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Geographic and Segment Information | 6 Months Ended
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Jun. 30, 2018
Segment Reporting [Abstract] |
Geographic and Segment Information | Note 16. Geographic and 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 two reportable segments: Cardiac Surgery and Neuromodulation. The Cardiac Surgery segment generates its revenue from the development, production and sale of cardiopulmonary products, heart valves and advanced circulatory support. Cardiopulmonary products include oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories. Heart valves include mechanical heart valves, tissue heart valves and related repair products. Advanced circulatory support, which represents our recently acquired TandemLife business, includes temporary life support product kits that can include a combination of pumps, oxygenators, and cannulae. The Neuromodulation segment generates its revenue from the design, development and marketing of neuromodulation therapy systems 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, and other accessories. On January 16, 2018, we acquired the remaining 86% outstanding interest in ImThera which is also included in our Neuromodulation segment. ImThera manufactures an implantable device for the treatment of obstructive sleep apnea that stimulates multiple tongue muscles via the hypoglossal nerve, which opens the airway while a patient is sleeping. “Other” includes corporate shared service expenses for finance, legal, human resources and information technology and corporate business development (“New Ventures”). New Ventures is focused on new growth platforms and identification of other opportunities for expansion. Effective January 1, 2018, we began to include the results of heart failure within the Neuromodulation segment for internal reporting purposes in order to manage and evaluate business activities for purposes of allocating resources and assessing performance. Previously, the results of heart failure were reported within “Other”. Segment results for the three and six months ended June 30, 2017 have been recast to conform to the current period presentation. Net sales of our reportable segments include 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. We operate under three geographic regions: United States, Europe, and Rest of world. The table below presents net sales by operating segment and geographic region (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Cardiopulmonary |  |  |  |  |  |  |  |
United States |  | $ | 42,139 |  |  | $ | 39,719 |  |  | $ | 80,584 |  |  | $ | 71,895 |
Europe |  | 35,916 |  |  | 33,959 |  |  | 72,786 |  |  | 64,568 |
Rest of world |  | 58,584 |  |  | 50,467 |  |  | 108,399 |  |  | 94,980 |
|  | 136,639 |  |  | 124,145 |  |  | 261,769 |  |  | 231,443 |
Heart Valves |  |  |  |  |  |  |  |
United States |  | 6,147 |  |  | 6,205 |  |  | 12,683 |  |  | 12,274 |
Europe |  | 11,863 |  |  | 10,684 |  |  | 23,979 |  |  | 21,031 |
Rest of world |  | 15,792 |  |  | 17,552 |  |  | 28,182 |  |  | 33,042 |
|  | 33,802 |  |  | 34,441 |  |  | 64,844 |  |  | 66,347 |
Advanced Circulatory Support |  |  |  |  |  |  |  |
United States |  | 5,468 |  |  | — |  |  | 5,468 |  |  | — |
Europe |  | 353 |  |  | — |  |  | 353 |  |  | — |
Rest of world |  | 194 |  |  | — |  |  | 194 |  |  | — |
|  | 6,015 |  |  | — |  |  | 6,015 |  |  | — |
Cardiac Surgery |  |  |  |  |  |  |  |
United States |  | 53,754 |  |  | 45,924 |  |  | 98,735 |  |  | 84,169 |
Europe |  | 48,132 |  |  | 44,643 |  |  | 97,118 |  |  | 85,599 |
Rest of world |  | 74,570 |  |  | 68,019 |  |  | 136,775 |  |  | 128,022 |
|  | 176,456 |  |  | 158,586 |  |  | 332,628 |  |  | 297,790 |
Neuromodulation |  |  |  |  |  |  |  |
United States |  | 89,395 |  |  | 81,405 |  |  | 167,387 |  |  | 155,064 |
Europe |  | 11,943 |  |  | 9,514 |  |  | 22,234 |  |  | 17,443 |
Rest of world |  | 9,315 |  |  | 6,096 |  |  | 14,876 |  |  | 11,667 |
|  | 110,653 |  |  | 97,015 |  |  | 204,497 |  |  | 184,174 |
Other |  | 389 |  |  | 242 |  |  | 771 |  |  | 704 |
Totals |  |  |  |  |  |  |  |
United States |  | 143,149 |  |  | 127,329 |  |  | 266,122 |  |  | 239,233 |
Europe (1) (2) |  | 60,075 |  |  | 54,157 |  |  | 119,352 |  |  | 103,042 |
Rest of world |  | 84,274 |  |  | 74,357 |  |  | 152,422 |  |  | 140,393 |
Total (3) |  | $ | 287,498 |  |  | $ | 255,843 |  |  | $ | 537,896 |  |  | $ | 482,668 |
(1) | Net sales include $8.4 million and $9.2 million in the United Kingdom, our country of domicile, for the three months ended June 30, 2018 and June 30, 2017, respectively. Net sales in the United Kingdom were $16.6 million and $17.3 million for the six months ended June 30, 2018 and June 30, 2017, respectively.
(2) | Europe sales include those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included in Rest of world.
(3) | No single customer represented over 10% of our consolidated net sales and no country’s net sales exceeded 10% of our consolidated sales except for the U.S.
Operating income by segment is as follows (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
Operating Income from Continuing Operations |  | 2018 |  | 2017 |  | 2018 |  | 2017
Cardiac Surgery |  | $ | 16,337 |  |  | $ | 23,773 |  |  | $ | 26,595 |  |  | $ | 39,806 |
Neuromodulation |  | 61,389 |  |  | 51,264 |  |  | 100,123 |  |  | 92,020 |
Other |  | (41,417 | ) |  | (33,037 | ) |  | (64,237 | ) |  | (49,903 | )
Total reportable segment income from continuing operations |  | 36,309 |  |  | 42,000 |  |  | 62,481 |  |  | 81,923 |
Merger and integration expenses |  | 4,409 |  |  | 3,512 |  |  | 7,369 |  |  | 5,698 |
Restructuring expenses |  | 476 |  |  | 2,597 |  |  | 2,357 |  |  | 12,627 |
Amortization of intangibles |  | 9,817 |  |  | 8,116 |  |  | 18,618 |  |  | 16,076 |
Operating income from continuing operations |  | $ | 21,607 |  |  | $ | 27,775 |  |  | $ | 34,137 |  |  | $ | 47,522 |
Assets by reportable segment (in thousands):
Assets |  | June 30, 2018 |  | December 31, 2017
Cardiac Surgery |  | $ | 1,535,096 |  |  | $ | 1,386,032 |
Neuromodulation |  | 764,348 |  |  | 532,894 |
Other (1) |  | 297,692 |  |  | 334,276 |
Discontinued operations |  | — |  |  | 250,689 |
Total assets |  | $ | 2,597,136 |  |  | $ | 2,503,891 |
(1) | Other includes the impact of ASU 2016-16. Refer to “Note 18. New Accounting Pronouncements.”
Capital expenditures by segment (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
Capital expenditures |  | 2018 |  | 2017 |  | 2018 |  | 2017
Cardiac Surgery |  | $ | 4,594 |  |  | $ | 3,957 |  |  | $ | 7,725 |  |  | $ | 7,751 |
Neuromodulation |  | 500 |  |  | 517 |  |  | 847 |  |  | 1,978 |
Other |  | 1,256 |  |  | 1,148 |  |  | 2,699 |  |  | 2,806 |
Discontinued operations |  | — |  |  | 1,185 |  |  | 925 |  |  | 2,388 |
Total |  | $ | 6,350 |  |  | $ | 6,807 |  |  | $ | 12,196 |  |  | $ | 14,923 |
The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2018 were as follows (in thousands):
|  | Neuromodulation |  | Cardiac Surgery |  | Other |  | Total
December 31, 2017 |  | $ | 315,943 |  |  | $ | 425,882 |  |  | $ | 42,417 |  |  | $ | 784,242 |
Goodwill as a result of acquisitions (1) |  | 82,596 |  |  | 118,917 |  |  | — |  |  | 201,513 |
Foreign currency adjustments |  | — |  |  | (20,058 | ) |  | — |  |  | (20,058 | )
June 30, 2018 |  | $ | 398,539 |  |  | $ | 524,741 |  |  | $ | 42,417 |  |  | $ | 965,697 |
(1) | Goodwill recognized as a result of the ImThera and TandemLife acquisitions. Refer to “Note 3. Business Combinations.”
Property, plant and equipment, net by geography are as follows (in thousands):
PP&E |  | June 30, 2018 |  | December 31, 2017
United States |  | $ | 64,298 |  |  | $ | 62,154 |
Europe |  | 111,045 |  |  | 119,133 |
Rest of world |  | 10,813 |  |  | 11,072 |
Total |  | $ | 186,156 |  |  | $ | 192,359 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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