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