# Integer Holdings Corp: Form 10-K for the period ended Dec 31, 2022 - Company: [Integer Holdings Corp](/companies/itgr.md) (CIK 1114483) - Form: 10-K - Filed: 2023-02-21 - Accepted by EDGAR: Feb 21, 2023, 07:54 ET - Period: 2022-12-31 - Accession: 0001114483-23-000003 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1114483/000111448323000003/gb-20221231.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1114483/000111448323000003/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2022-12-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 12 months, 2022-01-01 to 2022-12-31 | $1.38bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Cost of revenue | 12 months, 2022-01-01 to 2022-12-31 | $1.02bn | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 12 months, 2022-01-01 to 2022-12-31 | $359.0m | us-gaap:GrossProfit | | Selling, general and administrative | 12 months, 2022-01-01 to 2022-12-31 | $160.6m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 12 months, 2022-01-01 to 2022-12-31 | $121.3m | us-gaap:OperatingIncomeLoss | | Interest expense | 12 months, 2022-01-01 to 2022-12-31 | $38.6m | us-gaap:InterestExpense | | Income tax | 12 months, 2022-01-01 to 2022-12-31 | $10.6m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 12 months, 2022-01-01 to 2022-12-31 | $66.4m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2022-01-01 to 2022-12-31 | $1.99 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 12 months, 2022-01-01 to 2022-12-31 | $2.00 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2022-01-01 to 2022-12-31 | 33,357,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2022-01-01 to 2022-12-31 | $116.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2022-01-01 to 2022-12-31 | $74.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Current assets | at 2022-12-31 | $558.3m | us-gaap:AssetsCurrent | | Total assets | at 2022-12-31 | $2.79bn | us-gaap:Assets | | Current liabilities | at 2022-12-31 | $223.8m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2022-12-31 | $1.38bn | us-gaap:Liabilities | | Long-term debt | at 2022-12-31 | $907.1m | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2022-12-31 | $18.2m | us-gaap:LongTermDebtCurrent | | Shareholders' equity | at 2022-12-31 | $1.42bn | us-gaap:StockholdersEquity | ## Business As filed, 62,888 characters. ### OVERVIEW Integer Holdings Corporation, headquartered in Plano, Texas, is among the world’s largest medical device outsource (“MDO”) manufacturing companies, serving the cardiac rhythm management, neuromodulation, orthopedics, vascular, advanced surgical and portable medical markets. We provide innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition to medical technologies, we develop batteries for high-end niche applications in energy, military, and environmental markets. Our brands include Greatbatch Medical®, Lake Region Medical® and Electrochem®. Our primary customers include large, multi-national original equipment manufacturers (“OEMs”) and their affiliated subsidiaries. When used in this report, the terms “Integer,” “we,” “us,” “our” and the “Company” mean Integer Holdings Corporation and its subsidiaries. We organize our business into two reportable segments, Medical and Non-Medical, and derive our revenues from four principal product lines. The Medical segment includes the Cardio & Vascular, Cardiac Rhythm Management & Neuromodulation and Advanced Surgical, Orthopedics & Portable Medical product lines and the Non-Medical segment comprises the Electrochem product line. ### Our Acquisitions and Divestitures On April 6, 2022, we acquired 100% of the equity interests of Connemara Biomedical Holdings Teoranta, including its operating subsidiaries Aran Biomedical and Proxy Biomedical (collectively “Aran”). A recognized leader in proprietary medical textiles, high precision biomaterial coverings and coatings as well as advanced metal and polymer braiding, Aran delivers development and manufacturing solutions for implantable medical devices. Consistent with our strategy, the combination with Aran further increases our ability to offer complete solutions for complex delivery and therapeutic devices in high growth cardiovascular markets such as structural heart, neurovascular, peripheral vascular, and endovascular as well as general surgery. Refer to Note 2, “Business Acquisitions,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about the acquisition. On December 1, 2021, we acquired 100% of the outstanding equity interests of Oscor Inc., Oscor Caribe, LLC and Oscor Europe GmbH (collectively “Oscor”), privately-held companies with operations in Florida, the Dominican Republic and Germany that design, develop, manufacture and market a comprehensive portfolio of highly specialized medical devices, venous access systems and diagnostic catheters and implantable devices. Refer to Note 2, “Business Acquisitions,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about the acquisition. On February 19, 2020, we acquired certain assets and liabilities of InoMec Ltd. (“InoMec”), a privately-held company based in Israel that specializes in the research, development and manufacturing of medical devices, including minimally invasive tools, delivery systems, tubing and catheters, surgery tools, drug-device combination, laser combined devices, and tooling and production. The acquisition enabled us to create a research and development center in Israel, closer to the customer base in the region. Refer to Note 2, “Business Acquisitions,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about the acquisition. On October 7, 2019, we acquired certain assets and liabilities of US BioDesign, LLC (“USB”), a privately-held developer and manufacturer of complex braided biomedical structures for disposable and implantable medical devices. The acquisition added a differentiated capability related to the complex development and manufacture of braided and formed biomedical structures to our broad portfolio, that we believe further positioned us as a partner of choice for innovative medical technologies. On July 2, 2018, we completed the sale of the Advanced Surgical and Orthopedic product lines (the “AS&O Product Line”) to Viant. As a result, we classified the results of operations of the AS&O Product Line as discontinued operations in the Consolidated Statements of Operations for all periods presented. All results and information presented exclude the AS&O Product Line unless otherwise noted. Refer to Note 20, “Discontinued Operations,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information. ### MEDICAL SEGMENT ### Cardio & Vascular The Cardio & Vascular product line leverages a global footprint to produce a full range of components, subassemblies, and finished devices used in interventional cardiology, structural heart, heart failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular access, infusion therapy, hemodialysis, urology, and gastroenterology procedures. The following are the principal products and services offered by our Cardio & Vascular product line: ***Interventional Cardiology.*** Our interventional cardiology portfolio is focused primarily on the design, development and manufacture of catheter and wire-based technologies intended to diagnose and treat cardiac disease. Key products and capabilities span a full suite of devices including coronary stents, balloon catheters, atherectomy devices, imaging and sensing devices, chronic total occlusion solutions, percutaneous transluminal coronary angioplasty and access guidewires, introducer sheaths, and vascular closure devices. Core areas of technical expertise include laser-cut hypotubes, catheter shafts (extrusion, filmcast, and reflow), integrated hub assemblies, pad printing, tip shaping, polytetrafluoroethylene (PTFE) coating, complex machining, and sensor integration. ***Structural Heart and Heart Failure.*** Structural heart and heart failure products include those used by cardiologists, echocardiographers, cardiac surgeons, and heart failure specialists to treat diseases or defects of the heart, such as valvular diseases and congenital defects. Integer provides components, subassemblies, and finished devices to these markets leveraging a wide range of technologies and capabilities. These include laser-cut and machined components, complex braided meshes, guidewires, introducer sheaths, steerable sheaths and delivery catheters, and implants used in transcatheter aortic valve replacement, balloon aortic valvuloplasty, transcatheter mitral valve repair and replacement, atrial and defect closure, left ventricular assist, and shunt procedures. ***Peripheral Vascular, Neurovascular, and Interventional Oncology.*** Our peripheral vascular, neurovascular, urology and oncology portfolio is primarily focused on the design, development and manufacture of devices used during the treatment of peripheral artery disease, transcatheter embolization and occlusion, aortic aneurysm repair, and neurovascular stroke prevention. Our broad portfolio of devices, capabilities and technology platforms provides our customers with cost effective, high quality solutions ranging from device components to complex assemblies to finished devices such as regulatory approved guidewires and introducers. Integer’s broad technology and capability portfolio within the peripheral vascular markets enables us to address the full spectrum of devices needed in the diagnoses and treatment of peripheral vascular disease. In the peripheral artery disease markets, our technologies are focused on the manufacture and development of interventional guidewires, support catheters, introducers and guiding sheaths, balloon catheters, self-expanding stents and stent grafts as well as embolic protection devices. Our neurovascular technology portfolio encompasses micro guidewires, micro and access catheters, aspiration catheters, stent retrievers, embolization coils, as well as flow diverters. In the interventional oncology market, we offer customers guidewires and microcatheters designed to enable the effective delivery of embolic agents. ***Electrophysiology.*** Electrophysiology products include devices used by electrophysiologists and interventional cardiologists for the treatment of cardiac arrythmias, such as atrial fibrillation. Integer primarily produces devices used for treatment of atrial fibrillation, the most prevalent cardiac arrythmia. These devices include sheaths and needles for transseptal access, diagnostic and mapping catheters to record and map the arrythmia sources, and ablation catheters to create lesions for blocking the arrythmia signals. Integer has the technical capabilities and expertise to provide the full spectrum of products from components to finished devices. Typical components include polyimide tubing, electrode rings, platinum tips and fine wires. Sub-assemblies include electrode ring and wire assemblies, steerable handle assemblies, and spline and basket assemblies. Finished devices include steerable transseptal sheaths, diagnostic catheters and ablation catheters. ***Vascular Access, Infusion Therapy and Hemodialysis.*** Our solutions in these markets are focused on vessel access, treatment and device placement for medication and fluid delivery in patients with severe conditions requiring repeated vessel access. We design and manufacture a wide range of vascular access guidewires, stylets, catheters, valved / non-valved peelable and micro introducers. Our portfolio of market-ready vascular access guidewires and introducers kits enables a range of venous and arterial access applications, including transradial access. Additionally, we support customers with custom introducer sheaths and kit solutions leveraging our deep expertise in thin-wall sheath design, hydrophilic coatings and guidewire manufacturing (including poly-jacketed, mandrel, and nitinol core guidewire constructions). ***Non-vascular Markets:*** Within the Cardio & Vascular group, we also manage non-vascular markets for which we have expertise and offer a broad range of products, technologies and capabilities. Those markets include: ***Urology.*** Our main focus is in endourology for which we develop and manufacture finished devices and components for access and interventional devices such as guidewires, ureteral access sheaths, dilation devices, retrieval devices, ureteral stents, biopsy forceps, and endoscopes. ***Gastroenterology.*** Our comprehensive range of technologies and capabilities enable us to support our customers’ needs with a broad variety of products such as guidewires, dilatation devices, retrieval devices, snares, wire-formed and polymer stents, stent delivery systems, RF ablation devices, and endoscopes. ### Cardiac Rhythm Management & Neuromodulation The Cardiac Rhythm Management & Neuromodulation product line offers design, development and manufacturing capabilities for components, sub-assemblies, assemblies, and finished medical device systems. We support a variety of clinical markets, with an emphasis on the following markets: ***Cardiac Rhythm Management.*** The cardiac rhythm management (“CRM”) market comprises implanted medical devices (“IMDs”), implanted leads, procedure accessories, as well as external devices that monitor and treat heart rhythm disorders and heart disease. Examples of CRM products include implantable pacemakers, implantable cardioverter defibrillators (“ICDs”), insertable cardiac monitors (“ICMs”), implantable cardiac pacing and defibrillation leads, and heart failure therapies such as ventricular assist devices and cardiac resynchronization devices (“CRT-P” and “CRT-D”). An IMD system generally includes an implantable pulse generator (“IPG”) and one or more stimulation leads. An IPG is a small battery powered device implanted under the skin in the chest that can sense and produce electrical pulses through specialized wires called leads. These leads sense electrical heart signals and carry them back to the IPG which in turn delivers electrical pulses back through the lead to the heart to deliver therapy. Our portfolio of technologies and products include components, sub-assemblies, and assemblies for active IPGs, implanted sensing and stimulation leads, accessories, or external instruments. Our investments in research and development have created leadership positions in battery, capacitor, and feedthrough technology, including filtered feedthroughs. We are also a supplier of medical stamped components, and shallow and deep draw casings and assemblies. Beyond the IPG, Integer’s CRM product line provides lead development and manufacturing solutions including expertise in low-polarization specialty-coated electrodes and components, and lead and device accessories such as stylets, guidewires, introducers, and lead adapters. Integer also offers fully designed and manufactured epicardial pacing leads. ***Neuromodulation.*** Similar to the CRM market, the neuromodulation (“Neuro”) market comprises IPGs, implanted leads, procedure accessories, and external devices, such as battery chargers, trial stimulators and patient controllers. Examples of Neuro products include implantable spinal cord stimulators for chronic pain, sacral nerve stimulators for incontinence, deep brain stimulators for movement disorders and other IMDs to treat psychiatric disorders, sleep disorders and hearing loss. The Neuro market also includes several new emerging applications, such as implanted bioelectronic devices aimed at treating chronic diseases. Within the Neuro market we offer IMD component technologies that have been developed to meet the needs of our customers including our Xcellion® line of lithium-ion rechargeable batteries, QMR® and CFx non-rechargeable batteries, feedthroughs, device enclosures, machined components and lead components and sub-assemblies. Additionally, Integer helps OEMs and other emerging companies with the development and manufacture of complete neuromodulation IMD solutions, including custom IPGs, programmer systems, battery chargers, patient controllers, fully finished lead systems and accessories from initial development through commercial quantities. ### Advanced Surgical, Orthopedics & Portable Medical The Advanced Surgical, Orthopedics & Portable Medical (“AS&O”) product line offers a broad range of products and services across the many businesses it serves. This product line includes sales to the acquirer of our AS&O Product Line. The following are the principal products and services offered by our AS&O product line: ***Portable Medical.*** We are a leading provider of advanced batteries and power solutions for global OEMs. We specialize in the design and manufacture of Li-ion battery packs and chargers. Through the combination of our innovative research and development expertise, manufacturing excellence and leading customer partnerships we advance the way healthcare is powered. Our offerings include customized rechargeable batteries and chargers to power medical devices across multiple clinical markets including patient monitoring, ventilators, portable defibrillators, portable ultrasound, X-Ray machines, hearing devices, and LVAD devices. We collaborate with our customers on product development opportunities incorporating our power solutions into Class I, II or III medical devices. ***Minimally Invasive & General Surgery.*** Our minimally invasive and general surgery products are primarily arthroscopic, laparoscopic, and general surgery devices and components used for minimally invasive procedures in the joint, abdominal, gastroesophageal reflux disease (“GERD”), ophthalmology, oncology, and general surgery spaces. Our products include, harmonic scalpels, shaver blades, burr shavers, radio frequency probes, biopsy probes, trocars, electrocautery components, wound dressings, GERD treatment components, and phacoemulsification needles. ***Orthopedic.*** Our orthopedic products include instruments used in hip, knee, and spine surgeries. Our products primarily consist of reamers and chisels. ### NON-MEDICAL SEGMENT Our power solutions enable the success and advancement of our customers’ critical non-medical applications. We provide custom battery packs for use in extreme environments where failure is not an option. The following are the principal products and services offered by our Non-Medical product line: ***Electrochem.*** Electrochem provides customized battery power and power management systems to markets where safety, reliability, quality and durability are critical. We design and manufacture customized primary (non-rechargeable) battery solutions, which are used in the energy, military and environmental markets. Electrochem’s primary lithium power solutions, which include high, moderate and low-rate non-rechargeable cell constructions, are utilized in extreme conditions and are built to withstand exceptionally high and low temperatures as well as high shock and vibration. Electrochem’s product design capability includes protective circuitry, glass-to-metal hermetic seals, fuses and diodes to help ensure safe, durable and reliable power as devices using our battery solutions are often subjected to harsh conditions. Our primary batteries are used in remote and demanding environments, including down hole drilling tools, pipeline inspection, military devices, and oceanographic buoys. Electrochem also manufactures complementary technologies in the form of real time battery monitoring, and an alternate power technology in the form of high temperature super capacitors. ### OTHER FACTORS IMPACTING OUR OPERATIONS ### Customers Our products are designed to provide reliable, long-lasting solutions that meet the evolving requirements and needs of our customers. The nature and extent of our commercial relationships with each of our customers are different in terms of breadth of products purchased, product volumes, length of contractual commitment, ordering patterns, inventory management, and selling prices. Contracts with customers can include rebates and tiered pricing arrangements based on pre-determined volume levels, in which higher volume levels typically have lower pricing, or specific prices are offered to customers in exchange for increased volume levels and/or longer contract terms. Typically, our contracts specify minimum order quantities and lead times. We have limited visibility into our customers’ future purchases, covering only a relatively short period of time. Our customers may have inventory management programs, vertical integration plans and/or alternate supply arrangements that may not be communicated to or shared with us. Additionally, the relative market share among the OEM manufacturers changes periodically, which may cause customer inventory levels to rebalance to match new demand. Consequently, these and other factors can significantly impact our sales in any given period. Our customers may initiate field actions with respect to market-released products. These actions may include product recalls or communications with a significant number of physicians about a product or labeling issue. The scope of such actions can range from very minor issues affecting a small number of units to more significant actions. Our Medical customers include large multi-national medical device OEMs and their subsidiaries. During 2022, three of our Medical segment customers, Abbott Laboratories, Boston Scientific and Medtronic were each in excess of 10% of total sales and collectively accounted for 46% of our total sales. We believe that the diversification of our sales among the various subsidiaries and market segments with those three customers reduces our exposure to negative developments with any one customer. Our Non-Medical customers include large multi-national OEMs and their subsidiaries serving the energy, military and environmental services markets. During 2022, sales to one of our Non-Medical segment customers was in excess of 10% of our Non-Medical segment sales, but did not exceed 10% of our total sales. The loss of a significant amount of business from any large customer or a further consolidation of such customers could have a material adverse effect on our financial condition and results of operations, as further explained in Item 1A “Risk Factors” of this report. ### Sales and Marketing We sell our products directly to our customers. In 2022, approximately 55% of our products sold were shipped to locations in the United States (“U.S.”). Sales within and outside the U.S. are primarily to customers whose corporate offices are located and headquartered in the U.S. Information regarding our sales by geographic area is set forth in Note 18, “Segment and Geographic Information,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. Although the majority of our customers contract with us to develop custom components and assemblies to fit their product specifications, we also provide system and device solutions ready for market distribution by OEMs. We have established close working relationships between our internal program managers and our customers. We market our products and technologies at industry meetings and trade shows domestically and internationally. We have placed additional emphasis on reaching long-term agreements with our OEM customers to secure our revenue base and incentivize growth. Internal account executives support all sales activity and involve engineers and technology professionals in the sales process to address customer requests across all product lines. For system and device solutions, we partner with our customers’ research, marketing, and clinical groups to jointly develop technology platforms in alignment with their product roadmaps and therapy needs. We leverage our account executives with support from our engineers to design and sell product solutions into our targeted markets. Our account executives are trained to assist our customers in selecting appropriate materials and configurations. We market our products and services through well-defined selling strategies and marketing campaigns that are customized for each of the industries we target. Firm backlog orders at December 31, 2022 were approximately $886 million. The majority of the orders outstanding at December 31, 2022 are expected to be shipped within one year. ### Competition The MDO manufacturing industry has traditionally been highly fragmented with several thousand companies, many of which we believe have limited manufacturing capabilities and limited sales and marketing expertise. We believe that very few companies offer the scope of manufacturing capabilities and services that we provide to medical device companies, however, we may compete in the future against other companies that provide broad manufacturing capabilities and related services. We compete against different companies depending on the type of product or service offered or the geographic area served. We also face competition from existing and prospective customers that employ in-house capabilities to produce some of the products we provide. Our existing or potential competitors include suppliers with different subsets of our manufacturing capabilities, suppliers that concentrate in niche markets, and suppliers that have, are developing, or may in the future develop, broad manufacturing capabilities and related services. We compete for new business at all phases of the product life cycle, which includes development of new products, the redesign of existing products and transfer of mature product lines to outsourced manufacturers. Competitive advantage is generally based on reputation, quality, delivery, responsiveness, breadth of capabilities, including design and engineering support, price, customer relationships and increasingly the ability to provide complete supply chain solutions rather than only producing and providing individual components. ### Acquisitions and Investments One facet of our growth strategy is to acquire additional technology or manufacturing capability to expand our product offering in our key existing growth markets. We expect to continue to engage in business development activities and technology licensing arrangements to support our growth in these markets. As our customers grow and consolidate, they seek suppliers who can offer broad product capabilities, manufacturing scale and facilitate speed to market. Our strategy aligns with enhancing our portfolio from both organic and inorganic means to partner more broadly with our customers to support their growth. Our inorganic strategy will be primarily focused on strategic “bolt-on” acquisitions that will supplement our existing product portfolio. ### Strategic Overview We continue to take steps to better align our resources in order to invest to grow and protect, and preserve our portfolio of products. In addition to our portfolio strategy, we continue to execute our six key operational strategic imperatives designed to drive excellence in everything we do: - Sales Force Excellence: We have changed the organizational structure to match product line growth strategies and customer needs. This change is about getting more out of the capabilities we already have, and has increased individual accountability and clarity of ownership, while serving customers more effectively. - Market Focused Innovation: We are ensuring we get the most return on our research and development investments. We are focused on having a clear picture of how we spend our money so we can increase investments to drive future growth. - Manufacturing Excellence: The goal is to deliver world-class operational performance in the areas of safety, quality, delivery and overall efficiency. We want to transition our manufacturing into a competitive advantage through a single, enterprise-wide manufacturing structure known as the Integer Production System. This system will provide standardized systems and processes by leveraging best practices and applying them across all of our global sites. - Business Process Excellence: We are taking a systematic approach to driving excellence in everything we do by standardizing, optimizing and ultimately sustaining all of our processes. - Leadership Capability: We have a robust plan to make leadership a competitive advantage for us, and as the success rate is higher with internal hires, we are focusing on finding and developing leaders from within the Company to build critical capabilities for future success. - Performance Excellence: We are raising the bar on associate performance to maximize our impact. This includes aligning key roles with critical capabilities, positioning the best talent against the biggest work, and putting tools and processes in place to provide higher financial rewards for top performers, so our top performers can see increased results in pay for increased results in their performance. We believe we are well-positioned within the medical technology and MDO manufacturing market and that there is a robust pipeline of opportunities to pursue. We have expanded our medical device capabilities and are excited about opportunities to partner with customers to drive innovation. We believe we have the scale and global presence, supported by world-class manufacturing and quality capabilities, to capture these opportunities. We are confident in our capabilities as one of the largest MDO manufacturers, with a long history of successfully integrating companies, driving down costs and growing revenues over the long-term. Ultimately, our strategic vision is to drive shareholder value by enhancing the lives of patients worldwide by being our customers’ partner of choice for innovative technologies and services. ### Research and Product Development Our position as a leading developer and manufacturer of medical devices and components is largely the result of our long history of technological innovation. Our scientists, engineers and technicians focus on developing new products, improving and enhancing existing products, and expanding the use of our products in new or tangential applications. In addition to our internal technology and capability development efforts aimed at providing our customers with differentiated solutions, we also engage outside research institutions for unique technology projects. ***Medical.*** We believe our core business is well positioned because our OEM customers leverage our portfolio of intellectual property. We continue to build a healthy pipeline of diverse medical technology opportunities and provide a new level of industry leading capabilities and services to our OEM customers across the full range of medical device products and services. We are at the forefront of innovating technologies and products that help change the face of healthcare, enabling us to provide our customers with a distinct advantage as they bring complete medical systems and solutions to market. In turn, our customers are able to accelerate patient access to life enhancing therapies. We offer our customers a comprehensive portfolio comprising the best technologies, providing a single point of support, and driving optimal outcomes. Some of the more significant product development opportunities our Medical segment is pursuing are as follows: | Product Line | Product Development Projects | | --- | --- | | Cardio & Vascular | Active projects in structural heart delivery systems subassemblies, structural heart delivery accessories, structural heart implants, electrophysiology catheters, accessories and subassemblies, peripheral vascular catheters and guidewires, neurovascular therapies to prevent hemorrhagic and ischemic stroke, enhanced access introducers, gastrointestinal scope components, fractional flow reserve guidewire subassemblies, sensor-enabled guidewires, and oncology catheters. Technology investments to enable our customer’s catheter, delivery system, introducer, guidewire, and implant development programs in our core Cardio & Vascular markets. | | Cardiac Rhythm Management & Neuromodulation | Active projects to develop custom batteries, filtered feedthroughs, high voltage capacitors and finished device solutions including both leads and IPG systems that reduce the size and cost, while improving performance, for cardiac and neuromodulation devices. | ***Non-Medical.*** Some of the more significant product development opportunities in our Non-Medical segment are our next generation medium-rate and high-rate batteries that offer extended performance; such as higher power pulsing capabilities and increased operating temperature range. We also offer a suite of smart battery products that include real time battery monitoring as well as voltage, temperature and current cut-off technologies. Most recently we added a line of high temperature super capacitors to our portfolio, further extending our capabilities in ruggedized, high temperature energy storage. ### Patents and Proprietary Technology Our policy is to protect our intellectual property rights related to our technologies and products, and we rely on a combination of patents, licenses, trade secrets and know-how to establish and protect our rights. Where appropriate, we apply for U.S. and foreign patents. We also are a party to license agreements with third parties under which we have obtained, on varying terms, exclusive or non-exclusive rights to patents held by them. In the aggregate, these intellectual property assets and licenses are of material importance to our business; however, we believe that no single patent, technology, trademark, intellectual property asset or license is material in relation to any segment of our business or to our business as a whole. As of December 31, 2022, we owned 672 U.S. and foreign patents, and have license right to another 398 patents. Design, development and regulatory aspects of our business also provide competitive advantages, and we require our employees, consultants and other parties having access to our confidential information to execute confidentiality agreements. These agreements prohibit disclosure of confidential information to third parties, except in specified circumstances. In the case of employees and consultants, the agreements generally provide that all confidential information relating to our business is the exclusive property of Integer. ### Manufacturing, Regulatory and Quality Assurance We leverage our strength as an innovative designer and manufacturer of finished devices and components to the medical device industry. Our manufacturing and engineering services include: design, testing, component manufacture, and device manufacture. We also provide regulatory services including product registration and post-market surveillance in accordance with the regulatory requirements of the U.S. and European Union (“EU”) as well as other geographies. We have integrated our proprietary technologies in our own products and those of our customers. Our flexible, high productivity manufacturing capabilities span sites across the U.S., Mexico, Uruguay, Ireland, Malaysia, the Dominican Republic, and Israel. Due to the highly regulated nature of the products we produce, we have implemented strong quality systems across all sites. The quality systems at our sites are compliant with and certified to various recognized international standards, requirements, and directives. Each site’s quality system is certified under an applicable International Organization for Standardization (“ISO”) quality system standard, such as ISO 13485 (Medical device and component sites) or ISO 9001 (Electrochem). This certification requires, among other things, an implemented quality system that applies (where applicable) to the design and manufacture of components, assemblies and finished medical devices, including component quality and supplier control. Maintenance of these certifications for each facility requires periodic re-examination from an independent notified body. Along with ISO 13485, the facilities producing finished medical devices are subject to oversight by Notified Bodies and extensive and rigorous regulation by numerous government bodies, including the U.S. Food and Drug Administration (“FDA”) and other international regulatory agencies, to assure the conformance of devices and components on a worldwide basis. For these facilities, we maintain FDA registration and compliance with all applicable domestic and international regulations. Compliance with applicable regulatory requirements is subject to continual review and is monitored through periodic inspections by the FDA and international regulatory bodies. ### Suppliers and Raw Materials We purchase some critical raw materials from a limited number of suppliers due to the technically challenging requirements of the supplied product and/or the lengthy process required to qualify these materials both internally and with our customers. We cannot quickly establish additional or replacement suppliers for these materials because of these rigid requirements. For these critical raw materials, we maintain safety stocks and partner with suppliers through contract to help ensure the continuity of supply. Many of the raw materials that are used in our products are subject to fluctuations in market price. In particular, the prices of precious metals, such as platinum, have historically fluctuated, and the prices that we pay for these materials, and, in some cases, their availability, are dependent upon general market conditions. In most cases, we have pass-through pricing arrangements with our customers that purchase components containing precious metals or have established firm-pricing agreements with our suppliers that are designed to minimize our exposure to market fluctuations. We utilize competitive pricing methods such as bulk purchases, precious metal pool buys, blanket orders, and long-term contracts to secure supply. As discussed more fully in Item 1A “Risk Factors” of this report, our business depends on a continuous supply of raw materials from a limited number of suppliers. If an unforeseen interruption of supply were to occur, we may be unable to obtain substitute sources for these raw materials on a timely basis, on terms acceptable to us or at all, which could harm our ability to manufacture our products profitably or on time. Additionally, we may be unable to quickly establish additional or replacement suppliers for these materials as there are a limited number of worldwide suppliers. ### Working Capital Practices Our goal is to carry sufficient levels of inventory to ensure that we have adequate supply of raw materials from suppliers and meet the product delivery needs of our customers. We also provide and receive payment terms to customers and from suppliers in the normal course of business. It will continue to be a priority for us to maintain appropriate working capital levels while improving our operating cash flow and managing our leverage ratio. ### Government Regulation #### Medical Device Regulation Integer develops, manufactures, markets and sells products in multiple countries throughout the world and is therefore subject to regulation by numerous agencies and legislative bodies, including the FDA, European Commission, Health Product Regulatory Agency, Health Canada, Therapeutics Goods Administration and other comparable foreign counterparts. These regulatory requirements subject our products and our business to numerous risks that are specifically discussed within “Risks Related to Our Industries” under Item 1A “Risk Factors” of this report. A summary of critical aspects of our regulatory environment is included below. In the U.S., these regulations are enacted by the Federal Food, Drug and Cosmetic Act and its subsequent amendments, and the regulations issued or proposed thereunder. The FDA’s Quality System Regulation sets forth basic quality requirements for our sites that includes product design and manufacturing processes, requires the maintenance of certain records, and provides for on-site inspection of our facilities and continuing review by the FDA. Authorization to commercially market our non-exempt products in the U.S. is granted by the FDA under procedures referred to as 510(k) pre-market notification or pre-market approval (“PMA”). These processes require us to notify the FDA of the new product and obtain FDA clearance or approval before marketing the device. The FDA classifies medical devices based on the risks associated with use of the device. Devices are classified into one of three categories - Class I, Class II, or Class III. Class I devices are deemed to be low risk and are therefore subject to the least regulatory controls, referred to as General Controls. Class II devices are higher risk devices than Class I and require greater regulatory controls that includes General Controls combined with Special Controls. Special Controls define the specific risks to health along with an optional means for addressing those risks. Class III devices are generally the highest risk devices and are therefore subject to the highest level of regulatory control, requiring a PMA by the FDA before they are marketed and continued controls in the form of amendments or supplements which require approval prior to making certain product or process changes. The member countries of the EU have a single set of requirements that apply to all member countries and our products. The EU is in the process of replacing its regulatory requirements from the European Medical Device Directives (“MDD” and Active Implantable Medical Device Directive (“AIMDD”) to the European Medical Device Regulation (“EU-MDR”). The EU MDR became effective in May 2021, resulting in additional premarket and post-market requirements which must be in place by May 2024. These directives require, and the EU-MDR requires, companies that wish to manufacture and distribute medical devices in the EU to obtain a CE Mark for those products. The CE Mark indicates the product has met minimum standards of performance, essential requirements, safety conformity assessment and quality. Companies must work with an EU recognized Notified Body to gain approval for the product and manufacturing site before obtaining free movement of products throughout the member countries. In Europe, our devices are considered either Class I, Class IIa, Class III, or AIMD, under MDD or AIMDD and will be with Class I, Class IIa or Class III under the EU-MDR. In addition to the U.S. and EU, we have approval to manufacture or market our products in numerous foreign countries and therefore are subject to other regulations affecting, among other things, product standards, sterilization, packaging requirements, labeling requirements, and import laws. We are also subject to onsite inspection by independent bodies with the authority to issue or not issue certifications we may require to be able to sell products in certain countries. Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA or EU; however, others vary widely, ranging from simple product registrations to detailed submissions such as those required by the FDA. We believe that the procedures we use for quality controls, development, testing, manufacturing, labeling, marketing and distribution of our medical devices conform to the requirements of all pertinent regulations. #### Environmental Health and Safety Laws We are subject to direct governmental regulation, including the laws and regulations generally applicable to all businesses in the jurisdictions in which we operate. We are subject to federal, state and local environmental laws and regulations governing the emission, discharge, use, storage and disposal of hazardous materials and the remediation of contamination associated with the release of these materials at our facilities and at off-site disposal locations. Our manufacturing and research, development and engineering (“RD&E”) activities may involve the controlled use of small amounts of hazardous materials. Liabilities associated with hazardous material releases arise principally under the Federal Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws that impose strict, joint and several liability on owners and operators of contaminated facilities and parties that arrange for the offsite disposal of hazardous materials. We are not aware of any material noncompliance with the environmental laws currently applicable to our business and we are not subject to any material claim for liability with respect to contamination at any of our facilities or any offsite location. We may have environmental liability associated with historic operations as disclosed in Note 13, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. We may also become subject to environmental liabilities in the future as a result of other historic or current operations. #### Conflict Minerals and Supply Chain We are subject to Securities and Exchange Commission (“SEC”) rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning “conflict minerals” (generally tin, tantalum, tungsten and gold) and similar rules adopted by the EU. Certain of these conflict minerals are used in the manufacture of our products. These rules require us to perform an inquiry of all suppliers regarding the country of origin for materials or components containing conflict minerals necessary to the production or functionality of our products. If any such conflict minerals originated in the Democratic Republic of the Congo or adjoining countries (the “DRC region”), we must undertake due diligence efforts to determine whether such minerals financed or benefited armed groups in the DRC region. Since our supply chain is complex, our ongoing compliance with these rules could affect the pricing, sourcing and availability of conflict minerals used in the manufacture of our products. We are also subject to disclosure requirements regarding abusive labor practices in portions of our supply chain under the California Transparency in Supply Chains Act and the UK Modern Slavery Act. #### Other Laws and Regulations Our sales and marketing practices are subject to regulation by the U.S. Department of Health and Human Services pursuant to federal anti-kickback laws, and are also subject to similar state laws. ### Human Capital Our Board of Directors and the executive team put significant focus on our human capital resources, as we strive to build leadership capability and create a diverse, inclusive work environment that inspires excellence. This cultural framework recognizes the value of individuals as critical to Integer’s operational strategy. As of December 31, 2022, Integer employed approximately 10,000 associates in addition to a contingent workforce of approximately 100 to assist with various projects and service functions and address peaks in staff requirements. We are a global company serving markets worldwide. As of December 31, 2022 our workforce is distributed as follows: - 43% in the U.S.; - 26% in Mexico; - 17% in Ireland; - 8% in the Dominican Republic; - 3% in both Uruguay and Malaysia; and - less than 1% combined in Germany, Israel and Switzerland. #### Associate Management and Development Leaders at Integer are responsible for managing and developing the talent of their associates. To facilitate leaders’ efforts, we rely on a “Talent Cycle” framework, which is a holistic, integrated approach for meeting the human capital needs of Integer. The Talent Cycle (i) defines the major categories of leadership responsibilities in alignment with the employment lifecycle and (ii) prioritizes programs and resources to ensure these responsibilities are executed consistently. Stages of the Talent Cycle include: - Planning for current and future capabilities - Acquiring the critical talent needed to run our business - Engaging our associates to motivate and retain them - Differentiating our talent at all levels to foster a performance culture - Developing our talent to achieve performance excellence - Building leadership capability and promoting associates who have demonstrated strong leadership capability Developing our talent is one of the most critical stages in the Talent Cycle and an ongoing focus at Integer. We have defined a model of core skills and competencies to guide associates in their development planning, and we encourage associates to actively focus on their own development though individual development plans, designed to help each associate be more effective in their current role and to prepare for their next role. Additionally, we regularly conduct talent reviews and succession planning to identify and develop our top leadership talent. Finally, all associates participate in our performance management process, which involves both ongoing feedback and a formal performance evaluation at year-end. #### Leadership Development Our success as a company is tied to the effectiveness of our leaders in setting direction, aligning resources and engaging our workforce in accomplishing our strategic goals. To that end we have built a foundation of leadership development resources and programs to enhance our leaders’ capabilities. This includes leadership competencies, 360-degree feedback for senior leadership, and various online and virtual programs aligned to our leadership competencies. #### Competitive Pay/Benefits and Gender Equity Our total rewards program is designed to attract, retain and motivate associates to contribute to Integer’s success, and includes market-competitive elements reflective of the geographies in which we operate. We incorporate many factors into associate pay decisions, including market comparisons of compensation and benefits for similar roles, individual associate skills and experience in their role, individual performance annually and over multiple years, and relative contributions to the Company’s short- and long-term success. As of December 31, 2022, the percentage of our global workforce represented by women was 48%. Reflective of our commitment to diverse representation at Integer, we have analyzed the compensation of our senior leadership team and concluded there is no pay gap between genders. #### Focus on Diversity, Inclusion and Non-Discrimination Through our values, Code of Conduct, and commitment to Diversity and Inclusion (“D&I”), we strive to create a culture that unifies and embraces the uniqueness each associate brings to Integer, positioning us for long-term success. We are committed to creating a better, more inclusive company in which all of us accept, respect and value one another’s individual differences, encouraging different perspectives and ideas that improve team synergy and communication. Our management approach continues to accelerate our D&I strategy, creating a robust engagement platform designed to increase innovation and enhance business. We have infused D&I into our business processes and created local and global engagement opportunities for associates. Key successes in our strategy include: - As of December 31, 2022, 42% of our U.S. based workforce are people of color - Globally, 48% of our workforce as of December 31, 2022 are women - 100% executive leadership actively serve as executive sponsors of D&I initiatives - Each member of our senior leadership team adopted a culture focused goal, and 31% of these goals relate to D&I - Continuing with three cross functional governing D&I councils, which advance the global D&I strategy at all levels of the organization - Establishing three additional employee resource groups, bringing our total up to six groups, which are voluntary, employee-led groups of associates who join together based on common interests, backgrounds or demographic factors - Empowering D&I site champions, whose responsibility it is to promote the Integer’s diversity and inclusion initiatives at each of our locations - Expanded our Day of Understanding to a month-long observance of D&I in 2022 As part of our management approach and culture of promoting, protecting and respecting all associates, we continue to encourage a workplace free from discrimination or unlawful harassment. We continue to achieve our goal of 100% of associates globally completing annual Code of Conduct and Anti-Harassment, Non-Discrimination and Anti-Retaliation training. Training is conducted in multiple languages, including English, Spanish and Malay, covering all legal and ethical requirements, and is provided when onboarding all associates hired at Integer and conducted annually thereafter. In addition, all Board members and professional and management associates are required to annually review and certify their understanding of, and agreement to comply with, the Code of Conduct. ### Seasonality Our business is generally not seasonal in nature. However, since most of our customers are large OEM businesses, our sales are influenced by the inventory levels they carry, which can cause shifts in our sales volume as their inventories fluctuate. ### Available Information Our Internet address is www.integer.net. We also make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC. The information contained on our website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov. ### INFORMATION ABOUT OUR EXECUTIVE OFFICERS Information concerning our executive officers is presented below as of February 21, 2023. The officers’ terms of office run from year to year until the first meeting of the Board of Directors occurring immediately following our Annual Meeting of Stockholders, and until their successors are elected and qualified, except in the case of earlier death, retirement, resignation or removal. Joseph W. Dziedzic, age 54, is President and Chief Executive Officer of the Company and a member of our Board of Directors. He assumed that role on July 16, 2017 following his appointment as interim President & Chief Executive Officer on March 27, 2017. Mr. Dziedzic was the Executive Vice President and Chief Financial Officer of The Brink’s Company from 2009 to 2016, and prior to joining The Brink’s Company in 2009, he had a 20-year career with General Electric. Jason K. Garland, age 49, is the Company’s Executive Vice President and Chief Financial Officer. Mr. Garland had served as Divisional Vice President & Chief Financial Officer, Global Sales, for Tiffany & Co. from October 2017 until joining the Company in October 2018, and had served as Divisional Vice President & Chief Financial Officer, Diamond & Jewelry Supply, for Tiffany & Co. from July 2015 to October 2017. From 1995 to 2015, Mr. Garland served in various financial and operational roles at General Electric, including as Chief Financial Officer, GE Industrial Solutions, from March 2010 to June 2015. Jennifer M. Bolt, age 54, is Executive Vice President, Global Operations and ESG, and has served in that position since April 2019. Ms. Bolt was promoted from Senior Vice President to Executive Vice President in March 2022. From October 2015 to April 2019, Ms. Bolt served as President, Electrochem. In November 2017, Ms. Bolt assumed leadership of the Portable Medical product line, and in February 2018, she assumed leadership for the Integer Manufacturing Excellence strategic imperative. From June 2013 to October 2015, she was Vice President, Supply Chain and Operational Excellence for Greatbatch. Ms. Bolt held the position of Vice President, Operations for Electrochem from May 2012 to June 2013, and prior to that served as Director of Operations of our Raynham, MA facility from September 2007 to May 2012. Ms. Bolt joined our Company in May 2005 as the Manufacturing Engineering Manager for our Alden, New York facility. Prior to joining our Company, she served in a variety of engineering and operational roles at General Motors/Delphi and Eastman Kodak. Margaret Carthy, age 59, is Senior Vice President, Quality and Regulatory Affairs. She joined the Company in 2004 and was promoted to her current position in January 2022. Before assuming this role, Ms. Carthy served as Vice President of Quality and Regulatory for our Cardio & Vascular product category. Prior to joining our Company, Ms. Carthy was a Quality & Regulatory Leader for the European Region at Sola International, now Carl Zeiss. Payman Khales, age 53, is President, Cardio & Vascular, and joined the Company on February 20, 2018. Mr. Khales is also the leader for the Integer Market Focused Innovation strategic imperative. Prior to joining Integer, Mr. Khales was the President of the Environmental Technologies Segment at CECO Environmental Company from May 2014 through July 2017. Previously, he was employed by Ingersoll Rand Company where he held a variety of different roles in the United States and Canada, including Vice President Product Management for the global Power Tools division from January 2012 through April 2014, and Vice President Strategic Accounts & Channels from February 2010 through December 2011. McAlister C. Marshall, II, age 53, is Senior Vice President, General Counsel, Chief Ethics and Compliance Officer and Corporate Secretary. He joined the Company in September 2021 on an interim basis and assumed his current role on a permanent basis in January 2022. Mr. Marshall was previously the Senior Vice President, General Counsel and Chief Administrative Officer at The Brink’s Company from July 2016 until December 2018, after serving as Vice President and General Counsel beginning in September 2008. Mr. Marshall continued to serve as a consultant for The Brink’s Company until December 2019. Andrew Senn, age 41, is Senior Vice President, Strategy, Business Development and Investor Relations. Mr. Senn was promoted to the position of Senior Vice President, Strategy and Business Development in January 2022 and assumed the Investor Relations responsibilities in February 2023. From October 2015 to January 2022, Mr. Senn served as Vice President in various roles responsible for research & development, marketing and commercial sales. From January 2013 until the Company’s acquisition of Lake Region Medical in October 2015, he was responsible for research & development and program management for Lake Region Medical. Prior to joining Lake Region Medical, Mr. Senn served as Director of Program Management responsible for electrophysiology systems at St. Jude Medical from June 2009 until January 2013. From June 2003 to June 2009, Mr. Senn served in various engineering and program management roles at Lake Region Medical. Kirk Thor, age 59, is Executive Vice President and Chief Human Resources Officer. From 2013 until joining the Company in January 2018, Mr. Thor was Vice President for Global Talent Management & Organization Effectiveness at Flowserve Corporation. From 2007 to 2012, he served as Vice President for Talent Management & Organization Development at JC Penney. In February 2018, he assumed leadership for the Integer Culture strategic imperative. ### CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Some statements contained in this report and other written and oral statements made from time to time by us and our representatives are not statements of historical or current fact. As such, they are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations, and these statements are subject to known and unknown risks, uncertainties and assumptions. Forward-looking statements include statements relating to: - the impact of the COVID-19 global pandemic and supply chain pressures on the Company and our business; - future development and expected growth of our business and industry; - our ability to execute our business model and our business strategy; - having available sufficient cash and borrowing capacity to meet working capital, debt service and capital expenditure requirements for the next twelve months; and - projected contractual debt service obligations. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or variations or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those stated or implied by these forward-looking statements. In evaluating these statements and our prospects, you should carefully consider the factors set forth below. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary factors and to others contained throughout this report. While it is not possible to create a comprehensive list of all factors that may cause actual results to differ from results expressed or implied by our forward-looking statements or that may affect our future results, some of these factors include the following: - operational risks, such as the duration, scope and impact of the COVID-19 pandemic, including the evolving health, economic, social and governmental environments and the effect of the pandemic on our associates, suppliers and customers as well as the global economy; our dependence upon a limited number of customers; pricing pressures and contractual pricing restraints we face from customers; our reliance on third party suppliers for raw materials, key products and subcomponents; interruptions in our manufacturing operations; our ability to attract, train and retain a sufficient number of qualified associates to maintain and grow our business; the potential for harm to our reputation caused by quality problems related to our products; our dependence upon our information technology systems and our ability to prevent cyber-attacks and other failures; global climate change and the emphasis on ESG matters by various stakeholders; and our dependence upon our senior management team and technical personnel; - strategic risks, such as the intense competition we face and our ability to successfully market our products; our ability to respond to changes in technology; our ability to develop new products and expand into new geographic and product markets; and our ability to successfully identify, make and integrate acquisitions to expand and develop our business in accordance with expectations; - financial risks, such as our significant amount of outstanding indebtedness and our ability to remain in compliance with financial and other covenants under the credit agreement governing our senior secured credit facilities (“Senior Secured Credit Facilities”); economic and credit market uncertainties that could interrupt our access to capital markets, borrowings or financial transactions; financial and market risks related to our international operations and sales; our complex international tax profile; and our ability to realize the full value of our intangible assets; and - legal and compliance risks, such as regulatory issues resulting from product complaints, recalls or regulatory audits; the potential of becoming subject to product liability or intellectual property claims; our ability to protect our intellectual property and proprietary rights; our ability and the cost to comply with environmental regulations; our ability to comply with customer-driven policies and third party standards or certification requirements; our ability to obtain necessary licenses for new technologies; legal and regulatory risks from our international operations; and the fact that the healthcare industry is highly regulated and subject to various regulatory changes; and - other risks and uncertainties that arise from time to time and are described in Item 1A “Risk Factors” of this report. ## Risk factors As filed, 62,227 characters. Our business faces many risks, and you should carefully consider the following risk factors, together with all of the other information included in this report, including the financial statements and related notes contained in Item 8 of this report, when deciding to invest in us. Any of the risks discussed below, or elsewhere in this report or in our other SEC filings, could have a material impact on our business, financial condition or results of operations. Additional risks not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition or results of operations in the future. ### Operational Risks **Our operations have been and may continue to be adversely impacted by the ongoing global impact of the COVID-19 pandemic.** The global spread of COVID-19 and its variants has created significant uncertainty and worldwide economic disruption. COVID-19 has negatively impacted our operating results and may continue to do so in the future. The duration and scope of the impact is uncertain given the evolving health, economic, social and governmental environments. Specific impacts to our business have included delayed and reduced customer orders, increased absenteeism, disruptions in our supply chain, delays in shipments to and from certain countries, and restrictions on our associates’ ability to travel or work. We expect delayed and reduced customer demand will continue to impact our operations. The pandemic has affected and continues to affect our manufacturing facilities and our associates’ health. If the operations of any of our manufacturing sites are materially impacted as a result of the pandemic, it may not be possible for us to continue to timely manufacture relevant products at required levels, or at all. We have modified, and may further modify, our business practices in response to the COVID-19 pandemic and related third-party responses, including from government authorities. Any continued or renewed business closures, operating disruptions, or travel or work restrictions that impact our associates, customers, suppliers or manufacturing facilities will likely continue to adversely affect our operations locally and worldwide and could have a material adverse effect on our operating results and financial condition. The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel, transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides, which could be impacted by a number of factors, including limited provider capacity to perform procedures using our products that were deferred as a result of the pandemic. **We depend heavily on a limited number of customers, and if we lose any of them or they reduce their business with us, we would lose a substantial portion of our revenues.** In 2022, our top three customers collectively accounted for approximately 46% of our revenues. Reductions in demand from these customers, largely because of reduction in demand for medical procedures during the COVID-19 pandemic, has negatively impacted our results of operations during prior fiscal years and may impact our future results of operations if material reductions in demand recur. These customers may not agree to renew or extend our supply agreements with them. Furthermore, many of our supply agreements do not contain minimum purchase level requirements and therefore there is no guaranteed source of revenue that we can depend upon under these agreements. In addition, we are dependent on the continued growth, viability and financial stability of these customers. The markets in which these customers operate are subject to rapid technological change, vigorous competition and short product life cycles. As a result, when these customers are adversely affected by these factors, we may be similarly adversely affected. The loss of any large customer, a material reduction of business with that customer, or a delay or failure by that customer to make payments due to us, would harm our business, financial condition and results of operations. **We are subject to pricing pressures from customers and contractual pricing constraints, which could harm our operating results and financial condition.** Given the highly competitive industry in which we operate, we have reduced prices to some of our customers in recent years and we expect customer pressure for continued price reductions in future periods. These additional price reductions, if they were to occur, may cause our operating results and financial condition to suffer. **We rely on third party suppliers for raw materials, key products and subcomponents. Unavailability of, or increased prices for, these materials, products or subcomponents could adversely affect our results of operations.** Our business depends on a continuous supply of raw materials. The principal raw materials used in our business include platinum, stainless steel, gold, titanium, nitinol, lithium, palladium, iridium, tantalum, nickel cobalt, ruthenium, gallium trichloride, vanadium oxide, CFx and plastics. The supply and price of raw materials may be susceptible to fluctuations due to transportation issues, government regulations, price controls, foreign civil unrest, tariffs, worldwide economic conditions or other unforeseen circumstances, including the continuing impact of the global pandemic. Increasing global demand for raw materials has caused prices of certain materials to increase. Significant increases in the cost of raw materials that cannot be recovered through increases in the prices of our products could adversely affect our results of operations. There can be no assurance that the marketplace will support higher prices or that price increases and productivity gains, procurement deflation projects or savings will fully offset any raw material cost increases in the future. In addition, there are a limited number of worldwide suppliers of several raw materials needed to manufacture our products. For reasons of quality, cost effectiveness or availability, we obtain some raw materials from a single supplier. Although we work closely with our suppliers to seek to ensure continuity of supply, we may not be able to continue to procure raw materials critical to our business at all or to procure them at acceptable price levels. A disruption in deliveries from our suppliers, price increases or decreased availability of raw materials could have an adverse effect on our ability to meet our commitments to our customers and increase our operating costs. We rely on third party manufacturers to supply many of the products and subcomponents that are incorporated into our products and components. These third party manufacturers have their own complex supply chains and related risks, whether due to the continuing impact of the global pandemic, the military conflict between Russia and Ukraine, or other causes. They are subject to raw material price and availability risks similar to those described above. Manufacturing problems may occur with these and other outside sources, as a supplier may fail to develop or manufacture products and subcomponents for us on a timely basis, or may supply us with products and subcomponents that do not meet our quality, quantity and cost requirements. Third party suppliers are also subject to shipping risks, including container shortages, blocked shipping lanes, and port backlogs. If any of these problems occur, we may be unable to obtain substitute sources for these products and subcomponents on a timely basis or on terms acceptable to us, which could harm our ability to manufacture our own products and components profitably or on time. In addition, to the extent the processes our suppliers use to manufacture products and subcomponents are proprietary, we may be unable to obtain comparable products and subcomponents from alternative suppliers. Our business is also subject to risks associated with U.S. and foreign legislation, regulations and trade agreements relating to the materials we import, including the tariffs on steel that the U.S. has imposed and other quotas, duties, tariffs or taxes or restrictions on imports, which could adversely affect our operations and our ability to import materials used in our products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties (including antidumping or countervailing duties), tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased or other restrictions on our imports will be imposed in the future or adversely modified, or what effect such actions would have on our costs of operations. Future quotas, duties or tariffs may adversely affect our business, financial condition, results of operations or cash flows. Future trade agreements could also provide our competitors with an advantage over us, or increase our costs, either of which could adversely affect our business, financial condition, results of operations or cash flows. **Interruptions of our manufacturing operations could delay production and adversely affect our operations.** Our products are designed and manufactured in facilities located around the world. In most cases, the manufacturing of specific product lines is concentrated in one or a few locations. If an event (including any weather or natural disaster-related event) occurred that resulted in material damage or loss of one or more of these manufacturing facilities or we lacked sufficient labor to fully operate the facility, we might be unable to transfer the manufacture of the relevant products to another facility or location in a cost-effective or timely manner, if at all. This potential inability to transfer production could occur for a number of reasons, including but not limited to a lack of necessary relevant manufacturing capability at another facility, or the regulatory requirements of the FDA or other governmental regulatory bodies. Other disruptions in our manufacturing operations for any reason, including equipment malfunction, failure to follow specific protocols and procedures, or environmental factors could lead to an inability to supply our customers with our products, unanticipated costs, lost revenues and damage to our reputation. The ongoing COVID-19 pandemic has caused, and may continue to cause, delays in production, unanticipated costs and lost revenues. In addition, our business involves complex manufacturing processes and the use of various hazardous materials, chemicals and other regulated substances, such as trichloroethylene, that can be dangerous to our associates. We must also comply with various health and safety regulations in the U.S. and abroad in connection with our operations. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur. Any accident, such as a chemical spill or fire, could result in significant manufacturing delays or claims for damages resulting from injuries, which would harm our operations and financial condition. The potential liability resulting from any such accident or death, to the extent not covered by insurance, could harm our financial condition or operating results. Any disruption of operations at any of our facilities, and in particular our larger facilities, could result in production delays, which could adversely affect our operations and harm our business. **We may not be able to attract, train and retain a sufficient number of qualified associates to maintain and grow our business.** We monitor the markets in which we compete and assess opportunities to better align expenses with revenues, while preserving our ability to make needed investments in RD&E projects, capital and our associates that we believe are critical to our long-term success. Our success will depend in large part upon our ability to attract, train, retain and motivate highly skilled associates. There is currently aggressive competition for employees who have experience in technology and engineering. We compete intensely with other companies to recruit and hire from this limited pool, which competition has become more acute since the beginning of the COVID-19 pandemic. The industries in which we compete for employees are characterized by high levels of employee attrition. Although we believe we offer competitive salaries and benefits, we may have to increase spending to attract, train and retain qualified personnel. If we are unable to attract, train and retain a sufficient number of qualified associates to maintain and grow our business, it could have an adverse impact on our results of operations. **Quality problems with our products could result in warranty claims and additional costs, could harm our reputation and could erode our competitive advantage.** Quality is important to us and our customers, and our products are held to high quality and performance standards. In the event our products fail to meet these standards, we generally allow customers to return defective or damaged products under warranty. We carry a safety stock of inventory for our customers that may be impacted by warranty claims. We reserve for our exposure to warranty claims based upon recent historical experience and other specific information as it becomes available. However, these reserves may not be adequate to cover future warranty claims. If our reserves for warranty claims are inadequate, additional warranty costs or inventory write-offs may need to be incurred in the future, which could harm our operating results. We also could be subject to negative publicity and our reputation could be harmed if we fail to meet quality standards. This could erode our competitive advantage over competitors, causing us to lose or see a material reduction in business from customers and resulting in lower revenues. In addition, we might be required to devote significant resources to address any quality issues associated with our products, which could reduce the resources available for product development and other matters. **Our operations are subject to cyber-attacks and other information technology disruptions that could have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.** In the ordinary course of business, our operations are, and in the future are expected to continue to be, dependent on digital technologies and information technology (“IT”) systems. The COVID-19 pandemic has caused us to modify our business practices, including the requirement that many of our office-based employees work from home, at least part-time. As a result, we are increasingly dependent upon our technology systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our technology systems and data. We use these technologies and systems for internal purposes, including data storage, processing and transmissions, as well as in our interactions with customers and suppliers. The security of this information and these systems are important to our operations and business strategy. Our IT systems and infrastructure have been, and in the future are expected to continue to be, subject to the risk of cyber-attacks by hackers or malware, or breach due to associate error, malfeasance or other disruptions, including natural disasters, failures in hardware or software, and power fluctuations. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage infrastructure and systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. If our systems for protecting against cybersecurity risks or other IT disruptions prove insufficient, our business could be disrupted, resulting in numerous consequences, including temporary or permanent loss of, damage to, third party access to, or misappropriation or public disclosure of intellectual property, proprietary or confidential information, or customer, supplier, or employee data; interruption of our business operations; and increased costs required to prevent, respond to, or mitigate such cybersecurity attacks or IT disruptions. In addition, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed or stolen. These risks could harm our reputation and brand, and our relationships with customers, suppliers, employees and other third parties, and may result in claims or proceedings against us. In certain circumstances, we may rely on third party vendors to process, store and transmit data for our business whose operations are subject to similar risks. These risks could have a material adverse effect on our business, financial condition and results of operations. While we maintain insurance for cyber events, our insurance may not be sufficient to cover us against all losses that could potentially result from a breach of our systems or loss of sensitive data. **Global climate change and related emphasis on environmental, social and governance ("ESG") matters by various stakeholders could negatively affect our business or stock price.** Customer, investor and employee expectations relating to ESG have been rapidly evolving and increasing. In addition, government organizations are enhancing or advancing legal and regulatory requirements specific to ESG matters. The heightened stakeholder focus on ESG issues related to our business requires the continuous monitoring of various and evolving laws, regulations, standards and expectations and the associated reporting requirements. A failure to adequately meet stakeholder expectations may result in noncompliance, the loss of business, reputational impacts, reduced demand for our stock, diluted market valuation, and an inability to attract customers. In addition, our adoption of certain standards or mandated compliance to certain requirements could necessitate additional investments that could impact our profitability. Climate changes could disrupt our operations by impacting the availability and cost of materials within our supply chain and could also increase our other operating costs. Further, increased public awareness and concern regarding global climate change may result in new or enhanced legal requirements to reduce or mitigate the effects of greenhouse gas emissions. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. Such uncertainty may have an impact on our business, including increased costs of compliance, which may impact our results of operations. **We are dependent upon our senior management team and key technical personnel and the loss of any of them could significantly harm us.** Our future performance depends to a significant degree upon the continued contributions of our senior management team and key technical personnel. In general, only highly qualified and trained scientists have the necessary skills to develop our products, which are often highly technical in nature. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. We face intense competition for these professionals from our competitors, customers and companies operating in our industry, which competition has become more acute during the term of the COVID-19 pandemic. To the extent that the services of members of our senior management team and key technical personnel would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our Company and to develop our products and technology, which could adversely impact our business. We may not be able to locate or employ these qualified personnel on acceptable terms or may need to increase spending to attract these qualified personnel. **Our energy market revenues are dependent on conditions in the oil and natural gas industry, which historically have been volatile.** Sales of our products into the energy market depend upon the condition of the oil and gas industry. We believe it is likely that oil and natural gas prices will continue to fluctuate in the future. The current and anticipated prices of oil and natural gas influence the oil and gas exploration and production industry and are affected by a variety of political and economic factors, including worldwide demand for oil and natural gas, worldwide and domestic supplies of oil and natural gas, the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing, the level of production of non-OPEC countries, the price and availability of alternative fuels, political stability in oil producing regions and the policies of the various governments regarding exploration and development of their oil and natural gas reserves. **Consolidation in the healthcare industry could result in greater competition and reduce our revenues and harm our business.** Many healthcare industry companies are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price reductions for our products or may undertake additional vertical integration or supplier diversification initiatives. If we are forced to reduce our prices, our revenues would decrease and our operating results would suffer. ### Strategic Risks **If we are unable to successfully market our current or future products, our business will be harmed and our revenues and operating results will be adversely affected.** If the markets for our products do not grow as we or industry experts forecast, our revenues could be less than expected. Furthermore, it is difficult to predict the rate at which the markets for our products will grow or if new and increased competition will result in market saturation. Slower growth in the cardiac rhythm management, neuromodulation, cardio and vascular, environmental, military or energy markets in particular would adversely impact our revenues. In addition, we face the risk that our products will lose widespread market acceptance. Our customers may not continue to utilize the products we offer and a market may not develop for our future products. We may at times determine that it is not technically or economically feasible for us to continue to manufacture certain products and we may not be successful in developing or marketing replacement products. Additionally, new technologies that we develop may not be rapidly accepted because of industry-specific factors, including the need for regulatory clearance, entrenched patterns of clinical practice and uncertainty over third party reimbursement. If any of these events occurs, our business will be harmed and our revenues and operating results will be adversely affected. **We may face intense competition that could harm our business, including competitors, in-sourcing and the possibility of dual sourcing; and we may be unable to compete successfully against new entrants and established companies with greater resources.** Competition in connection with the manufacturing of our medical products across all of our product lines, which is fragmented and subject to rapid technological change, has intensified in recent years and may continue to intensify in the future. We encounter significant competition across our product lines and in each market in which our medical products are sold from various medical device companies, some of which may have greater financial, operational, personnel, sales, technical and marketing resources than we do and are more well-established. In addition, our medical customers have in the past elected, and may in the future elect, to insource production or implement supplier diversification initiatives. Such actions have in the past resulted in, and may in the future result in, the customer manufacturing or dual-sourcing some or all of the components or products that we currently supply to them, which could cause our operating results to suffer. **If we do not respond to changes in technology, our products may become obsolete or less competitive and we may experience a loss of customers and lower revenues.** We sell our products to customers in several industries that are characterized by extensive research and development, rapid technological changes, new product introductions and evolving industry standards. Without the timely introduction of new products, technologies and enhancements, our products and services will likely become technologically obsolete or less competitive over time and we may lose or see a reduction in business from a significant number of our customers. We dedicate a significant amount of effort and resources to the development of our products, technologies and enhancements. Our product development efforts may be affected by a number of factors, including our ability to anticipate customer needs, develop or acquire new technologies and enhancements, secure intellectual property protection for our products, and manufacture products in a cost effective manner. We would be harmed if we did not meet customer requirements and expectations. Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products, technologies and enhancements could result in a loss of customers and lower revenues. **We intend to develop new products and expand into new geographic and product markets, which may not be successful and could harm our operating results.** We intend to develop new and modified products using our existing technologies and engineering capabilities and to continue to expand into new geographic and product markets. These efforts have required and will continue to require us to make substantial investments, including significant RD&E expenditures and capital expenditures for new, expanded or improved manufacturing facilities. Additionally, many of the new products we are developing take longer and more resources to develop and commercialize than those products we are currently marketing, including more time and resources required to obtain regulatory approvals. Specific risks in connection with expanding into new products and product markets include: longer product development cycles, the inability to transfer our quality standards and technology into new products, the failure to receive or the delay in receipt of regulatory approval for new products or modifications to existing products, and the failure of our existing customers or the market generally to accept the new or modified products. Our inability to develop new products or expand into new geographic and product markets, as currently intended, could hurt our business, financial condition and results of operations. **If we are not successful in making acquisitions to expand and develop our business, our operating results may suffer.** One facet of our growth strategy is to make acquisitions that complement our core competencies in technology and manufacturing to enable us to manufacture and sell additional or enhanced products to our existing customers and to expand our business into related markets. Our continued growth may depend on our ability to successfully identify and acquire companies that complement or enhance our existing business on acceptable terms. We may not be able to identify or complete future acquisitions. In addition, we will need to comply with the terms of our Senior Secured Credit Facilities and any future financing that we may incur, to pursue and complete future acquisitions. In connection with pursuing this growth strategy, some of the risks that we may encounter include expenses associated with and difficulties in identifying potential targets, the costs associated with unsuccessful acquisitions, and higher prices for acquired companies because of significant competition for attractive acquisition targets. **Successful integration and anticipated benefits of acquisitions cannot be assured and integration matters could divert attention of management away from operations.** Part of our business strategy includes acquiring additional businesses and assets, which we have done in each of the last four years. If we do not successfully integrate acquisitions we may not realize anticipated operating advantages and cost savings. Our ability to realize the anticipated benefits from acquisitions will depend, to a large extent, on our ability to integrate these acquired businesses with our legacy businesses. Integrating and coordinating aspects of the operations and personnel of the acquired business with legacy businesses involves complex operational, technological and personnel-related challenges. This process is time-consuming and expensive, disrupts the businesses of both companies and may not result in the achievement of the full benefits expected by us, including cost synergies expected to arise from supply chain efficiencies and overlapping general and administrative functions. The potential difficulties, and resulting costs and delays, include: - managing a larger combined company; - consolidating corporate and administrative infrastructures; - issues in integrating manufacturing, warehouse and distribution facilities, supply chain, RD&E and sales forces; - difficulties attracting and retaining key personnel; - loss of customers and suppliers and inability to attract new customers and suppliers; - unanticipated issues in integrating information technology, communications and other systems; - incompatibility of purchasing, logistics, marketing, administration and other systems and processes; and - unforeseen and unexpected liabilities related to the acquired business. Additionally, the integration of our legacy businesses with an acquired company’s operations, products and personnel may place a significant burden on management and other internal resources. The attention of our management may be directed towards integration considerations and may be diverted from our day-to-day business operations, and matters related to the integration may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to us and our business. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm our business, financial condition and operating results. We may not be able to maintain the levels of operating efficiency that acquired companies have achieved or might achieve separately. Successful integration of each acquisition will depend upon our ability to manage those operations and to eliminate redundant and excess costs. Difficulties in integration may be magnified if we make multiple acquisitions over a relatively short period of time. Because of difficulties in combining and expanding operations, we may not be able to achieve the cost savings and other size-related benefits that we hoped to achieve after these acquisitions. ### Financial Risks **Our operating results may fluctuate, which may make it difficult to forecast our future performance and may result in volatility in our stock price.** Our operating results have fluctuated in the past and are likely to continue to fluctuate from quarter to quarter, making forecasting future performance difficult and resulting in volatility in our stock price. These fluctuations are due to a variety of factors, including the following: - the impact of the ongoing pandemic and the pace of recovery; - timing of orders placed by our customers; - our customers’ approach to inventory management; - changes in the mix of our revenue represented by our various products and customers could result in reductions in our profits if the mix of our revenue represented by lower margin products increases; - a portion of our costs are fixed in nature, which results in our operations being particularly sensitive to fluctuations in production volumes; - increased costs and decreased availability of raw materials or supplies; and - our ability to effectively execute on operational initiatives to drive manufacturing efficiencies. **We have significant indebtedness that could affect our operations, financial condition, and cash flows if we fail to meet certain financial covenants required by our debt agreements or if our access to capital markets is interrupted.** At December 31, 2022, we had $931 million in principal amount of debt outstanding. As of December 31, 2022, our debt service obligations, comprising principal and interest, are estimated to be approximately $78 million for 2023. The outstanding indebtedness and the terms and covenants of the agreements under which this debt was incurred, could, among other things: - require us to dedicate a large portion of our cash flow from operations to the servicing and repayment of our outstanding indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, RD&E expenditures and other general corporate requirements; - limit our ability to obtain additional financing to fund future working capital, capital expenditures, RD&E expenditures and other general corporate requirements in the future; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities; - place us at a competitive disadvantage compared to our competitors that have less outstanding indebtedness; and - adversely affect the market price of our common stock. Additionally, our failure to comply with the covenants contained in our debt agreements, if not waived, could cause a default under the applicable debt agreement that requires repayment in full, or acceleration, of debt payments. If that were to occur, there can be no assurance that we would be able to refinance or obtain a replacement financing on favorable terms or at all. ### The transition away from LIBOR may adversely affect our borrowing costs. In 2017, the U.K.’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intention to phase out LIBOR by the end of 2021. The deadline has been mostly extended and most U.S. dollar-denominated LIBOR maturity tenors will continue to be published until June 30, 2023. Our Senior Secured Credit Facilities use LIBOR as a benchmark for determining borrowing rates but also provides for the use of the Secured Overnight Finance Rate (“SOFR”) in the event LIBOR is no longer available. The change to SOFR as the benchmark borrowing rate may result in an effective increase in the applicable interest rate, and thus increased borrowing costs under our Senior Secured Credit Facilities agreement, which could impact our financial condition and results of operations. **Economic and credit market uncertainty could interrupt our access to capital markets, borrowings, or financial transactions to hedge certain risks, which could adversely affect our business prospects and financial condition.** To date, we have been able to access debt and equity financing that has allowed us to complete acquisitions, make investments in growth opportunities and fund working capital requirements. In addition, we enter into financial transactions to hedge certain risks, including foreign exchange and interest rate risk. Our continued access to capital markets, the stability of our lenders under our Senior Secured Credit Facilities and their willingness to support our needs, and the stability of the parties to our financial transactions that hedge risks are essential for us to meet our current and long-term obligations, fund operations, and fund our strategic initiatives. An interruption in our access to external financing or financial transactions to hedge risk could adversely affect our business prospects and financial condition. **Our international sales and operations are subject to a variety of market and financial risks and costs that could affect our profitability and operating results.** Our sales outside the U.S., which accounted for approximately 45% of sales for 2022, and our operations in Europe, Asia, Israel, Mexico, South America and the Caribbean are and will continue to be subject to a number of risks and potential costs, including: - changes in foreign economic conditions or regulatory requirements; - changes in foreign currency exchange rates; - local product preferences and product requirements; - outstanding accounts receivables that take longer to collect than is typical in the U.S.; - difficulties in enforcing agreements through foreign legal systems; - less protection of intellectual property in some countries outside of the U.S.; - trade protection measures and import and export licensing requirements; - work force instability; - political and economic instability; - transportation delays or interruptions; and - complex tax and cash management issues. These risks are also present in connection with our entry into new geographic markets. Additionally, as a result of our international operations, we are subject to exposure from currency exchange rate fluctuations. We purchase forward currency contracts in certain currencies to reduce our exposure; however, these transactions may not be adequate or effective to protect us from the exposure for which they are purchased. Historically, foreign currency exchange rate fluctuations have not had a material effect on our net financial results. However, fluctuations in foreign currency exchange rates could have a significant impact on our financial results in the future. **We have a complex tax profile due to the global nature of our operations and may experience increases and variability in our quarterly and annual effective tax rate due to several factors, including changes in the mix of pre-tax income and the jurisdictions to which it relates, business acquisitions, settlements with taxing authorities, and changes in tax rates.** Our global operations encompass multiple taxing jurisdictions. Variability in the mix and profitability of domestic and international activities, identification and resolution of various tax uncertainties, changes in tax laws and rates, and the extent to which we are able to realize net operating loss and other carryforwards included in deferred tax assets and avoid potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our effective income tax rate in the future. Changes in international tax laws or additional changes in U.S. tax laws could materially affect our financial position and results of operations. The EU and many of its member countries, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering tax law changes that would negatively impact our effective tax rate. If tax laws and related regulations change, our financial results could be materially impacted. Given the unpredictability of these possible changes and their potential interdependency, it is possible such changes could adversely impact our financial results. Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of income and losses in these jurisdictions affects our effective tax rate. For example, relatively more income in higher tax rate jurisdictions would increase our effective tax rate and thus lower our net income. Similarly, if we generate losses in tax jurisdictions for which no benefits are available, our effective income tax rate will increase. Our effective income tax rate may also be impacted by the recognition of discrete income tax items, such as required adjustments to our liabilities for uncertain tax positions or our deferred tax asset valuation allowance. Our effective income tax rate has fluctuated from 10.4% in 2020, to 8.0% in 2021 and to 14.0% for 2022. A significant increase in our effective income tax rate could have a material adverse impact on our earnings. We have recorded deferred tax assets based on our assessment that we will be able to realize the benefits of our net operating losses and other favorable tax attributes. Realization of deferred tax assets involve significant judgments and estimates which are subject to change and ultimately depends on generating sufficient taxable income of the appropriate character during the appropriate periods. Changes in circumstances may affect the likelihood of such realization, which in turn may trigger a write-down of our deferred tax assets, the amount of which would depend on a number of factors. A write-down would reduce our reported net income, which may adversely impact our financial condition or results of operations or cash flows. In addition, we are potentially subject to ongoing and periodic tax examinations and audits in various jurisdictions, including with respect to the amount of our net operating losses and any limitation thereon. An adjustment to such net operating loss carryforwards, including an adjustment from a taxing authority, could result in higher tax costs, penalties and interest, thereby adversely impacting our financial condition, results of operations or cash flows. **We may never realize the full value of our intangible assets, which represent a significant portion of our total assets.** At December 31, 2022, we had $1.8 billion of goodwill and other intangible assets, representing 64% of our total assets. These intangible assets consist primarily of goodwill, trademarks, tradenames, customer lists and patented technology arising from our acquisitions. Goodwill and other intangible assets with indefinite lives are not amortized, but are tested annually or upon the occurrence of certain events that indicate that the assets may be impaired. Definite lived intangible assets are amortized over their estimated useful lives and are tested for impairment upon the occurrence of certain events that indicate that the assets may not be recoverable. We may not receive the recorded value for our intangible assets if we sell or liquidate our business or assets. In addition, our significant amount of intangible assets increases the risk of a large charge to earnings in the event that the recoverability of these intangible assets is impaired. In the event of a significant charge to earnings, the market price of our common stock could be adversely affected. In addition, intangible assets with definite lives, which represent $729.6 million of our net intangible assets at December 31, 2022, will continue to be amortized. These expenses will continue to reduce our future earnings or increase our future losses. The accounting for intangible assets requires reliance on forward looking estimates of sales and/or earnings. Due to the uncertainty surrounding the global pandemic, estimating the future performance of our business is extremely challenging and the range of deviation from internal estimates could be more significant in this environment. As of December 31, 2022, the pandemic has not had an impact on the carrying value of our goodwill and other intangible assets. A prolonged pandemic could have adverse changes on the underlying estimates, assumptions or judgments and could have a material adverse impact on the fair value of our goodwill and other indefinite-lived intangible assets. ### Legal and Compliance Risks **Regulatory issues resulting from product complaints, or recalls, or regulatory audits could harm our ability to produce and supply products or bring new products to market.** The products that we design, manufacture and distribute, including our customers’ finished medical devices, product components that are incorporated into our customers’ finished medical devices, and our own finished medical devices, are designed, manufactured and distributed globally in compliance with applicable regulations and standards. However, a product complaint, recall or negative regulatory audit may cause our products, including product components and finished medical devices, to be removed from the market and harm our operating results or financial condition. In addition, during the period in which corrective action is being taken by us to remedy a complaint, recall or negative regulatory audit, regulators may not allow our new products or components to be cleared for marketing and sale. **If we become subject to product liability claims, our operating results and financial condition could suffer.** Our business exposes us to potential product liability claims, which may take the form of a one-off claim from a single claimant or a class action lawsuit covering multiple claimants. Product failures, including those that arise from the failure to meet product specifications, misuse or malfunction, or design flaws, or the use of our products with other components, systems or medical devices not manufactured or sold by us could result in product liability claims or a recall. Many of our products are components that interact with our customers’ medical devices. For example, our batteries are produced to meet electrical performance, longevity and other specifications, but the actual performance of those products is dependent on how they are utilized as part of our customers’ devices over the lifetime of their products. Product performance and device interaction from time to time have been, and may in the future be, different than expected for a number of reasons. Consequently, it is possible that customers may experience problems with their medical devices that could require device recall or other corrective action, where our batteries met the specification at delivery, and for reasons that are not related primarily or at all to any failure by our product to perform in accordance with specifications. It is possible that our customers (or end-users) may in the future assert that our products caused or contributed to device failure. Even if these assertions do not lead to product liability or contract claims, they could harm our reputation and our customer relationships. Furthermore, the design and manufacturing of finished medical devices of the types that we also produce entail an inherent risk of product liability claims. Some of the medical devices that we manufacture and sell are designed to be implanted into the human body. A number of factors could result in an unsafe condition or injury to, or death of, a patient with respect to these medical devices. These factors could also result in product liability claims, a recall of one or more of our medical devices or a safety alert relating to one or more of our medical devices. Provisions contained in our agreements with key customers attempting to limit our damages, including provisions to limit damages to liability for negligence, may not be enforceable in all instances or may otherwise fail to adequately protect us from liability for damages. Product liability claims or product recalls, regardless of their ultimate outcome and whether related to a product component or a finished medical device, could require us to spend significant time and money in litigation and require us to pay significant damages and could divert the attention of our management from our business operations. The occurrence of product liability claims or product recalls could affect our operating results and financial condition. We carry product liability insurance with coverage that is limited in scope and amount. We may not be able to maintain this insurance at a reasonable cost or on reasonable terms, or at all. This insurance may not be adequate to protect us against product liability claims made against us. **If we are unable to protect our intellectual property and proprietary rights, our business could be harmed.** We rely on a combination of patents, licenses, trade secrets and know-how to establish and protect our rights to our technologies and products. However, these measures afford only limited protection, and our patent rights, whether issued, subject to license or in process, and our other intellectual property protections may be misappropriated, circumvented or invalidated. The laws of some foreign countries do not offer the same level of protection for our intellectual property as the laws of the U.S. Further, no assurances can be given that any patent application we have filed or will file will result in a patent being issued, or that any existing or future patents will afford adequate or meaningful protection against competitors or against similar technologies. In addition, competitors may design around our technology or develop competing technologies that do not infringe our proprietary rights. As patents and other intellectual property protection expire, we may lose our competitive advantage. If third parties infringe or misappropriate our patents or other proprietary rights, our businesses could be seriously harmed. In addition, we cannot be assured that our existing or planned products do not or will not infringe on the intellectual property rights of others or that others will not claim such infringement. Our industry has experienced extensive ongoing patent litigation which can result in the incurrence of significant legal costs for indeterminate periods of time, injunctions against the manufacture or sale of infringing products and significant royalty payments. At any given time, we may be a plaintiff or defendant in these types of actions. We cannot assure you that we will be able to prevent competitors from challenging our patents or other intellectual property rights or entering markets we currently serve. In addition to seeking formal patent protection whenever possible, we attempt to protect our proprietary rights and trade secrets by entering into confidentiality agreements with employees, consultants and third parties with which we do business. However, these agreements may be breached and, if a breach occurs, there may be no adequate remedies available to us and we may be unable to prevent the unauthorized disclosure or use of our technical knowledge, practices or procedures. If our trade secrets become known, we may lose our competitive advantages. **We may be subject to intellectual property claims, which could be costly and time consuming and could divert our management’s attention from our business operations.** In producing our products, third parties may claim that we are infringing on their intellectual property rights, and we may be found to have infringed on those intellectual property rights. We may be unaware of the intellectual property rights of others that may be used in our technology and products. In addition, third parties may claim that our patents have been improperly granted and may seek to invalidate our existing or future patents. If any claim for invalidation prevailed, third parties may manufacture and sell products that compete with our products and our revenues from any related license agreements would decrease accordingly. Former employers of our associates may assert claims that these associates have improperly disclosed to us the confidential or proprietary information of those former employers. We also typically do not receive significant indemnification from parties that license technology to us against third party claims of intellectual property infringement. Any litigation or other challenges regarding our patents or other intellectual property, with or without merit, could be costly and time consuming and could divert the attention of our management and key personnel from our business operations. The complexity of the technology involved in producing our products and the uncertainty of intellectual property litigation increases these risks. If we are not successful in defending these claims, we could be required to stop selling, delay shipments of, or redesign our products, discontinue the use of related technologies or designs, pay monetary amounts as damages, and satisfy indemnification obligations that we have with some of our customers. Claims of intellectual property infringement may also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be made subject to significant damages or injunctions against development and sale of our products. **A failure to comply with customer-driven policies and standards and third-party certification requirements or standards could adversely affect our business and reputation.** Our customers have in the past, and may in the future, require us to comply with their own or third-party quality standards, business policies, commercial terms, or other policies or standards, which have been, and may continue to be, even more restrictive than current laws and regulations as well as our pre-existing policies or terms with our suppliers, before they commence, or continue, doing business with us. These policies or standards may be customer-driven, established by the market sectors in which we operate or imposed by third party organizations. Our compliance with these heightened or additional policies, standards and third-party certification requirements, and managing a supply chain in accordance with those policies, standards and requirements, could be costly and time consuming, and our failure to comply could adversely affect our operations, customer relationships, reputation and profitability. In addition, our adoption of these standards could adversely affect our cost competitiveness and ability to provide customers with required service levels. In certain circumstances, to meet the requirements or standards of our customers, we may be obligated to select certain suppliers or make other sourcing choices, and we may bear responsibility for adverse outcomes even if these matters are the result of third-party actions or outside of our control. **Our failure to obtain licenses from third parties for new technologies or the loss of these licenses could impair our ability to design and manufacture new products and reduce our revenues.** We occasionally license technologies from third parties rather than depending exclusively on our own proprietary technology and developments. Our ability to license new technologies from third parties is and will continue to be critical to our ability to offer new and improved products. We may not be able to continue to identify new technologies developed by others and even if we are able to identify new technologies, we may not be able to negotiate licenses on favorable terms, or at all. Additionally, we may lose rights granted under licenses for reasons beyond our control or if the license has a finite term and cannot be renewed on favorable terms or at all. **Our business is subject to environmental regulations that could be costly to comply with.** Federal, state and local regulations impose various environmental controls on the manufacturing, transportation, storage, use and disposal of batteries and hazardous chemicals and other materials used in, and hazardous waste produced by the manufacturing of our products. Conditions relating to our historical operations, including a former manufacturing facility located in South Plainfield, New Jersey previously operated by a subsidiary of Lake Region Medical, may require expenditures for clean-up in the future that could materially adversely affect our financial results. In addition, changes in environmental laws and regulations may impose costly compliance requirements on us or otherwise subject us to future liabilities. Additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our products or restricting disposal or transportation of batteries may be imposed that may result in higher costs or lower operating results. In addition, we cannot predict the effect that additional or modified environmental regulations may have on us or our customers. **Our international operations expose us to legal and regulatory risks, which could adversely affect our business.** Our profitability and international operations are, and will continue to be, subject to risks relating to changes in foreign legal and regulatory requirements. In addition, our international operations are governed by various U.S. laws and regulations, including the U.S. Foreign Corrupt Practices Act and other similar anti-corruption laws in other countries that prohibit us and our business partners and other intermediaries from making improper payments or offers of payment to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities and could adversely affect our business, reputation, operating results, and financial condition. **The healthcare industry is highly regulated and subject to various political, economic and regulatory changes that could increase our compliance costs and force us to modify how we develop and price our products.** The healthcare industry is highly regulated and is influenced by changing political, economic and regulatory factors. Several of our product lines are subject to international, federal, state and local health and safety, packaging and product content regulations, including the European Medical Device Regulation that went into effect in May 2021, which was adopted by the EU as a common legal framework for all EU member states. In addition, medical devices are subject to regulation by the FDA and similar governmental agencies. These regulations cover a wide variety of product activities from design and development to labeling, manufacturing, promotion, sales and distribution. Compliance with these regulations is time consuming, burdensome and expensive and could adversely affect our ability to sell products. This may result in higher than anticipated costs or lower than anticipated revenues. Furthermore, healthcare industry regulations are complex, change frequently and have tended to become more stringent over time. Federal and state legislatures have periodically considered and implemented programs to reform or amend the U.S. healthcare system at both the federal and state levels. In addition, these regulations may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. We may be required to incur significant expenses to comply with these regulations or remedy past violations of these regulations. Our failure to comply with applicable government regulations could also result in cessation of portions or all of our operations, impositions of fines and restrictions on our ability to carry on or expand our operations. In addition, because many of our products are sold into regulated industries, we must comply with additional regulations in marketing our products. In response to perceived increases in healthcare costs in recent years, there have been and continue to be proposals by the Presidential administrations, members of Congress, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S. healthcare system, including by amending, repealing or replacing the Patient Protection and Affordable Care Act. It is unclear how such reforms will progress under the new presidential administration. Elements of health care reform such as comparative effectiveness research, an independent payment advisory board, payment system reforms including shared savings pilots and other provisions could meaningfully change the way healthcare is developed and delivered, and may materially adversely impact numerous aspects of our business, results of operations and financial condition. **Our business is indirectly subject to healthcare industry cost containment measures that could result in reduced sales of our products.** Several of our customers rely on third party payors, such as government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which our products are used. The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce those costs could lead to patients being unable to obtain approval for payment from these third party payors for procedures in which our products are used. If this occurs, sales of medical devices may decline significantly and our customers may reduce or eliminate purchases of our products, or demand further price reductions. The cost containment measures that healthcare payors are instituting, both in the U.S. and internationally, could reduce our revenues and harm our operating results. ## Properties As filed, 837 characters. Our principal executive office and headquarters is located in Plano, Texas, in a leased facility. As of December 31, 2022, we operated 17 facilities in the U.S., six in Europe, three in Mexico, two in Asia, one in the Dominican Republic, one in South America, and one in Israel. Of these facilities, 24 were leased and 7 were owned. We occupy approximately two million square feet of manufacturing and RD&E space worldwide. We believe the facilities we operate and their equipment are effectively utilized, well maintained, generally are in good condition, and will be able to accommodate our capacity needs to meet current levels of demand. We continuously review our anticipated requirements for facilities and, on the basis of that review, may from time to time acquire additional facilities, expand or dispose of existing facilities. ## Legal proceedings As filed, 203 characters. For information regarding certain legal proceedings pending against us, see Note 13, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. ## Management's discussion and analysis As filed, 54,671 characters. ### OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing in Item 8 of this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors” in Item 1A of this report. Unless otherwise stated, all results and comparisons below represent results from continuing operations. ### Our Business - Our business - Impact of global events - Business acquisitions - Product line sales realignment - Discontinued operations - Financial overview ### Our Financial Results - Fiscal 2022 compared with fiscal 2021 - Liquidity and capital resources - Cash and other commitments - Impact of recently issued accounting standards ### Critical Accounting Estimates - Inventories - Acquisition method of accounting - Valuation of goodwill and intangible assets ### Our Business Integer Holdings Corporation is one of the largest MDO manufacturers in the world serving the cardiac rhythm management, neuromodulation, orthopedics, vascular and advanced surgical markets. We also develop batteries for high-end niche applications in the non-medical energy, military, and environmental markets. Our vision is to enhance the lives of patients worldwide by being our customers’ partner of choice for innovative technologies and services. We organize our business into two reportable segments, Medical and Non-Medical, and derive our revenues from four principle product lines. The Medical segment includes the Cardio & Vascular, Cardiac Rhythm Management & Neuromodulation and Advanced Surgical, Orthopedics & Portable Medical product lines and the Non-Medical segment comprises the Electrochem product line. For more information on our segments, please refer to Note 18, “Segment and Geographic Information,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. ### Impact of Global Events Global economic challenges, including the impact of the war in Ukraine, the COVID-19 pandemic, severe and sustained inflation, a rising interest rate environment, fluctuations in global currencies, and supply chain disruptions may continue to cause economic uncertainty and volatility. The impact of these issues on our business will vary by geographic market and product line, but specific impacts to our business include increased borrowing costs, labor shortages, disruptions in the supply chain, delayed or reduced customer orders and sales, restrictions on associates’ ability to travel or work, and delays in shipments to and from certain countries. We monitor economic conditions closely. In response to reductions in revenue, we can take actions to align our cost structure with changes in demand and manage our working capital. However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions and other developments. ### Business Acquisitions On April 6, 2022, we acquired 100% of the equity interests of Connemara Biomedical Holdings Teoranta, including its operating subsidiaries Aran Biomedical and Proxy Biomedical (collectively “Aran”). A recognized leader in proprietary medical textiles, high precision biomaterial coverings and coatings as well as advanced metal and polymer braiding, Aran delivers development and manufacturing solutions for implantable medical devices. Consistent with our strategy, the combination with Aran further increases our ability to offer complete solutions for complex delivery and therapeutic devices in high growth cardiovascular markets such as structural heart, neurovascular, peripheral vascular, and endovascular as well as general surgery. On December 1, 2021, we acquired 100% of the equity interests of Oscor Inc., Oscor Caribe, LLC and Oscor Europe GmbH (collectively “Oscor”), privately-held companies with operations in Florida, the Dominican Republic and Germany that design, develop, manufacture and market a comprehensive portfolio of highly specialized medical devices, venous access systems and diagnostic catheters and implantable devices. Refer to Note 2, “Business Acquisitions,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about the acquisition of Aran and Oscor. ### Product Line Sales Realignment We have communicated to certain customers our intent to exit certain markets we serve in the Advanced Surgical, Orthopedics & Portable Medical product line. We are working closely with these customers to support the transition of these products to other suppliers. Due to quality and regulatory requirements, we expect it will take three to four years to complete this transition and see the corresponding decline in sales. In order to align with the planned exit of those markets and better align with our end markets and product line strategies, product line sales within the Medical segment have been recast to reflect the reclassification of certain products from the historical product lines to the product lines associated with those revenues that will be utilized for future revenue reporting. We believe the revised presentation will provide improved reporting and better transparency into the operational results of our business and markets. Prior period amounts have been reclassified to conform to the new product line sales reporting presentation. For the years ended December 31, 2021 and 2020, Cardio & Vascular sales of $32.9 million and $31.7 million, respectively, and Advanced Surgical, Orthopedics & Portable Medical sales of $22.8 million and $20.5 million, respectively, were reclassified to the Cardiac Rhythm Management & Neuromodulation product line. ### Discontinued Operations In July 2018, we completed the sale of the AS&O Product Line within our Medical segment. For all periods presented, financial results reported as discontinued operations relate to the divested AS&O Product Line. All results and information presented exclude the AS&O Product Line unless otherwise noted. During 2022, we recognized income from discontinued operations of $1.0 million or $0.03 per diluted share. During 2021, we recognized income from discontinued operations of $3.8 million or $0.11 per diluted share. There was no income from discontinued operations during 2020. Refer to Note 20, “Discontinued Operations,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information. ### Financial Overview #### Fiscal 2022 Compared with Fiscal 2021 Income from continuing operations for 2022 was $65.4 million or $1.96 per diluted share compared to $93.0 million or $2.80 per diluted share for 2021. These variances are primarily the result of the following: - Sales for 2022 increased 13% to $1.376 billion primarily from the Oscor acquisition and continued product demand recovery from the impacts of the COVID-19 pandemic. - Gross profit for 2022 increased $22.0 million or 7%, primarily from higher sales volume, partially offset by increased cost of sales resulting from labor and supply constraints. - Operating expenses for 2022 increased by $36.4 million compared to 2021, due to higher labor costs and restructuring and other charges. - Interest expense for 2022 increased by $7.0 million, due to higher interest rates and average debt outstanding. - We recognized net losses on equity investments of $7.6 million and $3.1 million during 2022 and 2021, respectively. Gains and losses on equity investments are generally unpredictable in nature. - Other (income) loss, net for 2022 and 2021 was income of $0.9 million and $0.1 million, respectively, primarily due to fluctuations in foreign currency gains and losses in the respective periods. - We recorded provisions for income taxes of $10.6 million and $8.0 million for 2022 and 2021, respectively. The changes in income tax were primarily due to relative changes in pre-tax income and the impact of discrete tax items. #### Fiscal 2021 Compared with Fiscal 2020 Income from continuing operations for 2021 was $93.0 million or $2.80 per diluted share compared to $77.3 million or $2.33 per diluted share for 2020. These variances are primarily the result of the following: - Sales for 2021 increased 14% to $1.221 billion as we began to see our sales return to pre-pandemic levels as the demand for many of our products continued to recover from the impacts of the COVID-19 pandemic. - Gross profit for 2021 increased $51.3 million or 18%, primarily from higher sales volume and production efficiencies. - Operating expenses for 2021 increased by $36.2 million compared to 2020, primarily due to increases of $32.4 million in SG&A expenses and $3.5 million in RD&E expenses. Included in SG&A expenses for 2020 is a net gain of $28.2 million recognized in connection with a patent litigation judgment. Refer to Note 13, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information on the patent litigation judgment. - Interest expense for 2021 decreased by $6.6 million primarily due to lower interest rates and lower average outstanding debt balances. - We recognized a net loss on equity investments of $3.1 million in 2021, compared to a net gain on equity investments of $5.3 million during 2020. Gains and losses on equity investments are generally unpredictable in nature. - Other (income) loss, net for 2021 was income of $0.1 million compared to a loss of $1.5 million during 2020, primarily due to fluctuations in foreign currency gains and losses in the respective periods. - We recorded provisions for income taxes of $8.0 million and $8.9 million for 2021 and 2020, respectively. The changes in income tax were primarily due to relative changes in pre-tax income and the impact of discrete tax items. ### Our Financial Results The following table presents selected financial information derived from our Consolidated Financial Statements, contained in Item 8 of this report, for the periods presented (dollars in thousands, except per share amounts): | Medical Sales: | 2022 | 2021 | 2020 | Change 2022 vs. 2021 $% | | Change 2021 vs. 2020 $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Cardio & Vascular | $699,469 | $593,117 | $538,240 | $106,352 | 18% | $54,877 | 10% | | Cardiac Rhythm Management & Neuromodulation | 532,580 | 502,288 | 398,409 | 30,292 | 6% | 103,879 | 26% | | Advanced Surgical, Orthopedics & Portable Medical | 97,502 | 87,221 | 101,329 | 10,281 | 12% | (14,108) | (14)% | | Total Medical Sales | 1,329,551 | 1,182,626 | 1,037,978 | 146,925 | 12% | 144,648 | 14% | | Non-Medical | 46,545 | 38,453 | 35,464 | 8,092 | 21% | 2,989 | 8% | | Total sales | 1,376,096 | 1,221,079 | 1,073,442 | 155,017 | 13% | 147,637 | 14% | | Cost of sales | 1,017,090 | 884,109 | 787,735 | 132,981 | 15% | 96,374 | 12% | | Gross profit | 359,006 | 336,970 | 285,707 | 22,036 | 7% | 51,263 | 18% | | Gross profit as a % of sales | 26.1% | 27.6% | 26.6% | | | | | | Operating expenses: | | | | | | | | | Selling, general and administrative | 160,578 | 141,418 | 109,006 | 19,160 | 14% | 32,412 | 30% | | Research, development and engineering | 60,918 | 51,985 | 48,468 | 8,933 | 17% | 3,517 | 7% | | Restructuring and other charges | 16,183 | 7,856 | 7,621 | 8,327 | 106% | 235 | 3% | | Total operating expenses | 237,679 | 201,259 | 165,095 | 36,420 | 18% | 36,164 | 22% | | Operating income | 121,327 | 135,711 | 120,612 | (14,384) | (11)% | 15,099 | 13% | | Interest expense | 38,632 | 31,628 | 38,220 | 7,004 | 22% | (6,592) | (17)% | | (Gain) loss on equity investments, net | 7,636 | 3,143 | (5,337) | 4,493 | 143% | 8,480 | (159)% | | Other (income) loss, net | (899) | (123) | 1,522 | (776) | NM | (1,645) | NM | | Income from continuing operations before income taxes | 75,958 | 101,063 | 86,207 | (25,105) | (25)% | 14,856 | 17% | | Provision for income taxes | 10,608 | 8,043 | 8,949 | 2,565 | 32% | (906) | (10)% | | Effective tax rate | 14.0% | 8.0% | 10.4% | | | | | | Income from continuing operations | $65,350 | $93,020 | $77,258 | $(27,670) | (30)% | $15,762 | 20% | | Diluted earnings per share from continuing operations | $1.96 | $2.80 | $2.33 | $(0.84) | (30)% | $0.47 | 20% | NM - Calculated change not meaningful. ### Fiscal 2022 Compared with Fiscal 2021 The following discussion is a comparison between results for the years ended December 31, 2022 and 2021. For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 22, 2022. ### Sales Sales by product line for 2022 and 2021 were as follows (dollars in thousands): | Medical Sales: | 2022 | 2021 | Change $% | | | --- | ---: | ---: | ---: | ---: | | Cardio & Vascular | $699,469 | $593,117 | $106,352 | 17.9% | | Cardiac Rhythm Management & Neuromodulation | 532,580 | 502,288 | 30,292 | 6.0% | | Advanced Surgical, Orthopedics & Portable Medical | 97,502 | 87,221 | 10,281 | 11.8% | | Total Medical Sales | 1,329,551 | 1,182,626 | 146,925 | 12.4% | | Non-Medical | 46,545 | 38,453 | 8,092 | 21.0% | | Total sales | $1,376,096 | $1,221,079 | $155,017 | 12.7% | Total 2022 sales increased 13% to $1.376 billion in comparison to 2021. The most significant drivers of this decrease were as follows: Cardio & Vascular (“C&V”) sales for 2022 increased $106.4 million or 18% in comparison to 2021. C&V sales for 2022 reflect strong customer demand, as well as sales from the Oscor and Aran acquisitions. Foreign currency exchange rate fluctuations lowered C&V sales for 2022 by $6.3 million. C&V sales for 2022 include Aran (since the date of acquisition) and Oscor sales totaling $52.1 million. C&V sales for 2021 include Oscor sales since the date of acquisition of $2.9 million. Cardiac Rhythm Management & Neuromodulation (“CRM&N”) sales for 2022 increased $30.3 million or 6% in comparison to 2021. CRM&N sales for 2022 were driven by the Oscor acquisition, with mid-single digit growth in both cardiac rhythm management and neuromodulation. Foreign currency exchange rate fluctuations lowered CRM&N sales for 2022 by $0.1 million. CRM&N sales for 2022 include Oscor sales totaling $41.7 million. CRM&N sales for 2021 include Oscor sales since the date of acquisition of $1.8 million. Advanced Surgical, Orthopedics & Portable Medical (“AS&O”) sales for 2022 increased by $10.3 million in comparison to 2021, primarily due to higher demand to support the start of the multi-year Portable Medical exit announced earlier this year. Foreign currency exchange rate fluctuations lowered AS&O sales for 2022 by $0.1 million. Non-Medical sales for 2022 increased $8.1 million or 21% in comparison to 2021. The sales increase reflects energy market growth and strong demand in military and environmental markets. Foreign currency exchange rate fluctuations did not have a material impact on Non-Medical sales during 2022 in comparison to 2021. ### Gross Profit | | 2022 | 2021 | | --- | ---: | ---: | | Gross profit (in thousands) | $359,006 | $336,970 | | Gross margin | 26.1% | 27.6% | Gross margin for 2022 decreased 150 basis points compared to 2021, primarily driven by incremental labor and supply chain costs related to increased wages, freight and manufacturing inefficiencies from supply chain disruptions. ### SG&A Expenses SG&A expenses comprise the following for 2022 and 2021 (in thousands): | | 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Compensation and benefits(a) | $85,876 | $77,208 | $8,668 | | Amortization expense(b) | 33,136 | 28,507 | 4,629 | | Professional fees(c) | 14,003 | 13,040 | 963 | | Contract services(d) | 10,165 | 8,218 | 1,947 | | Travel and entertainment(e) | 1,690 | 505 | 1,185 | | All other SG&A(f) | 15,708 | 13,940 | 1,768 | | Total SG&A expense | $160,578 | $141,418 | $19,160 | (a) Compensation and benefits increased primarily due to an increase in headcount from the acquisitions of Aran and Oscor. (b) Amortization expense increased due to amortization of intangible assets from the Aran and Oscor acquisitions. (c) Professional fees increased primarily due to inclusion of the operations of Aran and Oscor for all or part of 2022. (d) Contract services expense increased primarily due to higher software costs from information technology enhancements. (e) The increases in travel and entertainment expense was due to a modest return to travel as travel restrictions originally implemented in response to the COVID-19 pandemic ease. (f) The net increase in all other SG&A for 2022 compared to 2021 is primarily attributable to higher rent and insurance from the Aran and Oscor acquisitions. ### RD&E RD&E expenses for 2022 and 2021 were $60.9 million and $52.0 million, respectively. The increase in RD&E expenses for 2022 compared to 2021 was primarily due to investments made to support long-term revenue growth, the timing of program milestone achievements for customer funded programs, and incremental expense due to the Aran and Oscor Acquisitions. RD&E expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations. ### Restructuring and Other Charges We continuously evaluate our business and identify opportunities to realign resources to better serve our customers and markets, improve operational efficiency and capabilities, and lower operating costs. To realize the benefits associated with these opportunities, we undertake restructuring-type activities to transform our business. We incur costs associated with these activities, which primarily include exit and disposal costs and other costs directly related to the restructuring initiative. Restructuring charges include exit and disposal costs from these activities and restructuring-related charges are costs directly related to the restructuring initiatives. In addition, from time to time, we incur costs associated with acquiring and integrating businesses, and certain other general expenses, including asset impairments. Restructuring and other charges comprise the following for 2022 and 2021 (in thousands): | | 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Restructuring charges(a) | 4,920 | 4,804 | 116 | | Acquisition and integration costs(b) | 10,075 | 2,544 | 7,531 | | Other general expenses(c) | 1,188 | 508 | 680 | | Total restructuring and other charges | $16,183 | $7,856 | $8,327 | (a) Restructuring charges for 2022 and 2021 primarily consist of termination benefits associated with our operational excellence and strategic reorganization and alignment initiatives. (b) Amounts for 2022 primarily include expenses related to the Aran and Oscor acquisitions. Amounts for 2021 primarily include expenses related to the Oscor acquisition. The 2022 and 2021 amounts also include $3.1 million and $0.1 million, respectively, of net expense related to adjustments to increase the fair value of acquisition-related contingent consideration liabilities. See Note 17, “Financial Instruments and Fair Value Measurements,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information related to the fair value measurement of the contingent consideration. (c) Amounts include expenses related to other initiatives not described above, which relate primarily to integration and operational initiatives to reduce future costs and improve efficiencies. Refer to Note 11, “Restructuring and Other Charges,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information regarding these initiatives. ### Interest Expense Information relating to our interest expense for 2022 and 2021 is as follows (dollars in thousands): | | 2022 Amount | Rate | 2021 Amount | Rate | Change Amount | Rate (bp) | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Contractual interest expense | $35,282 | 3.80% | $21,042 | 2.99% | $14,240 | 81 | | Loss on interest rate swap | 918 | 0.10 | 3,406 | 0.48 | (2,488) | (38) | | Amortization of deferred debt issuance costs and original issue discount | 1,922 | 0.23 | 3,251 | 0.50 | (1,329) | (27) | | Loss from extinguishment of debt | 114 | 0.01 | 3,774 | 0.54 | (3,660) | (53) | | Interest expense on borrowings | 38,236 | 4.14% | 31,473 | 4.51% | 6,763 | (37) | | Other interest expense | 396 | | 155 | | 241 | | | Total interest expense | $38,632 | | $31,628 | | $7,004 | | Interest expense relates primarily to borrowings made under our Senior Secured Credit Facilities, which consist of a five-year $400 million revolving credit facility (the “Revolving Credit Facility”), a five-year “term A” loan (the “TLA Facility”), and a seven-year “term B” loan (the “TLB Facility”). During 2022, contractual interest expense increased due to higher average debt outstanding combined with increasing applicable interest rates. The higher average debt balance outstanding is the result of borrowings to fund the Oscor and Aran acquisitions, while interest rates have continued to climb due to increases in LIBOR which were partially offset by beneficial changes in our Senior Secured Credit Facilities agreement. During the third and fourth quarters of 2021 we entered into and subsequently amended a new Senior Secured Credit Facilities agreement, which among other changes, lowered the interest rate spreads on our Revolving Credit Facility and TLA Facility by 75 basis points and the LIBOR floor on our TLB facility by 50 basis points. Other components of interest expense on borrowings include gains and losses on interest rate swaps and non-cash amortization and write-off (losses from extinguishment of debt) of deferred debt issuance costs and original issue discount. Interest rate swap includes realized (gains) losses on our interest rate swap contract which fluctuate depending on the spread between the rate swap contract fixed rate and TLA Facility floating rate. Compared to the same periods in 2021, amortization of deferred debt issuance costs and original issue discount decreased as a result of the extended maturity under the new Senior Secured Credit Facilities. The losses from extinguishment of debt during 2022 and 2021 were related to prepayments of portions of the Term Loan B facility. 2021 also included a write-off of $3.3 million of deferred issuance costs and unamortized discount in connection with the refinancing of our credit facilities in September 2021. See Note 8, “Debt,” of the Notes to the Consolidated Financial Statements contained in Item 8 of this report for additional information pertaining to our debt. As of December 31, 2022 and 2021, approximately 11% and 18%, respectively, of our principal amount of debt outstanding has been effectively converted to fixed-rate borrowings through the use of an interest rate swap. We enter into interest rate swap agreements to reduce our exposure to fluctuations in the LIBOR rate. See Note 17, “Financial Instruments and Fair Value Measurements,” of the Notes to the Consolidated Financial Statements contained in Item 8 of this report for additional information pertaining to our interest rate swap agreement. ### (Gain) Loss on Equity Investments, Net During 2022 and 2021, we recognized net losses of $7.6 million and $3.1 million, respectively, on our equity investments. Gains and losses on equity investments are generally unpredictable in nature. During 2021, we recognized impairment charges of $0.1 million related to investments in our non-marketable equity securities. The residual losses for 2022 and 2021 relate to our share of equity method investee gains/losses, including unrealized appreciation and depreciation of the underlying interests of the investee. As of December 31, 2022 and December 31, 2021, the carrying value of our equity investments was $13.9 million and $21.8 million, respectively. See Note 17, “Financial Instruments and Fair Value Measurements,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for further details regarding these investments. ### Other (Income) Loss, Net Other (income) loss, net during 2022 and 2021 was income of $0.9 million and $0.1 million, respectively. Other (income) loss, net primarily includes gains/losses from the impact of exchange rates on transactions denominated in foreign currencies. Our foreign currency transaction gains/losses are based primarily on fluctuations of the U.S. dollar relative to the Euro, Mexican peso, Uruguayan peso, Malaysian ringgits, Dominican peso, or Israeli shekel. The impact of foreign currency exchange rates on transactions denominated in foreign currencies included in Other (income) loss, net for 2022 and 2021 were net gains of $1.1 million and $0.1 million, respectively. We continually monitor our foreign currency exposures and seek to take steps to mitigate these risks. However, fluctuations in foreign currency exchange rates could have a significant impact, positive or negative, on our financial results in the future. ### Provision for Income Taxes During 2022 and 2021, our provision for income taxes was $10.6 million on worldwide pre-tax income of $76.0 million (effective tax rate of 14.0%) and $8.0 million on worldwide pre-tax income of $101.1 million (effective tax rate of 8.0%), respectively. The stand-alone U.S. component of the effective tax rate for 2022 reflected a $4.9 million provision on $14.4 million of pre-tax book income (effective tax rate of 34.2%) versus a $2.0 million provision on $48.3 million of pre-tax book income (effective tax rate of 4.0%) for 2021. The stand-alone International component of the effective tax rate for 2022 reflected a $5.6 million provision on $61.5 million of pre-tax book income (effective tax rate of 9.2%) versus a $6.0 million provision on $52.8 million of pre-tax book income (effective tax rate of 11.4%) for 2021. The provision for income taxes for 2022 differs from the U.S. statutory rate due to the following (dollars in thousands): | | U.S. $% | | International $% | | Combined $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Income before provision for income taxes | $14,446 | | $61,512 | | $75,958 | | | Provision at statutory rate | $3,034 | 21.0% | $12,917 | 21.0% | $15,951 | 21.0% | | Federal tax credits (including R&D) | (9,399) | (65.2) | — | — | (9,399) | (12.4) | | Foreign rate differential | 1,459 | 10.1 | (9,152) | (14.9) | (7,693) | (10.1) | | Stock-based compensation | 2,009 | 13.9 | — | — | 2,009 | 2.6 | | Uncertain tax positions | 2,469 | 17.1 | — | — | 2,469 | 3.3 | | State taxes, net of federal benefit | 978 | 6.8 | — | — | 978 | 1.3 | | U.S. tax on foreign earnings, net of §250 deduction | 5,225 | 36.2 | — | — | 5,225 | 6.9 | | Valuation allowance | (888) | (6.1) | 694 | 1.1 | (194) | (0.3) | | Other | 61 | 0.4 | 1,201 | 2.0 | 1,262 | 1.7 | | Provision for income taxes | $4,948 | 34.2% | $5,660 | 9.2% | $10,608 | 14.0% | \- 37 - The provision for income taxes for 2021 differs from the U.S. statutory rate due to the following (dollars in thousands): | | U.S. $% | | International $% | | Combined $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Income before provision for income taxes | $48,293 | | $52,770 | | $101,063 | | | Provision at statutory rate | $10,141 | 21.0% | $11,082 | 21.0% | $21,223 | 21.0% | | Federal tax credits (including R&D) | (11,929) | (24.8) | — | — | (11,929) | (11.8) | | Foreign rate differential | 1,366 | 2.8 | (6,531) | (12.4) | (5,165) | (5.1) | | Stock-based compensation | (1,084) | (2.2) | — | — | (1,084) | (1.1) | | Uncertain tax positions | 18 | — | — | — | 18 | — | | State taxes, net of federal benefit | 1,183 | 2.4 | — | — | 1,183 | 1.2 | | U.S. tax on foreign earnings, net of §250 deduction | 1,913 | 4.0 | — | — | 1,913 | 1.9 | | Valuation allowance | — | — | 524 | 1.0 | 524 | 0.5 | | Other | 398 | 0.8 | 962 | 1.8 | 1,360 | 1.4 | | Provision for income taxes | $2,006 | 4.0% | $6,037 | 11.4% | $8,043 | 8.0% | Our effective tax rate of 14.0% for 2022 is higher than our effective tax rate of 8.0% for 2021, primarily due to the unfavorable impact of stock-based compensation in 2022 and the non-recurring favorable impact in 2021 of a release of Uncertain Tax Positions relating to the tax years 2017 and 2018 as the Internal Revenue Service (“IRS”) effectively concluded its examination of those years during 2021. Our effective tax rate for 2022 differs from the U.S. federal statutory tax rate of 21% due principally to the estimated impact of Federal Tax Credits (including R&D credits and Foreign tax credits), stock-based compensation windfalls, and the impact of earnings realized in foreign jurisdictions with statutory rates that are different than the U.S. federal statutory rate. These benefits are partially offset by the impact of U.S taxes on foreign earnings, including the GILTI provision which requires us to include foreign subsidiary earnings in excess of a deemed return on a foreign subsidiary’s tangible assets in our U.S. income tax return. The U.S. tax on foreign earnings is reflected net of a statutory deduction of 50% of the GILTI inclusion (subject to limitations based on U.S. taxable income, if any) and net of FDII that provides a 37.5% deduction to domestic companies for certain foreign sales and services income. The primary foreign jurisdictions in which we operate and the statutory tax rate for each respective jurisdiction include Switzerland (22%), Mexico (30%), Uruguay (25%), Ireland (12.5%) and Malaysia (24%). We currently have a tax holiday in Malaysia through April 2023, provided certain conditions continue to be met. In addition, we acquired manufacturing operations in the Dominican Republic as part of the acquisition of Oscor, and are operating under a free trade zone agreement in the Dominican Republic through March 2034. There is a potential for volatility of our effective tax rate due to several factors, including changes in the mix of pre-tax income and the jurisdictions to which it relates, business acquisitions, settlements with taxing authorities, changes in tax rates, and foreign currency exchange rate fluctuations. In addition, we continue to explore tax planning opportunities that may have a material impact on our effective tax rate. It is reasonably possible that a reduction of approximately $1.8 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of the lapse of the statute of limitations and/or audit settlements. As of December 31, 2022, approximately $7.7 million of unrecognized tax benefits would favorably impact the effective tax rate (net of federal impact on state issues), if recognized. ### Liquidity and Capital Resources *(dollars in thousands)* | | December 31, 2022 | December 31, 2021 | | --- | ---: | ---: | | Cash and cash equivalents | $24,272 | $17,885 | | Working capital | $334,546 | $293,353 | | Current ratio | 2.50 | 2.84 | Cash and cash equivalents at December 31, 2022 increased by $6.4 million from December 31, 2021, primarily as a result of cash generated by operating activities, partially offset by purchases of property, plant and equipment and debt principal payments. In addition, the acquisition of Aran resulted in a net cash disbursement of $129.3 million, which was funded by proceeds from borrowing under our Revolving Credit Facility. Working capital increased by $41.2 million from December 31, 2021, primarily from positive working capital fluctuations associated with accounts receivable and inventory aggregating to $95.1 million, which were partially offset by increases in accounts payable and accrued expenses and other current liabilities. During 2022, accounts receivable increased mainly from an increase in sales volume and inventory increased to support higher product demand, sales volume and material stock levels to protect availability of critical components. Accounts payable increased mainly from higher sequential inventory purchases and the timing of supplier payments, while accrued expenses and other current liabilities increased mainly from accrued contingent consideration associated with the acquisition of Aran. At December 31, 2022, $20.4 million of our cash and cash equivalents were held by foreign subsidiaries. We intend to limit our distributions from foreign subsidiaries to previously taxed income or current period earnings. If distributions are made utilizing current period earnings, we will record foreign withholding taxes in the period of the distribution. ### Summary of Cash Flow The following cash flow summary information includes cash flows related to discontinued operations (in thousands): | Cash provided by (used in): | 2022 | 2021 | | --- | ---: | ---: | | Operating activities | $116,381 | $156,666 | | Investing activities | (200,421) | (270,998) | | Financing activities | 92,476 | 81,986 | | Effect of foreign currency exchange rates on cash and cash equivalents | (2,049) | 1,025 | | Net change in cash and cash equivalents | $6,387 | $(31,321) | ***Operating Activities*** - During 2022, we generated cash from operations of $116.4 million, compared to $156.7 million in 2021. The decrease of $40.3 million was the result of decreases of $12.2 million in net income adjusted for non-cash items such as depreciation and amortization and $28.1 million in cash flow provided by changes in operating assets and liabilities. The decrease in net income adjusted for non-cash items such as depreciation and amortization is from higher compensation and benefit costs, restructuring charges, acquisition and integration expenses, and interest expense partially offset by higher sales volume. The decrease associated with changes in operating assets and liabilities is primarily related to higher sales volume and inventory growth in the current period partially offset by increases from the prior period payment of Coronavirus Aid, Relief, and Economic Security Act deferred social security taxes and timing of income tax payments. ***Investing Activities –*** The $70.6 million decrease in net cash used in investing activities was primarily attributable to a decrease in net cash paid for business acquisitions $91.3 million and increased purchases of property, plant, and equipment of $21.3 million. ***Financing Activities –*** Net cash provided by financing activities during 2022 was $92.5 million compared to $82.0 million in 2021. Financing activities during 2022 and 2021 each included net borrowings of $95.8 million. The net cash inflow for 2022 included $166.0 million in borrowings on our Revolving Credit Facility primarily to fund the Aran acquisition. The net cash inflow for 2021 included $220.0 million in borrowings to fund the Oscor acquisition. We paid $8.1 million of debt issuance costs in connection with the refinancing of our Senior Secured Credit Facilities in 2021. ***Capital Structure*** - As of December 31, 2022, our capital structure consists of $925.3 million of debt, net of deferred debt issuance costs and unamortized discounts, outstanding under our Senior Secured Credit Facilities and 33 million shares of common stock outstanding. We have access to $256.2 million of borrowing capacity under our Revolving Credit Facility, available for normal course of business and letters of credit. We are also authorized to issue up to 100 million shares of common stock and 100 million shares of preferred stock. As of December 31, 2022, our contractual debt service obligations for 2023, consisting of principal and interest on our outstanding debt, are estimated to be approximately $78 million. Actual principal and interest payments may be higher if, for instance, the applicable interest rates on our Senior Secured Credit Facilities increase, we borrow additional amounts on our Revolving Credit Facility, or we pay principal amounts in excess of the required minimums reflected in the contractual debt service obligations above. Refer to Note 21, “Subsequent Events,” of the Notes to Consolidated Financial Statements in Item 8 of this report for information regarding the January 30, 2023 and February 15, 2023 amendments to the 2021 Credit Agreement, the January 31, 2023 Capped Call Transactions and the February 3, 2023 Convertible Notes offering. ***Credit Facilities*** - Our 2021 Credit Agreement permits borrowings and other extensions of credit in an initial aggregate principal amount of up to $1 billion (as may be increased from time to time in accordance with the terms). The 2021 Credit Agreement governs our Senior Secured Credit Facilities, which consist of a five-year $400 million Revolving Credit Facility, which had available borrowing capacity of $256.2 million as of December 31, 2022, a five-year TLA Facility with outstanding principal balance of $455 million, and a seven-year TLB Facility with outstanding principal balance of $336 million. The Revolving Credit and TLA Facilities mature on September 2, 2026. The TLB Facility matures on September 2, 2028. Our off-balance sheet commitments related to our outstanding letters of credit as of December 31, 2022 were $3.5 million. The 2021 Credit Agreement contains customary terms and conditions, including representations and warranties and affirmative and negative covenants, as well as financial covenants for the benefit of the lenders under the Revolving Credit Facility and the TLA Facility, which require that we maintain (i) a total net leverage ratio not to exceed 5.50:1.00 (stepping down to 5.00:1.00 for the third fiscal quarter of 2023 through maturity and subject to increase in certain circumstances following qualified acquisitions, but not to exceed 5.50:1.00) and (ii) an interest coverage ratio of at least 2.50:1.00. As of December 31, 2022, we were in compliance with these financial covenants. The TLB Facility does not contain any financial maintenance covenants. As of December 31, 2022, our total net leverage ratio, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 2.9 to 1.0. For the twelve month period ended December 31, 2022, our ratio of adjusted EBITDA to interest expense, calculated in accordance with our Senior Secured Credit Facilities agreement, was approximately 8.7 to 1.0. Failure to comply with these financial covenants would result in an event of default as defined under the Revolving Credit Facility and TLA Facility unless waived by the lenders. An event of default may result in the acceleration of our indebtedness. As a result, management believes that compliance with these covenants is material to us. Refer to Note 8, “Debt,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for further description of our outstanding debt. Refer to Note 21, “Subsequent Events,” of the Notes to Consolidated Financial Statements in Item 8 of this report for information regarding the January 30, 2023 and February 15, 2023 amendments to the 2021 Credit Agreement, the January 31, 2023 Capped Call Transactions and the February 3, 2023 Convertible Notes offering. ### Cash and Other Commitments We have material cash requirements to pay third parties under various contractual obligations discussed below. Presented below is a summary of contractual obligations and other minimum commitments as of December 31, 2022. Refer to Note 13, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information regarding self-insurance liabilities, which are not reflected in the table below. | | Payments due by period Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | --- | ---: | ---: | ---: | ---: | ---: | | Principal amount of debt outstanding(a) | $931,238 | $18,188 | $68,687 | $526,238 | $318,125 | | Interest on debt(a) | 258,296 | 59,794 | 114,631 | 67,492 | 16,379 | | Operating lease obligations(b) | 85,773 | 13,033 | 24,112 | 19,602 | 29,026 | | Finance lease obligations(b) | 10,801 | 1,402 | 2,710 | 1,537 | 5,152 | (a) Interest payments in the table above reflect the contractual interest payments on our outstanding debt based upon the balance outstanding and applicable interest rates at December 31, 2022, and exclude the impact of the debt issuance cost and discount amortization and the impact of interest rate swap agreements. Refer to Note 8, “Debt,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information regarding long-term debt. Refer to Note 21, “Subsequent Events,” of the Notes to Consolidated Financial Statements in Item 8 of this report for information regarding the January 30, 2023 and February 15, 2023 amendments to the 2021 Credit Agreement, the January 31, 2023 Capped Call Transactions and the February 3, 2023 Convertible Notes offering. (b) Refer to Note 14, “Leases,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about our operating and finance lease obligations. Capital expenditures, which are net of proceeds from the sale of property, plant and equipment, for 2022 totaled $74.1 million, compared to $53.0 million and $46.8 million in 2021 and 2020, respectively. Capital expenditures in 2022 related primarily to upgrades of manufacturing facilities and information technology. We expect 2023 capital expenditures to approximate $100 million to $120 million, with a significant portion related to additional upgrades of manufacturing facilities and information technology, as well as for manufacturing equipment to support productivity initiatives. We have recorded liabilities for unrecognized tax benefits that, because of their nature, have a high degree of uncertainty regarding the timing of future cash payment and other events that extinguish these liabilities. Refer to Note 12, “Income Taxes,” of the Notes to Consolidated Financial Statements in Item 8 of this report for additional information about these unrecognized tax benefits. Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents and availability under our Revolving Credit Facility are sufficient to meet our working capital, debt service and capital expenditure requirements for at least the next twelve months. However, such cash flows are dependent upon our future operating performance which, in turn, is subject to prevailing economic conditions, the effects of the COVID-19 pandemic, and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If our future financing needs increase, we may need to arrange additional debt or equity financing. We continually evaluate and consider various financing alternatives to enhance or supplement our existing financial resources, including our Senior Secured Credit Facilities. However, we cannot be assured that we will be able to enter into any such arrangements on acceptable terms or at all. ### Impact of Recently Issued Accounting Standards In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations. ### CRITICAL ACCOUNTING ESTIMATES Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors that are believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements. We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions have had or are reasonably likely to have a material effect on the consolidated financial statements. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. ### Inventories Inventories are measured on a first-in, first-out basis at the lower of cost 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. The valuation of inventory requires us to estimate obsolete or excess inventory, as well as inventory that is not of saleable quality. Historically, our inventory adjustment has been adequate to cover our losses. However, variations in methods or assumptions could have a material impact on our results. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-down or expense a greater amount of overhead costs, which would negatively impact our net income. ### Acquisition Method of Accounting We account for business combinations using the acquisition method of accounting. We recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition. Any excess purchase price over the fair value of net assets acquired is recorded to goodwill. Determining the fair value of these items requires management’s judgment and more often than not the utilization of independent valuation specialists. The judgments made in the determination of the estimated fair values assigned to the assets acquired, the liabilities assumed and any noncontrolling interest in the investee, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. For more information on our acquisitions and application of the acquisition method, see Note 2, “Business Acquisitions,”of the Notes to Consolidated Financial Statements contained in Item 8 of this report. ### Valuation of Goodwill and Intangible Assets We make assumptions in establishing the carrying value, fair value and, if applicable, the estimated lives of our intangible and other long-lived assets. Goodwill and intangible assets determined to have an indefinite useful life are not amortized. Instead, these assets are evaluated for impairment on an annual basis on the last day of our fiscal year and whenever events or business conditions change that could indicate that the asset is impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. ### Evaluation of goodwill for impairment We test each reporting unit’s goodwill for impairment on the last day of our 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 value. In conducting this annual impairment testing, we may first perform a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value. If not, no further goodwill impairment testing is required. If it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, or if we elect not to perform a qualitative assessment of a reporting unit, a quantitative analysis is performed, in which the fair value of the reporting unit is compared to its carrying value. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized equal to the excess, limited to the amount of goodwill allocated to that reporting unit. We performed a qualitative assessment of our Medical reporting unit as of December 31, 2022. As part of this analysis, we evaluated factors including, but not limited to, our market capitalization and stock price performance, macro-economic conditions, market and industry conditions, cost factors, the competitive environment, and the operational stability and overall financial performance of the reporting unit. The assessment indicated that it was more likely than not that the fair value of the Medical reporting unit exceeded its carrying value. We elected to bypass the qualitative assessment and performed a quantitative analysis for our Non-Medical reporting unit. Resulting from the quantitative analysis, the fair value exceeded the carrying value of the Non-Medical reporting unit by approximately 148%. We do not believe that any of our reporting units are at risk for impairment. However, changes to the factors considered above could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period. We may be unaware of one or more significant factors that, if we had been aware of, would cause our conclusion to change, which could result in a goodwill impairment charge in a future period. ### Evaluation of indefinite-lived intangible assets for impairment Our indefinite-lived intangible assets include the Greatbatch Medical and Lake Region Medical tradenames. Similar to goodwill, we perform an annual impairment review of our indefinite-lived intangible assets on the last day of our fiscal year, unless events occur that trigger the need for an interim impairment review. We have the option to first assess qualitative factors in determining whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If we elect not to use this option, or we determine that it is more-likely-than-not that the asset is impaired, we perform a quantitative assessment that requires us to estimate the fair value of each indefinite-lived intangible asset and compare that amount to its carrying value. Fair value is estimated using the relief-from-royalty method. Significant assumptions inherent in this methodology include estimates of royalty rates and discount rates. The discount rate applied is based on the risk inherent in the respective intangible assets and royalty rates are based on the rates at which comparable tradenames are being licensed in the marketplace. Impairment, if any, is based on the excess of the carrying value over the fair value of these assets. We performed a quantitative assessment to test our indefinite-lived intangible assets for impairment as of December 31, 2022. For the Greatbatch Medical tradename, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was in excess of its carrying value of $20 million by approximately 294% as of December 31, 2022. The Lake Region Medical tradename had an excess of the estimated fair value over carrying value of approximately 77% and a carrying value of $70 million at December 31, 2022. We do not believe that our indefinite-lived intangible assets are at risk for impairment. However, a significant increase in the discount rate, decrease in the terminal growth rate, increase in tax rates, decrease in the royalty rate or substantial reductions in our end-markets and volume assumptions could have a negative impact on the estimated fair values of either of our tradenames and require us to recognize impairments of these indefinite-lived intangible assets in a future period. ### Evaluation of long-lived assets for impairment When impairment indicators exist, we determine if the carrying value of the long-lived asset(s) or definite-lived intangible asset(s) including, but not limited to, PP&E and right-of-use lease 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. When it is determined that the useful life of an asset (asset group) is shorter than the originally estimated life, and there are sufficient cash flows to support the carrying value of the asset (asset group), we accelerate the rate of depreciation/amortization in order to fully depreciate/amortize the asset over its shorter useful life. Estimation of the cash flows and useful lives of long-lived assets and definite-lived intangible assets requires significant management judgment. Events could occur that would materially affect our estimates and assumptions. Unforeseen changes, such as the loss of one or more significant customers, technology obsolescence, or significant manufacturing disruption, among other factors, could substantially alter the assumptions regarding the ability to realize the return of our investment in long-lived assets, definite-lived intangible assets or their estimated useful lives. ## Market risk As filed, 5,522 characters. ### MARKET RISK In the normal course of business, we are exposed to market risk primarily due to changes in foreign currency exchange rates and interest rates. Changes in these rates could result in fluctuations in our earnings and cash flows. We regularly assess these risks and have established policies and business practices to help protect against the adverse effects of these and other potential exposures. However, fluctuations in foreign currency exchange rates and interest rates could have a significant impact, positive or negative, on our financial results in the future. ### Foreign Currency Exchange Rate Risk We have foreign operations in the Dominican Republic, Germany, Ireland, Israel, Malaysia, Mexico, Switzerland, and Uruguay which expose us to foreign currency exchange rate fluctuations due to transactions denominated in Dominican pesos, Euros, Israeli shekels, Malaysian ringgits, Mexican pesos, Swiss francs, and Uruguayan pesos. We continuously evaluate our foreign currency risk, and we use operational hedges and forward currency exchange rate contracts, to manage the impact of currency exchange rate fluctuations on earnings and cash flows. We do not enter into currency exchange rate derivative instruments for speculative purposes. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $5 million on our 2022 annual sales. This amount is not indicative of the hypothetical net earnings impact due to the partially offsetting impacts on cost of sales and operating expenses in those currencies. We estimate that foreign currency exchange rate fluctuations during 2022 decreased sales in comparison to 2021 by $6.5 million. We had currency derivative instruments with notional amounts totaling $57.2 million outstanding as of December 31, 2022. As of December 31, 2022, we recorded assets totaling $0.5 million to recognize the fair value of these derivative instruments on our Consolidated Balance Sheets. The amounts recorded during 2022 related to our forward contracts were decreases in Sales, Cost of sales and Operating expenses of $2.1 million, $2.2 million and $0.4 million, respectively. Refer to Note 17, “Financial Instruments and Fair Value Measurements,” of the Notes to the Consolidated Financial Statements contained in Item 8 of this report for additional information regarding our outstanding forward contracts. To the extent that our 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. We recorded net foreign currency transaction gains of $1.1 million for 2022. We translate all assets and liabilities of our foreign operations where the U.S. dollar is not the functional currency at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the Consolidated Financial Statements as Comprehensive income (loss). The translation adjustment for 2022 was a loss of $25.6 million and primarily related to the strengthening U.S. dollar relative to the Euro. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately $37 million on our foreign net assets as of December 31, 2022. ### Interest Rate Risk We regularly monitor interest rate risk attributable to our outstanding debt obligations. From time to time, we may enter into interest rate swap agreements in order to reduce the cash flow risk caused by interest rate changes on our outstanding floating rate borrowings. As of December 31, 2022, we had $931 million in principal amount of debt outstanding. Interest rates on our Revolving Credit Facility, TLA Facility and TLB Facility, reset, at our option, based upon the prime rate or LIBOR rate, thus subjecting us to interest rate risk. A hypothetical one percentage point (100 basis points) change in the LIBOR rate on the $831 million of unhedged variable rate debt outstanding at December 31, 2022 would increase our interest expense by approximately $8 million. As of December 31, 2022, approximately 11% of our principal amount of debt outstanding has been effectively converted to fixed-rate borrowings through the use of an interest rate swap, in comparison to approximately 18% as of December 31, 2021. We had an interest swap agreement with a notional amount of $100 million outstanding as of December 31, 2022. We entered into this agreement in order to reduce our exposure to fluctuations in the LIBOR rate. The amount recorded during 2022 related to this interest rate swap was an increase of $0.9 million to Interest expense. As of December 31, 2022, this swap had a favorable fair value of $1.3 million. Refer to Note 8, “Debt,” and Note 17, “Financial Instruments and Fair Value Measurements,” of the Notes to Consolidated Financial Statements in Item 8 of this report for additional information about our outstanding debt and interest rate swap agreement, respectively. ## Controls and procedures As filed, 3,184 characters. Management’s Report on Internal Control Over Financial Reporting appears in Part II, Item 8, “Financial Statements and Supplementary Data” of this report and is incorporated into this Item 9A by reference. a. Evaluation of Disclosure Controls and Procedures Our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the SEC as of December 31, 2022. These disclosure controls and procedures have been designed to provide reasonable assurance that material information relating to us, including our subsidiaries, is made known to our management, including these officers, by our employees, and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms. Based on their evaluation, as of December 31, 2022, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective. b. Changes in Internal Control Over Financial Reporting In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for a period not to exceed one year from the acquisition date. Our management’s evaluation of internal control over financial reporting excluded the internal control activities of Connemara Biomedical Holdings Teoranta, including its operating subsidiaries Aran Biomedical and Proxy Biomedical (collectively “Aran”), which we acquired on April 6, 2022, as discussed in Note 2, “Business Acquisitions,” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. Prior to its acquisition, Aran was a privately-held company not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements to which public companies may be subject. We have included the financial results of Aran in our consolidated financial statements from the date of acquisition. The financial results of Aran constitute 5% of total assets, 9% of net assets and 1% of sales of the consolidated financial statement amounts as of and for the year ended December 31, 2022. The Company is in the process of evaluating the existing controls and procedures of the acquired business and integrating the acquired business into its system of internal control over financial reporting. As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of internal control over financial reporting for the acquired business. Other than as described above, there were no changes in the Company's internal control over financial reporting during the Company's fourth fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Filed Feb 21, 2023. Source: SEC EDGAR, the filing index for accession 0001114483-23-000003. Last ingested by Listed: Oct 29, 2026, 08:06 ET. No prices; not investment advice.