Geographic and Segment Information

Segment Information

We identify operating segments based on the way we manage, evaluate and internally report our business activities for purposes of allocating resources and assessing performance. We have three reportable segments: Cardiac Surgery, Neuromodulation, and Cardiac Rhythm Management.

The Cardiac Surgery segment generates its revenue from the development, production and sale of cardiovascular surgery products. Cardiac Surgery products include oxygenators, heart-lung machines, autotransfusion systems, mechanical heart valves and tissue heart valves.

The Neuromodulation segment generates its revenue from the design, development and marketing of neuromodulation therapy for the treatment of drug-resistant epilepsy and treatment resistant depression. Neuromodulation products include the VNS Therapy System, which consists of an implantable pulse generator, a lead that connects the generator to the vagus nerve, surgical equipment to assist with the implant procedure, equipment to enable the treating physician to set the pulse generator stimulation parameters for the patient, instruction manuals and magnets to suspend or induce stimulation manually.

The Cardiac Rhythm Management segment generates its revenue from the development, manufacturing and marketing of products for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. Cardiac Rhythm Management products include high-voltage defibrillators, cardiac resynchronization therapy devices and low-voltage pacemakers.

“Other” includes Corporate shared services expenses for finance, legal, human resources and information technology and Corporate business development (“New Ventures”). New Ventures, which includes our recent Caisson acquisition, is focused on new growth platforms and identification of other opportunities for expansion.

Net sales of our reportable segments include end-customer revenues from the sale of products they each develop and manufacture or distribute. We define segment income as operating income before merger and integration, restructuring, and amortization of intangibles.

Net sales and income from operations by segment (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales:	2017		2016		2017		2016
Cardiac Surgery	$	159,822	$	148,518	$	457,612	$	453,012
Neuromodulation	91,016		89,504		275,190		260,901
Cardiac Rhythm Management	58,411		56,768		182,235		188,057
Other	415		478		1,119		1,314
	$	309,664	$	295,268	$	916,156	$	903,284



	Three Months Ended September 30,						Nine Months Ended September 30,
Income from Operations:	2017			2016			2017			2016
Cardiac Surgery	$	23,807		$	17,791		$	63,490		$	29,197
Neuromodulation	45,932			47,049			139,357			134,871
Cardiac Rhythm Management	5,427			(4,598		)	13,536			(14,432		)
Other	(27,947		)	(13,525		)	(79,378		)	(49,090		)
Total Reportable Segments’ Income from Operations	47,219			46,717			137,005			100,546
Merger and integration expenses	2,013			7,576			7,743			20,537
Restructuring expenses	792			4,381			12,060			37,219
Amortization of intangibles	12,350			11,775			35,445			33,959
Income from operations	$	32,064		$	22,985		$	81,757		$	8,831

The following tables present our assets and capital expenditures by segment (in thousands):



Assets:	September 30, 2017		December 31, 2016
Cardiac Surgery	$	1,414,260	$	1,277,799
Neuromodulation	564,785		611,085
Cardiac Rhythm Management	351,390		341,998
Other	272,695		111,749
	$	2,603,130	$	2,342,631



	Three Months Ended September 30,				Nine Months Ended September 30,
Capital expenditures:	2017		2016		2017		2016
Cardiac Surgery	$	5,541	$	6,465	$	13,292	$	16,774
Neuromodulation	370		1,781		2,348		5,602
Cardiac Rhythm Management	1,537		1,591		4,343		2,786
Other	1,633		2,435		4,021		3,766
	$	9,081	$	12,272	$	24,004	$	28,928

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2017 were as follows (in thousands):



	Neuromodulation		Cardiac Surgery		Cardiac Rhythm Management		Other		Total
December 31, 2016	$	315,943	$	375,769	$	—	$	—	$	691,712
Goodwill as a result of acquisitions ⁽¹⁾	—		—		—		42,418		42,418
Foreign currency adjustments	—		46,940		—		—		46,940
September 30, 2017	$	315,943	$	422,709	$	—	$	42,418	$	781,070


(1)	Goodwill recognized as a result of the Caisson acquisition. Refer to “Note 2. Acquisitions.”

Geographic Information

We operate under three geographic regions: United States, Europe, and Rest of world. Net sales to external customers by geography are determined based on the country the products are shipped to and are as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
Net Sales	2017		2016		2017		2016
United States	$	122,208	$	123,810	$	366,115	$	362,358
Europe ^{(1) (2)}	92,953		91,245		294,338		301,727
Rest of world	94,503		80,213		255,703		239,199
Total ⁽³⁾	$	309,664	$	295,268	$	916,156	$	903,284


(1)	Net sales to external customers in the UK include $9.6 million and $26.8 million for the three and nine months ended September 30, 2017, respectively and $8.8 million and $27.9 million for the three and nine months ended September 30, 2016, respectively.


(2)	Includes those countries in Europe where we have a direct sales presence. Countries where sales are made through distributors are included in ‘Rest of world’.


(3)	No single customer represented over 10% of our consolidated net sales. Except for the U.S. and France, no country’s net sales exceeded 10% of our consolidated net sales. French sales were $29.6 million and $96.6 million for the three and nine months ended September 30, 2017, respectively, and $28.9 million and $95.9 million for the three and nine months ended September 30, 2016, respectively.

Property, plant and equipment, net by geography are as follows (in thousands):



PP&E	September 30, 2017		December 31, 2016
United States	$	62,630	$	61,279
Europe	137,682		130,777
Rest of world	13,457		31,786
Total	$	213,769	$	223,842