Stock-Based Compensation

9 Months Ended

Oct. 01, 2021

Share-based Payment Arrangement [Abstract]

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

On March 25, 2021, the Company’s Board adopted, subject to stockholder approval, the Integer Holdings Corporation 2021 Omnibus Incentive Plan (the “2021 Plan”). The Company’s stockholders approved the 2021 Plan at the Company’s 2021 annual meeting of stockholders on May 19, 2021, at which time the 2021 Plan replaced the Company’s 2016 Stock Incentive Plan (the “2016 Plan”) and the Company ceased granting any new awards under the 2016 Plan. The number of shares initially reserved for issuance under the 2021 Plan is (i) 1,450,000 plus (ii) the total number of shares of common stock available for issuance under the 2016 Plan, plus (iii) any shares of common stock that are subject to awards forfeited, cancelled, expired, terminated or otherwise lapsed or settled in cash, in whole or in part, without the delivery of shares under the 2016 Plan. Each of the Company’s 2011 Stock Incentive Plan, the 2009 Stock Incentive Plan and the 2005 Stock Incentive Plan have expired, and no awards are available for issuance under these expired plans.

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


	Three Months Ended				Nine Months Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Stock options	$	—	$	10	$	—	$	33


RSUs	3,282		2,977		12,235		6,196


Total stock-based compensation expense	$	3,282	$	2,987	$	12,235	$	6,229

Cost of sales	$	649	$	530	$	2,586	$	1,214
Selling, general and administrative	2,177		2,319		8,747		4,608
Research, development and engineering	302		138		748		407
Other operating expenses	154		—		154		—

Total stock-based compensation expense	$	3,282	$	2,987	$	12,235	$	6,229

Stock Options

The following table summarizes the Company’s stock option activity for the nine month period ended October 1, 2021:


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

Exercised	(27,002)	22.01

Outstanding and exercisable at October 1, 2021	254,871	$	37.53	4.3	$	13.9

(7.) STOCK-BASED COMPENSATION (Continued)

Restricted Stock Units

During the nine months ended October 1, 2021, the Company awarded grants of either time-based RSUs or a mix of time-based RSUs and performance-based RSUs (“PRSUs”) to certain members of its Board and management. New Board members appointed during the first quarter of 2021 received a pro-rated portion of the their annual equity retainer in the form of time-based RSUs that vest in accordance with the regularly scheduled vesting schedule applicable to existing members of the Board. All other time-based RSUs granted during the nine months ended October 1, 2021 vest over a period of three years from the grant date, subject to the recipient’s continuous service to the Company. For the Company’s PRSUs, in addition to service conditions, the ultimate number of shares to be earned depends on the achievement of market-based conditions. The market-based conditions are based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over three year performance periods.

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

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


	Nine Months Ended
	October 1, 2021			October 2, 2020
Weighted average fair value	$	85.16		$	107.42
Risk-free interest rate	0.19		%	1.53		%
Expected volatility	41		%	30		%
Expected life (in years)	3.0			2.9
Expected dividend yield	—		%	—		%

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

The following table summarizes time-vested RSU activity for the nine month period ended October 1, 2021:


	Time-Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2020	207,923	$	75.38
Granted	190,143	82.20
Vested	(90,740)	66.97
Forfeited	(15,912)	79.59
Nonvested at October 1, 2021	291,414	$	82.22

The following table summarizes PRSU activity for the nine month period ended October 1, 2021:


	Performance- Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2020	219,391	$	72.33
Granted	92,345	85.16
Vested	(38,882)	37.75
Forfeited	(69,333)	51.16
Nonvested at October 1, 2021	203,521	$	91.97