84

 
75

Actuarial gain
(150
)
 
(90
)
Benefits (paid) transferred in, net
42

 
(11
)
Settlements
(619
)
 

Foreign currency translation
(24
)
 
107

Projected benefit obligation at end of year
2,203

 
2,608

Change in fair value of plan assets:
 
 
 
Fair value of plan assets at beginning of year
1,358

 
1,172

Employer contributions
83

 
56

Plan participants’ contributions
84

 
75

Actual loss on plan assets
(11
)
 

Benefits transferred in, net
62

 

Settlements
(619
)
 

Foreign currency translation
(11
)
 
55

Fair value of plan assets at end of year
946

 
1,358

Projected benefit obligation in excess of plan assets at end of year
$
1,257

 
$
1,250

Defined benefit liability classified as other current liabilities
$
54

 
$
32

Defined benefit liability classified as long-term liabilities
$
1,203

 
$
1,218

Accumulated benefit obligation at end of year
$
1,809

 
$
2,189


Amounts recognized in Accumulated Other Comprehensive Income (Loss) for fiscal years 2018 and 2017 are as follows (in thousands):
 
2018
 
2017
Net (gain) loss occurring during the year
$
(130
)
 
$
74

Amortization of losses
(101
)
 
(45
)
Prior service cost
1

 
1

Amortization of prior service cost
(2
)
 
(2
)
Pre-tax adjustment (gain) loss
(232
)
 
28

Tax benefit
(70
)
 
(5
)
Net (gain) loss
$
(302
)
 
$
23


The amortization of amounts in Accumulated Other Comprehensive Income expected to be recognized as components of net periodic benefit expense during fiscal year 2019 are as follows (in thousands):
Amortization of net prior service cost
$
1

Amortization of net loss
5



(9.)     BENEFIT PLANS (Continued)
Net pension cost for fiscal years 2018 and 2017 is comprised of the following (in thousands):
 
2018
 
2017
 
2016
Service cost
$
214

 
$
200

 
$
173

Interest cost
48

 
42

 
36

Settlements loss
69

 

 

Expected return on assets
(17
)
 
(19
)
 
(18
)
Recognized net actuarial loss
33

 
44

 
38

Net pension cost
$
347

 
$
267

 
$
229


The weighted-average rates used in the actuarial valuations to determine the net pension cost for fiscal years 2018, 2017 and 2016 were as follows:
 
2018
 
2017
 
2016
Discount rate
3.1%
 
2.9%
 
2.3%
Salary growth
3.2%
 
3.1%
 
2.4%
Expected rate of return on assets
1.3%
 
1.5%
 
2.0%

The weighted-average rates used in the actuarial valuations to determine the projected benefit obligation for fiscal years 2018, 2017 and 2016 were as follows:
 
2018
 
2017
 
2016
Discount rate
6.0%
 
3.1%
 
2.9%
Salary growth
4.1%
 
3.2%
 
3.1%
Expected rate of return on assets
1.4%
 
1.3%
 
1.5%

The following table provides information by level for the defined benefit plan assets that are measured at fair value as of December 28, 2018 and December 29, 2017 (in thousands).
 
Fair Value
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 28, 2018
 
 
 
 
 
 
 
Insurance contract
$
946

 
$

 
$
946

 
$

December 29, 2017
 
 
 
 
 
 
 
Insurance contract
$
1,358

 
$

 
$
1,358

 
$


The fair value of Level 2 plan assets are obtained from quoted market prices in inactive markets or valuation models with observable market data inputs to estimate fair value. These observable market data inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.  Refer to Note 1 “Summary of Significant Accounting Policies” for discussion of the fair value measurement terms of Levels 1, 2, and 3.
Estimated benefit payments over for the next ten years as of December 28, 2018 are as follows (in thousands):
 
2019
 
2020
 
2021
 
2022
 
2023
 
2024-2028
Estimated benefit payments
$
104

 
121

 
124

 
134

 
145

 
964

v3.10.0.1
Stock-Based Compensation
12 Months Ended
Dec. 28, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION
(10.)     STOCK-BASED COMPENSATION
Stock-based Compensation Plans
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, shares of restricted stock awards, restricted stock units, stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.
The 2009 Stock Incentive Plan (“2009 Plan”), as amended, and 2011 Stock Incentive Plan (“2011 Plan”), as amended, each authorize the issuance of up to 1,350,000 shares of equity incentive awards and the 2016 Stock Incentive Plan (the “2016 Plan”) authorizes the issuance of up to 1,450,000 shares of equity incentive awards. The 2009 Plan limits the amount of restricted stock, restricted stock units and stock bonuses that may be awarded in the aggregate to 200,000 shares of the 1,350,000 shares authorized. Stock options remain outstanding under the 2005 Stock Incentive Plan, but the plan has been frozen to any new award issuances.
As of December 28, 2018, there were 722,766, 119,866 and 65,190 shares available for future grants under the 2016 Plan, 2011 Plan and 2009 Plan, respectively. Due to plan sub-limits, of the shares available for grant, 7,488 shares may be awarded under the 2009 Plan in the form of restricted stock, restricted stock units or stock bonuses.
The Company recognized a net tax benefit from the exercise of stock options and vesting of restricted stock and restricted stock units of $3.8 million, $1.9 million and $2.3 million for 2018, 2017 and 2016, respectively. Beginning in 2017, this amount was recorded as a component of income tax expense. In 2016, these amounts were recorded as increases in additional paid-in capital on the Consolidated Balance Sheets and as cash from financing activities on the Consolidated Statements of Cash Flows.
Stock-based Compensation Expense
The components and classification of stock-based compensation expense for fiscal years 2018, 2017 and 2016 were as follows (in thousands):
 
2018
 
2017
 
2016
Stock options
$
873

 
$
1,633

 
$
2,455

RSAs and RSUs (time-based)
6,024

 
4,952

 
1,764

PRSUs
3,159

 
6,867

 
3,887

Stock-based compensation expense - continuing operations
10,056

 
$
13,452

 
$
8,106

Discontinued operations
414

 
1,228

 
302

Total stock-based compensation expense
$
10,470

 
$
14,680

 
$
8,408

 
 
 
 
 
 
Cost of sales
$
849

 
$
748

 
$
208

SG&A
9,090

 
9,893

 
6,086

RD&E
112

 
642

 
337

OOE
5

 
2,169

 
1,475

Discontinued operations
414

 
1,228

 
302

Total stock-based compensation expense
$
10,470

 
$
14,680

 
$
8,408


During the first quarter of 2017, the Company recorded $2.2 million of accelerated stock-based compensation expense in connection with the transition of its former Chief Executive Officer per the terms of his contract, which was classified as OOE. During the first quarter of 2016, the Company recorded $0.5 million of accelerated stock-based compensation expense in connection with the Spin-off, which was classified as OOE.
(10.)     STOCK-BASED COMPENSATION (Continued)
Stock Options
The following table includes the weighted average grant date fair value of stock options granted to employees during fiscal years 2018, 2017 and 2016 and the related weighted average assumptions used in the Black-Scholes model:
 
2018
 
2017
 
2016
Weighted average fair value of options granted
$
14.89

 
$
12.86

 
$
8.52

Assumptions:
 
 
 
 
 
Expected term (in years)
4.0

 
4.5

 
4.7

Risk-free interest rate
2.21
%
 
1.77
%
 
1.49
%
Expected volatility
39
%
 
37
%
 
27
%
Expected dividend yield
0
%
 
0
%
 
0
%

The following table summarizes stock option activity during the fiscal year ended December 28, 2018:
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 29, 2017
931,353

 
$
30.89

 
 
 
 
Granted
28,447

 
45.13

 
 
 
 
Exercised
(413,317
)
 
30.02

 
 
 
 
Forfeited or expired
(23,700
)
 
41.28

 
 
 
 
Outstanding at December 28, 2018
522,783

 
$
31.88

 
5.8
 
$
23.1

Vested and expected to vest at December 28, 2018
522,783

 
$
31.88

 
5.8
 
$
23.1

Exercisable at December 28, 2018
488,468

 
$
31.37

 
5.6
 
$
21.8

Intrinsic value is calculated for in-the-money options (exercise price less than market price) as the difference between the market price of the Company’s common shares as of December 28, 2018 ($76.03) and the weighted average exercise price of the underlying stock options, multiplied by the number of options outstanding and/or exercisable. As of December 28, 2018, $0.5 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of 1.2 years. Shares are distributed from the Company’s authorized but unissued reserve upon the exercise of stock options.
The following table provides certain information relating to the exercise of stock options during fiscal years 2018, 2017 and 2016 (in thousands):
 
2018
 
2017
 
2016
Intrinsic value
$
17,722

 
$
13,928

 
$
690

Cash received
12,409

 
19,324

 
2,821


(10.)     STOCK-BASED COMPENSATION (Continued)
Restricted Stock Awards and Restricted Stock Units
The following table summarizes time-vested RSA and RSU activity during the fiscal year ended December 28, 2018:
 
Time-Vested
Restricted Stock Units and Awards
 
Weighted
Average Grant Date
Fair Value
Nonvested at December 29, 2017
163,431

 
$
35.96

Granted
167,514

 
52.14

Vested
(134,423
)
 
38.88

Forfeited