INTEGER HOLDINGS CORP, 10-Q filed on 11/12/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Oct. 3, 2014
Nov. 12, 2014
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
GREATBATCH, INC. 
 
Entity Central Index Key
0001114483 
 
Document Type
10-Q 
 
Document Period End Date
Oct. 03, 2014 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--01-02 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
24,995,025 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Current assets:
 
 
Cash and cash equivalents
$ 61,582 
$ 35,465 
Accounts receivable, net of allowance for doubtful accounts of $1.6 million in 2014 and $2.0 million in 2013
121,615 
113,679 
Inventories
128,727 
118,358 
Refundable income taxes
2,306 
Deferred income taxes
5,890 
6,008 
Prepaid expenses and other current assets
9,121 
6,717 
Total current assets
326,935 
282,533 
Property, plant and equipment, net
142,336 
145,773 
Amortizing intangible assets, net
68,763 
76,122 
Indefinite-lived intangible assets
20,288 
20,288 
Goodwill
354,583 
346,656 
Deferred income taxes
2,933 
2,933 
Other assets
15,449 
16,398 
Total assets
931,287 
890,703 
Current liabilities:
 
 
Accounts payable
44,989 
46,508 
Income taxes payable
2,559 
Deferred income taxes
613 
613 
Accrued expenses
41,798 
44,681 
Total current liabilities
89,959 
91,802 
Long-term debt
190,000 
197,500 
Deferred income taxes
50,593 
52,012 
Other long-term liabilities
3,673 
7,334 
Total liabilities
334,225 
348,648 
Stockholders’ equity:
 
 
Preferred stock, $0.001 par value, authorized 100,000,000 shares; no shares issued or outstanding in 2014 or 2013
Common stock, $0.001 par value, authorized 100,000,000 shares; 24,958,994 shares issued and 24,942,689 shares outstanding in 2014; 24,459,153 shares issued and 24,422,555 shares outstanding in 2013
25 
24 
Additional paid-in capital
360,435 
344,915 
Treasury stock, at cost, 16,305 shares in 2014 and 36,598 shares in 2013
(720)
(1,232)
Retained earnings
225,272 
183,990 
Accumulated other comprehensive income
12,050 
14,358 
Total stockholders’ equity
597,062 
542,055 
Total liabilities and stockholders’ equity
$ 931,287 
$ 890,703 
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Current assets:
 
 
Allowance for doubtful accounts
$ 1.6 
$ 2.0 
Stockholders’ equity:
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
100,000,000 
100,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
24,958,994 
24,459,153 
Common stock, shares outstanding
24,942,689 
24,422,555 
Treasury stock, shares
16,305 
36,598 
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Income Statement [Abstract]
 
 
 
 
Sales
$ 171,699 
$ 167,730 
$ 518,061 
$ 487,326 
Cost of sales
113,581 
111,853 
343,877 
325,398 
Gross profit
58,118 
55,877 
174,184 
161,928 
Operating expenses:
 
 
 
 
Selling, general and administrative expenses
22,121 
21,569 
65,753 
63,909 
Research, development and engineering costs, net
13,638 
13,806 
39,962 
38,983 
Other operating expenses, net
6,176 
3,500 
10,223 
10,560 
Total operating expenses
41,935 
38,875 
115,938 
113,452 
Operating income
16,183 
17,002 
58,246 
48,476 
Interest expense
1,051 
1,515 
3,208 
9,948 
Other (income) expense, net
(3,768)
(57)
(4,055)
907 
Income before provision for income taxes
18,900 
15,544 
59,093 
37,621 
Provision for income taxes
4,888 
4,473 
17,811 
11,135 
Net income
14,012 
11,071 
41,282 
26,486 
Earnings per share:
 
 
 
 
Basic
$ 0.56 
$ 0.46 
$ 1.67 
$ 1.11 
Diluted
$ 0.54 
$ 0.44 
$ 1.60 
$ 1.06 
Weighted average shares outstanding:
 
 
 
 
Basic
24,899 
24,047 
24,784 
23,904 
Diluted
25,923 
25,188 
25,850 
25,017 
Comprehensive Income
 
 
 
 
Net income
14,012 
11,071 
41,282 
26,486 
Foreign currency translation gain (loss)
(3,211)
3,579 
(2,422)
1,147 
Net change in cash flow hedges, net of tax
(49)
(403)
114 
(365)
Defined benefit plan liability adjustment, net of tax
597 
Other comprehensive income (loss)
(3,260)
3,176 
(2,308)
1,379 
Comprehensive income
$ 10,752 
$ 14,247 
$ 38,974 
$ 27,865 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Cash flows from operating activities:
 
 
Net income
$ 41,282 
$ 26,486 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
27,943 
26,658 
Debt related amortization included in interest expense
580 
6,171 
Stock-based compensation
10,531 
11,413 
Other (gains) losses
(7,191)
184 
Deferred income taxes
(3,000)
(31,197)
Changes in operating assets and liabilities, net of acquisitions:
 
 
Accounts receivable
(8,460)
(9,901)
Inventories
(7,111)
(15,999)
Prepaid expenses and other current assets
(23)
1,010 
Accounts payable
(1,311)
(7,220)
Accrued expenses
(3,627)
(1,732)
Income taxes payable
5,070 
10,202 
Net cash provided by operating activities
54,683 
16,075 
Cash flows from investing activities:
 
 
Acquisition of property, plant and equipment
(16,029)
(14,953)
Proceeds from sale of orthopaedic product lines (Note 9)
2,655 
3,228 
(Purchase of) proceeds from sale of cost and equity method investments
4,306 
(1,928)
Acquisitions, net of cash acquired (Note 2)
(15,801)
Other investing activities
(194)
Net cash used in investing activities
(24,869)
(13,847)
Cash flows from financing activities:
 
 
Principal payments of long-term debt
(7,500)
(445,782)
Proceeds from issuance of long-term debt
425,000 
Issuance of common stock
5,705 
6,213 
Payment of debt issuance costs
(2,697)
Other financing activities
(1,059)
(327)
Net cash used in financing activities
(2,854)
(17,593)
Effect of foreign currency exchange rates on cash and cash equivalents
(843)
54 
Net increase (decrease) in cash and cash equivalents
26,117 
(15,311)
Cash and cash equivalents, beginning of period
35,465 
20,284 
Cash and cash equivalents, end of period
$ 61,582 
$ 4,973 
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)
In Thousands, unless otherwise specified
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Jan. 03, 2014
$ 542,055 
$ 24 
$ 344,915 
$ (1,232)
$ 183,990 
$ 14,358 
Balance, shares at Jan. 03, 2014
 
24,459 
 
(37)
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Stock-based compensation
6,800 
 
6,800 
 
 
 
Net shares issued under stock incentive plans, shares
 
500 
 
(74)
 
 
Net shares issued under stock incentive plans
4,892 
8,594 
(3,703)
 
 
Shares contributed to 401(k), shares
 
 
 
95 
 
 
Shares contributed to 401(k) Plan
4,341 
 
126 
4,215 
 
 
Net income
41,282 
 
 
 
41,282 
 
Total other comprehensive loss
(2,308)
 
 
 
 
(2,308)
Balance at Oct. 03, 2014
$ 597,062 
$ 25 
$ 360,435 
$ (720)
$ 225,272 
$ 12,050 
Balance, shares at Oct. 03, 2014
 
24,959 
 
(16)
 
 
Basis of Presentation
BASIS OF PRESENTATION
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of Greatbatch, Inc. and its wholly-owned subsidiary, Greatbatch Ltd. (collectively “Greatbatch” or the “Company”), for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ materially from these estimates. The January 3, 2014 condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2014. The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. The third quarter and year-to-date periods of 2014 and 2013 each contained 13 weeks and 39 weeks, respectively, and ended on October 3, and September 27, respectively.
Acquisitions
ACQUISITIONS
ACQUISITION

On August 12, 2014 the Company purchased all of the outstanding common stock of Centro de Construcción de Cardioestimuladores del Uruguay (“CCC”), headquartered in Montevideo, Uruguay. CCC is an active implantable neuromodulation medical device systems developer and manufacturer that produces a range of medical devices including implantable pulse generators, programmer systems, battery chargers, patient wands and leads. This acquisition allows the Company to more broadly partner with medical device companies, complements the Company’s core discrete technology offerings and enhances the Company’s medical device innovation efforts.

This transaction was accounted for under the acquisition method of accounting. Accordingly, the operating results of CCC have been included in the Company’s QiG segment from the date of acquisition. For the three and nine months ended October 3, 2014, CCC added approximately $1.6 million to the Company’s revenue and increased the Company’s net income by $0.4 million. The aggregate purchase price of $19.6 million was funded with cash on hand.

The cost of the acquisition was preliminarily allocated to the assets acquired and liabilities assumed from CCC based on their fair values as of the closing date of the acquisition, with the amount exceeding the fair value of the net assets acquired being recorded as goodwill. The value assigned to certain assets and liabilities are preliminary and are subject to adjustment as additional information is obtained, including, but not limited to, the finalization of: the intangible asset valuation; net assets acquired; the working capital adjustment as defined in the purchase agreement; and pre-acquisition tax positions. The valuation is expected to be finalized in 2015. When the valuation is finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in material adjustments to the fair value of the intangible assets acquired, as well as goodwill.

    
The following table summarizes the preliminary allocation of the CCC purchase price to the assets acquired and liabilities assumed as of the acquisition date (in thousands):
Assets acquired
 
Current assets
$
9,519

Property, plant and equipment
1,106

Amortizing intangible assets
6,100

Goodwill
8,321

Total assets acquired
25,046

Liabilities assumed
 
Current liabilities
3,874

Deferred income taxes
1,590

Total liabilities assumed
5,464

Net assets acquired
$
19,582



The preliminary fair values of the assets acquired were determined using one of three valuation approaches: market, income or cost. The selection of a particular method for a given asset depended on the reliability of available data and the nature of the asset, among other considerations.

The market approach estimates the value for a subject asset based on available market pricing for comparable assets. The income approach estimates the value for a subject asset based on the present value of cash flows projected to be generated by the asset. The projected cash flows were discounted at a required rate of return that reflects the relative risk of the asset and the time value of money. The projected cash flows for each asset considered multiple factors from the perspective of a marketplace participant including revenue projections from existing customers, attrition trends, technology life-cycle assumptions, marginal tax rates and expected profit margins giving consideration to historical and expected margins. The cost approach estimates the value for a subject asset based on the cost to replace the asset and reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation or obsolescence, with specific consideration given to economic obsolescence if indicated. These fair value measurement approaches are based on significant unobservable inputs, including management estimates and assumptions.

Current assets and liabilities - The fair value of current assets and liabilities, excluding inventory, was assumed to approximate their carrying value as of the acquisition date due to the short-term nature of these assets and liabilities.

The fair value of in-process and finished goods inventory acquired was estimated by applying a version of the market approach called the comparable sales method. This approach estimates the fair value of the assets by calculating the potential revenue generated from selling the inventory and subtracting from it the costs related to the completion and sale of that inventory and a reasonable profit allowance. Based upon this methodology, the Company recorded the inventory acquired at fair value resulting in an increase in inventory of $0.3 million.

Intangible assets - The purchase price was allocated to intangible assets as follows (dollars in thousands):
Amortizing Intangible Assets
 
Fair
Value
Assigned
 
Weighted
Average
Amortization
Period (Years)
 
Weighted
Average
Discount
Rate
 
 
 
 
 
 
 
Technology
 
$
1,400

 
10
 
18%
Customer lists
 
4,600

 
10
 
18%
Trademarks and tradenames
 
100

 
2
 
18%
 
 
6,100

 
 
 
 


Technology - Technology consists of technical processes, unpatented technology, manufacturing know-how, trade secrets and the understanding with respect to products or processes that have been developed by CCC and that will be leveraged in current and future products. The fair value of technology acquired was determined utilizing the relief from royalty method, a form of the income approach, with a royalty rate of 3%. The weighted average amortization period of the technology is based upon management’s estimate of the product life cycle associated with technology and patents before they will be replaced by new technologies.

Customer lists - Customer lists represent the estimated fair value of non-contractual customer relationships CCC has as of the acquisition date. The primary customers of CCC include medical device companies in various geographic locations around the world. These relationships were valued separately from goodwill at the amount that an independent third party would be willing to pay for these relationships. The fair value of customer lists was determined using the multi-period excess-earnings method, a form of the income approach. The weighted average amortization period of the existing customer base was based upon the historical customer annual attrition rate of 15%, as well as management’s understanding of the industry and product life cycles.

Trademarks and tradenames – Trademarks and tradenames represent the estimated fair value of corporate and product names acquired from CCC. These tradenames were valued separately from goodwill at the amount that an independent third party would be willing to pay for use of these names. The fair value of the trademarks and tradenames was determined by utilizing the relief from royalty method, a form of the income approach, with a 0.5% royalty rate.

Goodwill - The excess of the purchase price over the fair value of net tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. Various factors contributed to the establishment of goodwill, including: the value of CCC's highly trained assembled work force and management team; the incremental value that CCC’s technology will bring to QiG's medical devices; and the expected revenue growth over time that is attributable to increased market penetration from future products and customers for Greatbatch Medical. The goodwill acquired in connection with the CCC acquisition was allocated to the QiG business segment and is not deductible for tax purposes.

Pro Forma Results (Unaudited)
The following unaudited pro forma information presents the consolidated results of operations of the Company and CCC as if that acquisition occurred as of the beginning of fiscal year 2013 (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
 
 
 
 
 
 
 
 
Sales
$
173,413

 
$
171,158

 
$
526,631

 
$
497,610

Net income
14,219

 
11,407

 
42,165

 
27,495

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.57

 
$
0.47

 
1.70

 
1.15

Diluted
$
0.55

 
$
0.45

 
1.63

 
1.10



The results prior to the acquisition date have been adjusted to include the pro forma impact of the amortization of acquired intangible assets based on the purchase price allocations and the impact of income taxes on the pro forma adjustments utilizing the applicable statutory tax rate. The unaudited pro forma consolidated basic and diluted earnings per share calculations are based on the consolidated basic and diluted weighted average shares of Greatbatch.

The unaudited pro forma results are presented for illustrative purposes only and do not reflect the realization of potential cost savings or any related integration costs. Certain cost savings may result from the acquisition; however, there can be no assurance that these cost savings will be achieved. These pro forma results do not purport to be indicative of the results that would have been obtained in the periods presented, or to be indicative of results that may be obtained in the future.
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
 
Nine Months Ended
(in thousands)
October 3, 2014
 
September 27, 2013
Noncash investing and financing activities:
 
 
 
Common stock contributed to 401(k) Plan
$
4,341

 
$
2,477

Property, plant and equipment purchases included in accounts payable
2,618

 
711

Cash paid during the period for:
 
 
 
Interest
$
2,736

 
$
4,388

Income taxes
11,791

 
31,755

Acquisition of noncash assets
$
21,282

 
$

Liabilities assumed
5,464

 

Inventories
INVENTORIES
INVENTORIES
Inventories are comprised of the following (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
Raw materials
$
74,718

 
$
67,939

Work-in-process
39,604

 
36,670

Finished goods
14,405

 
13,749

Total
$
128,727

 
$
118,358

Intangible Assets
INTANGIBLE ASSETS
INTANGIBLE ASSETS
Amortizing intangible assets are comprised of the following (in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Foreign
Currency
Translation
 
Net
Carrying
Amount
At October 3, 2014
 
 
 
 
 
 
 
Technology and patents
$
95,776

 
$
(74,287
)
 
$
1,966

 
$
23,455

Customer lists
72,857

 
(29,705
)
 
1,374

 
44,526

Other
4,534

 
(4,555
)
 
803

 
782

Total amortizing intangible assets
$
173,167

 
$
(108,547
)
 
$
4,143

 
$
68,763

At January 3, 2014
 
 
 
 
 
 
 
Technology and patents
$
97,376

 
$
(69,026
)
 
$
1,980

 
$
30,330

Customer lists
68,257

 
(24,671
)
 
1,367

 
44,953

Other
4,434

 
(4,399
)
 
804

 
839

Total amortizing intangible assets
$
170,067

 
$
(98,096
)
 
$
4,151

 
$
76,122


Aggregate intangible asset amortization expense is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Cost of sales
$
1,567

 
$
1,668

 
$
4,696

 
$
5,207

Selling, general and administrative expenses
1,756

 
1,446

 
5,190

 
4,343

Research, development and engineering costs, net
164

 
137

 
565

 
409

Total intangible asset amortization expense
$
3,487

 
$
3,251

 
$
10,451

 
$
9,959


Estimated future intangible asset amortization expense based on the current carrying value is as follows (in thousands):
 
Estimated
Amortization
Expense
Remainder of 2014
$
3,426

2015
12,988

2016
10,676

2017
9,520

2018
7,232

Thereafter
24,921

Total estimated amortization expense
$
68,763


As of January 3, 2014, the Company had recorded within Other Long-Term Liabilities $4 million of contingent liabilities incurred in connection with technology purchases made in previous years. During the third quarter of 2014, the Company reversed $3 million of these contingent liabilities as a result of certain performance targets not being achieved, which reduced the technology asset recorded at the time of the asset acquisition.
Indefinite-lived intangible assets are comprised of the following (in thousands):
 
Trademarks
and
Tradenames
At January 3, 2014
$
20,288

At October 3, 2014
$
20,288

The change in goodwill is as follows (in thousands):
 
Greatbatch Medical
 
QiG
 
Total
At January 3, 2014
$
304,856

 
$
41,800

 
$
346,656

Goodwill acquired

 
8,321

 
8,321

Foreign currency translation
(394
)
 

 
(394
)
At October 3, 2014
$
304,462

 
$
50,121

 
$
354,583

Debt
DEBT
DEBT
Long-term debt is comprised of the following (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
Revolving line of credit
$

 
$

Variable rate term loan
190,000

 
197,500

Total long-term debt
$
190,000

 
$
197,500


Credit Facility – In September 2013, the Company amended and extended its credit facility (the “Credit Facility”). The new Credit Facility provides a $300 million revolving credit facility (the “Revolving Credit Facility”), a $200 million term loan (the “Term Loan”), a $15 million letter of credit subfacility, and a $15 million swingline subfacility. The Revolving Credit Facility can be increased by $200 million upon the Company’s request and approval by the lenders. The Revolving Credit Facility has a maturity date of September 20, 2018, which may be extended to September 20, 2019 upon notice by the Company and subject to certain conditions. The principal of the Term Loan is payable in quarterly installments as specified in the Credit Facility until its maturity date of September 20, 2019, when the unpaid balance is due in full.
The Credit Facility is secured by the Company’s non-realty assets including cash, accounts receivable and inventories. Interest rates on the Revolving Credit Facility and Term Loan are, at the Company’s option either at: (i) the prime rate plus the applicable margin, which ranges between 0.0% and 0.75%, based on the Company’s total leverage ratio or (ii) the LIBOR rate plus the applicable margin, which ranges between 1.375% and 2.75%, based on the Company’s total leverage ratio. Loans under the swingline subfacility will bear interest at the prime rate plus the applicable margin, which ranges between 0.0% and 0.75%, based on the Company’s total leverage ratio. The Company is also required to pay a commitment fee, which varies between 0.175% and 0.25% depending on the Company’s total leverage ratio.
The Credit Facility contains limitations on the incurrence of indebtedness, liens and licensing of intellectual property, investments and certain payments. The Credit Facility permits the Company to engage in the following activities up to an aggregate amount of $300 million: 1) permitted acquisitions in the aggregate not to exceed $250 million; 2) other investments in the aggregate not to exceed $100 million; 3) stock repurchases and dividends not to exceed $150 million in the aggregate; and 4) investments in foreign subsidiaries not to exceed $20 million in the aggregate. At any time that the total leverage ratio of the Company for the two most recently ended fiscal quarters is less than 2.75 to 1.0, the Company may make an election to reset each of the amounts specified above. Additionally, these limitations can be waived upon the Company’s request and approval of a majority of the lenders. As of October 3, 2014, the Company had available to it 100% of the above limits except for the aggregate limit and acquisitions limit which are now $280 million and $230 million, respectively.
 
The Credit Facility requires the Company to maintain a rolling four quarter ratio of adjusted EBITDA to interest expense of at least 3.0 to 1.0, and a total leverage ratio of not greater than 4.5 to 1.0 decreasing to not greater than 4.25 to 1.0 after January 2, 2016. The calculation of adjusted EBITDA and total leverage ratio excludes non-cash charges, extraordinary, unusual, or non-recurring expenses or losses, non-cash stock-based compensation, and non-recurring expenses or charges incurred in connection with permitted acquisitions. As of October 3, 2014, the Company was in compliance with all covenants under the Credit Facility.
The Credit Facility contains customary events of default. Upon the occurrence and during the continuance of an event of default, a majority of the lenders may declare the outstanding advances and all other obligations under the Credit Facility immediately due and payable.
As of October 3, 2014, the weighted average interest rate on borrowings under the Credit Facility, which does not take into account the impact of the Company’s interest rate swap, was 1.56%. As of October 3, 2014, the Company had $300 million of borrowing capacity available under the Revolving Credit Facility. This borrowing capacity may vary from period to period based upon the debt and EBITDA levels of the Company, which impacts the covenant calculations described above.
Interest Rate Swap – From time to time, the Company enters into interest rate swap agreements in order to hedge against potential changes in cash flows on the outstanding borrowings on the Credit Facility. The variable rate received on the interest rate swaps and the variable rate paid on the debt have the same rate of interest, excluding the credit spread, and resets and pays interest on the same date. During 2012, the Company entered into a three-year $150 million interest rate swap, which amortizes $50 million per year. This swap was entered into in order to hedge against potential changes in cash flows on the outstanding Credit Facility borrowings, which are also indexed to the one-month LIBOR rate. This swap is being accounted for as a cash flow hedge. Information regarding the Company’s outstanding interest rate swap as of October 3, 2014 is as follows (dollars in thousands):
Instrument
Type of
Hedge
 
Notional
Amount
 
Start
Date
 
End
Date
 
Pay
Fixed
Rate
 
Current
Receive
Floating
Rate
 
Fair Value October 3, 2014
 
Balance
Sheet Location
Interest rate swap
Cash flow
 
$
100,000

 
Feb-13
 
Feb-16
 
0.573
%
 
0.154
%
 
$
(191
)
 
Other Long-Term Liabilities

The estimated fair value of the interest rate swap agreement represents the amount the Company expects to receive (pay) to terminate the contract. No portion of the change in fair value of the Company’s interest rate swap during the nine months ended October 3, 2014 and September 27, 2013 was considered ineffective. The amount recorded as Interest Expense during the nine months ended October 3, 2014 and September 27, 2013 related to the Company’s interest rate swap was $0.3 million.
Subsequent Event - On November 3, 2014, the Company entered into an additional interest rate swap in order to hedge against potential changes in cash flows on the outstanding borrowings under the Credit Facility. The first $45 million of notional amount of the swap is effective February 20, 2015 and the second $45 million of notional amount is effective February 22, 2016. The notional amount of the swap amortizes $10 million per year beginning on February 21, 2017 with the remaining settled on the termination date of the swap agreement on September 20, 2019. Under the terms of the swap agreement the Company will pay a fixed interest rate of 1.921% and receive a floating interest rate equal to the one-month LIBOR rate. The variable rate received on the interest rate swaps and the variable rate paid on the Credit Facility will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The swap will be accounted for as a cash flow hedge.
The expected future minimum principal payments under the Term Loan as of October 3, 2014 are as follows (in thousands):
Remainder of 2014
$
2,500

2015
11,250

2016
16,250

2017
20,000

2018
20,000

Thereafter
120,000

Total
$
190,000


The Company has the ability and intent to use availability under the Revolving Credit Facility to fund principal payments on the Term Loan. As such, the entire balance of the Term Loan is classified as a non-current liability in the condensed consolidated balance sheets.
 
Convertible Subordinated Notes – In March 2007, the Company issued $197.8 million of convertible subordinated notes (“CSN”) at a 5% discount. CSN accrued interest at 2.25% per annum. The effective interest rate of CSN, which took into consideration the amortization of the discount and deferred fees related to the issuance of these notes, was 8.5%. On February 20, 2013, the Company redeemed all outstanding CSN.
The contractual interest and discount amortization for CSN were as follows (in thousands):
 
Three Months ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Contractual interest
$

 
$

 
$

 
$
634

Discount amortization

 

 

 
5,368


Deferred Financing Fees - The change in deferred financing fees is as follows (in thousands):
At January 3, 2014
$
3,860

Amortization during the period
(580
)
At October 3, 2014
$
3,280

Defined Benefit Plans
DEFINED BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company is required to provide its employees located in Switzerland, Mexico and France certain statutorily mandated defined benefits. Under these plans, benefits accrue to employees based upon years of service, position, age and compensation. The defined benefit plan provided to employees located in Switzerland is a funded contributory plan while the plans that provide benefits to employees located in Mexico and France are unfunded and noncontributory. The liability and corresponding expense related to these benefit plans is based on actuarial computations of current and future benefits for employees.
During 2012, the Company transferred most major functions performed at its facilities in Switzerland into other existing facilities. As a result, the Company curtailed its defined benefit plan provided to employees at those Swiss facilities and recognized a curtailment gain during 2013. In accordance with ASC 715, this gain was recognized in Other Operating Expenses, Net as the related employees were terminated. Refer to Note 9 "Other Operating Expenses, Net" for further information.
The change in net defined benefit plan liability is as follows (in thousands):
At January 3, 2014
$
1,691

Net defined benefit cost
229

Benefit payments
(96
)
Foreign currency translation
(153
)
At October 3, 2014
$
1,671


Net defined benefit cost (income) is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Service cost
$
51

 
$
76

 
$
155

 
$
227

Interest cost
18

 
41

 
57

 
144

Curtailment gain (Other Operating Expenses, Net)

 

 

 
(1,150
)
Amortization of net loss
6

 

 
17

 

Net defined benefit (income) cost
$
75

 
$
117

 
$
229

 
$
(779
)
Stock-Based Compensation
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
The components and classification of stock-based compensation expense were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Stock options
$
595

 
$
1,374

 
$
1,811

 
$
2,784

Restricted stock and units
1,850

 
2,013

 
5,008

 
4,958

401(k) Plan stock contribution
1,357

 
679

 
3,712

 
3,671

Total stock-based compensation expense
$
3,802

 
$
4,066

 
$
10,531

 
$
11,413

 
 
 
 
 
 
 
 
Cost of sales
$
1,129

 
$
1,117

 
$
3,187

 
$
3,246

Selling, general and administrative expenses
1,951

 
1,598

 
5,872

 
6,052

Research, development and engineering costs, net
429

 
215

 
1,179

 
979

Modification expense – Other Operating Expenses, Net (Note 9)
293

 
1,136

 
293

 
1,136

Total stock-based compensation expense
$
3,802

 
$
4,066

 
$
10,531

 
$
11,413


The weighted average fair value and assumptions used to value options granted are as follows:
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
Weighted average fair value
$
16.43

 
$
8.38

Risk-free interest rate
1.73
%
 
0.73
%
Expected volatility
39
%
 
39
%
Expected life (in years)
5

 
5

Expected dividend yield
%
 
%

The following table summarizes time-vested stock option activity:
 
Number of
Time-Vested
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(In Years)
 
Aggregate
Intrinsic
Value
(In Millions)
Outstanding at January 3, 2014
1,616,409

 
$
22.92

 
 
 
 
Granted
183,571

 
43.84

 
 
 
 
Exercised
(191,501
)
 
22.94

 
 
 
 
Forfeited or expired
(33,279
)
 
27.82

 
 
 
 
Outstanding at October 3, 2014
1,575,200

 
25.26

 
6.3
 
$
28.9

Exercisable at October 3, 2014
1,159,129

 
23.09

 
5.5
 
$
23.7

The following table summarizes performance-vested stock option activity:
 
Number of
Performance-
Vested Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(In Years)
 
Aggregate
Intrinsic
Value
(In Millions)
Outstanding at January 3, 2014
177,261

 
$
23.27

 
 
 
 
Exercised
(56,243
)
 
23.34

 
 
 
 
Outstanding at October 3, 2014
121,018

 
23.25

 
3.2
 
$
2.5

Exercisable at October 3, 2014
121,018

 
23.25

 
3.2
 
$
2.5


The following table summarizes time-vested restricted stock and restricted stock unit activity:
 
Time-Vested
Activity
 
Weighted
Average
Fair Value
Nonvested at January 3, 2014
67,575

 
$
26.37

Granted
63,817

 
44.78

Vested
(14,118
)
 
43.80

Forfeited
(7,073
)
 
33.79

Nonvested at October 3, 2014
110,201

 
34.32

The following table summarizes performance-vested restricted stock and restricted stock unit activity:
 
Performance-
Vested
Activity
 
Weighted
Average
Fair Value
Nonvested at January 3, 2014
779,678

 
$
16.41

Granted
186,825

 
31.33

Vested
(221,470
)
 
18.51

Forfeited
(28,870
)
 
18.42

Nonvested at October 3, 2014
716,163

 
19.57

Other Operating (Income) Expenses, Net
OTHER OPERATING (INCOME) EXPENSES, NET
OTHER OPERATING EXPENSES, NET
Other Operating Expenses, Net is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
2014 investments in capacity and capabilities
$
2,787

 
$

 
$
5,005

 
$

2013 operating unit realignment
(31
)
 
2,214

 
1,004

 
3,066

Orthopaedic facility optimization costs
996

 
1,420

 
1,032

 
6,723

Medical device facility optimization

 
52

 
11

 
282

ERP system upgrade (income) costs

 
(121
)
 
(82
)
 
264

Acquisition and integration (income) costs
133

 
(522
)
 
(248
)
 
(340
)
Asset dispositions, severance and other
2,291

 
457

 
3,501

 
565

 
$
6,176

 
$
3,500

 
$
10,223

 
$
10,560


2014 investments in capacity and capabilities. In 2014, the Company announced several initiatives to invest in capacity and capabilities and to better align its resources to meet its customers' needs and drive organic growth and profitability. These included the following:
Functions currently performed at the Company’s facility in Plymouth, MN to manufacture catheters and introducers will transfer into the Company’s existing facility in Tijuana, Mexico by the first half of 2016.
Functions currently performed at the Company’s facilities in Beaverton, OR and Raynham, MA to manufacture products for the portable medical market will transfer to a new facility in Tijuana, Mexico by the end of 2015. Products currently manufactured at the Beaverton facility, which do not serve the portable medical market, are planned to transfer to the Company’s Raynham facility.
Establishing a R&D hub in the Minneapolis/St. Paul, MN area for the Company's Global R&D QiG - Medical Device Systems team, which will serve as the technical center of expertise for active implantable medical device development, implantable leads design, system level design verification testing, and continuation engineering. As part of this initiative, the design engineering responsibilities currently performed at our Cleveland, OH facility will be transferred to the new R&D hub by the end of 2014.
Establishing a commercial operations hub at the Company's global headquarters in Frisco, Texas. This initiative will build upon the investment the Company has made in its global sales and marketing function and is expected to be completed during the first half of 2015.
The total capital investment expected for these initiatives is between $25.0 million and $27.0 million, of which $1.4 million has been expended to date. Total restructuring charges expected to be incurred in connection with this realignment are between $29.0 million and $34.0 million, of which $5.0 million has been incurred to date. Expenses related to this initiative are recorded within the applicable segment and corporate cost centers that the expenditures relate to and include the following:
Severance and retention: $7.0 million - $9.0 million;
Accelerated depreciation and asset write-offs: $2.0 million - $3.0 million; and
Other: $20.0 million - $22.0 million
Other costs primarily consist of costs to relocate certain equipment and other personnel, duplicate personnel costs, disposal and travel expenditures. All expenses are cash expenditures, except accelerated depreciation and asset write-offs.
The change in accrued liabilities related to the 2014 investments in capacity and capabilities is as follows (in thousands):
 
Severance and
Retention
 
Accelerated
Depreciation/Asset
Write-offs
 
Other
 
Total
At January 3, 2014
$

 
$

 
$

 
$

Restructuring charges
1,445

 
33

 
3,527

 
5,005

Write-offs

 
(33
)
 

 
(33
)
Cash payments
(434
)
 

 
(2,838
)
 
(3,272
)
At October 3, 2014
$
1,011


$

 
$
689

 
$
1,700


2013 operating unit realignment. In June 2013, the Company initiated a plan to realign its operating structure in order to optimize its continued focus on profitable growth. As part of this initiative, the sales and marketing and operations groups of its former Implantable Medical and Electrochem Solutions (“Electrochem”) reportable segments were combined into one sales and marketing group and one operations group each serving the entire Company. This initiative is expected to be completed by the end of 2014. Total restructuring charges expected to be incurred in connection with this realignment are between $6.6 million and $7.0 million, of which $6.6 million has been incurred to date. Expenses related to this initiative are recorded within the applicable segment and corporate cost centers that the expenditures relate to and include the following:
 
Severance and retention: $5.0 million$5.2 million; and
Other: $1.6 million$1.8 million.
Other costs primarily consist of relocation and travel expenditures.
 
The change in accrued liabilities related to the 2013 operating unit realignment is as follows (in thousands):
 
Severance and
Retention
 
Other
 
Total
At January 3, 2014
$
465

 
$
746

 
$
1,211

Restructuring charges
849

 
155

 
1,004

Cash payments
(1,314
)
 
(901
)
 
(2,215
)
At October 3, 2014
$

 
$

 
$


Orthopaedic facility optimization costs. In 2010, the Company began updating its Indianapolis, IN facility to streamline operations, consolidate two buildings, increase capacity, further expand capabilities and reduce dependence on outside suppliers. This initiative was completed in 2011.
In 2011, the Company began construction on an orthopaedic manufacturing facility in Fort Wayne, IN and transferred manufacturing operations being performed at its Columbia City, IN location into this new facility. This initiative was completed in 2012.
During 2012, the Company transferred manufacturing and development operations performed at its facilities in Orvin and Corgemont, Switzerland into existing facilities in Fort Wayne, IN and Tijuana, Mexico. In connection with this consolidation, in 2012, the Company entered into an agreement to sell assets related to certain non-core Swiss orthopaedic product lines to an independent third party including inventory, machinery, equipment, customer lists and technology related to these product lines. This transaction closed during the first quarter of 2013. The Company received payments totaling $4.7 million in 2013 in connection with this transaction and the third party assumed $2.4 million of severance liabilities. During the first half of 2014, the Company recognized a gain and received an additional contingent payment of $2.7 million from the third party in connection with the achievement of certain milestones defined in the sales agreement. In addition, during the first quarter of 2013, the Company recognized a pension curtailment gain in connection with this consolidation. Refer to Note 7 “Defined Benefit Plans” for further information. These gains were recognized in Other Operating Expenses, Net in the Condensed Consolidated Statements of Operations.
During 2013, the Company initiated a project to expand its Chaumont, France facility in order to enhance its capabilities and fulfill larger volume customer supply agreements. This initiative is expected to be completed over the next three years.
The total capital investment expected for these initiatives is between $30 million and $35 million, of which $23.7 million has been expended to date. Total expense expected to be incurred for these initiatives is between $43 million and $48 million, of which $42.0 million has been incurred to date. All expenses are recorded within the Greatbatch Medical segment and are expected to include the following:
 
Severance and retention: approximately $11 million;
Accelerated depreciation and asset write-offs: approximately $13 million; and
Other: $19 million$24 million.
Other costs include production inefficiencies, moving, revalidation, personnel, training and travel costs associated with these consolidation projects.
All expenses are cash expenditures, except accelerated depreciation and asset write-offs. The change in accrued liabilities related to the orthopaedic facility optimization is as follows (in thousands):
 
Severance
and
Retention
 
Accelerated
Depreciation/Asset
Write-offs
 
Other
 
Total
At January 3, 2014
$

 
$

 
$
857

 
$
857

Restructuring charges (income)

 
(2,655
)
 
3,687

 
1,032

Cash (payments) receipts

 
2,655

 
(4,004
)
 
(1,349
)
At October 3, 2014
$

 
$

 
$
540

 
$
540


Medical device facility optimization. Near the end of 2011, the Company initiated plans to upgrade and expand its manufacturing infrastructure in order to support its medical device strategy. This includes the transfer of certain product lines to create additional capacity for the manufacture of medical devices, expansion of two existing facilities, as well as the purchase of equipment to enable the production of medical devices. These initiatives are expected to be completed over the next three months. Total capital investment under these initiatives is expected to be between $12.5 million and $13 million, of which approximately $12.5 million has been expended to date. Total expenses expected to be incurred on these projects is between $1.8 million and $2.0 million, of which $1.8 million has been incurred to date. All expenses are recorded within the Greatbatch Medical segment and are expected to include the following:
 
Production inefficiencies, moving and revalidation: $0.7 million;
Personnel: $0.6 million; and
Other: approximately $0.5 million - $0.7 million.
The change in accrued liabilities related to the medical device facility optimization is as follows (in thousands):
 
Production
Inefficiencies,
Moving and
Revalidation
 
Personnel
 
Other
 
Total
At January 3, 2014
$

 
$

 
$

 
$

Restructuring charges

 
1

 
10

 
11

Cash payments

 
(1
)
 
(10
)
 
(11
)
At October 3, 2014
$

 
$

 
$

 
$


 
ERP system upgrade (income) costs. In 2011, the Company initiated plans to upgrade its existing global ERP system. This initiative was completed during the first half of 2014. Total capital investment expended under this initiative was $4.0 million. Total expenses incurred on this initiative were $5.8 million. Expenses related to this initiative were recorded within the applicable segment and corporate cost centers that the expenditures related to and included the following:
 
Training and consulting costs: $3.3 million; and
Accelerated depreciation and asset write-offs: $2.5 million.
The change in accrued liabilities related to the ERP system upgrade is as follows (in thousands):
 
Training &
Consulting
Costs
 
Accelerated
Depreciation/Asset
Write-offs
 
Total
At January 3, 2014
$

 
$

 
$

Restructuring income
(82
)
 

 
(82
)
Cash receipts
82

 

 
82

At October 3, 2014
$

 
$

 
$


Acquisition and integration (income) costs. During 2014 and 2013, the Company incurred cost (income) related to the integration of Micro Power Electronics, Inc., NeuroNexus Technologies, Inc., and CCC, which were acquired in December 2011, February 2012, and August 2014, respectively. These expenses were primarily for retention bonuses, travel costs in connection with integration efforts, training, severance, and the change in fair value of the contingent consideration recorded in connection with these acquisitions. Refer to Note 14 “Fair Value Measurements” for discussion on changes in fair value of the contingent consideration, which resulted in net gains being recognized in Other Operating Expenses, Net in the Condensed Consolidated Statements of Operations.
Asset dispositions, severance and other. During 2014 and 2013, the Company recorded charges in connection with various asset disposals and write downs. During the third quarter of 2014, the Company also incurred $0.8 million of expense related to the separation of the Company's Senior Vice President, Human Resources. Additionally, during the first three quarters of 2014, the Company recorded charges in connection with its business reorganization to align its contract manufacturing operations, which is expected to produce tax savings over the long-term. Costs incurred primarily relate to consulting and IT development, and are expected to be completed by the end of 2014.
Income Taxes
INCOME TAXES
INCOME TAXES
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, business reorganizations, settlements with taxing authorities and foreign currency fluctuations.
As of October 3, 2014, the balance of unrecognized tax benefits is approximately $1.6 million. It is reasonably possible that a reduction of up to $0.6 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of potential audit settlements. Approximately $1.5 million of the balance of unrecognized tax benefits would favorably impact the effective tax rate, net of federal benefit on state issues, if recognized.
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Litigation On December 21, 2012, the Company and several other unaffiliated parties were named as defendants in a personal injury and wrongful death action filed in the 113th Judicial District Court of Harris County, Texas. The complaint seeks damages alleging marketing and product defects and failure to warn, negligence and gross negligence relating to a product the Company manufactured and sold to a customer, one of the other named defendants. The Company's customer, in turn, incorporated the Greatbatch product into its own product which it sold to its customer, another named defendant. This matter is currently scheduled for trial during the first quarter of 2015.
The Company is indemnified by its customer against any loss in this matter, including costs of defense, which obligation is supported by the customer's product liability insurance coverage in the amount of $5 million. The Company also has its own product liability insurance coverage, subject to a $10 million retention. The Company has meritorious defenses and is vigorously defending the matter. In the event of an adverse judgment, however, the Company could have liability to the extent of the amount of any award its customer is unable to satisfy. To date, the Company has not recorded a reserve in connection with this matter since any potential loss is not currently probable and the range of loss is not reasonably estimable at this time.
The Company is a party to various other legal actions arising in the normal course of business. While the Company does not expect that the ultimate resolution of any of these pending actions will have a material effect on its consolidated results of operations, financial position, or cash flows, litigation is subject to inherent uncertainties and there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, does not become material in the future.
Product Warranties The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The change in aggregate product warranty liability is as follows (in thousands):
At January 3, 2014
$
1,819

Increase to warranty reserve
680

Warranty claims paid
(1,934
)
At October 3, 2014
$
565


Purchase Commitments – Contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The Company’s purchase orders are normally based on its current manufacturing needs and are fulfilled by its vendors within short time horizons. The Company also enters into blanket orders with vendors that have preferred pricing and terms, however these orders are normally cancelable without penalty. As of October 3, 2014, the total contractual obligation related to such expenditures is approximately $31.7 million and will primarily be funded by existing cash and cash equivalents, cash flow from operations, or borrowings under the Credit Facility. The Company also enters into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
Workers’ Compensation Trust - The Company was a member of a group self-insurance trust that provided workers’ compensation benefits to its Western New York employees (the “Trust”). Under the Trust agreement, each participating organization has joint and several liability for Trust obligations if the assets of the Trust are not sufficient to cover those obligations. During 2011, the Company was notified by the Trust of its intention to cease operations at the end of 2011, and was assessed a pro-rata share of future costs related to the Trust. Based on actual experience, the Company could receive a refund or be assessed additional contributions for workers’ compensation claims insured by the Trust. Since 2011, the Company has utilized a traditional insurance provider for workers’ compensation coverage.

Operating Leases – The Company is a party to various operating lease agreements for buildings, equipment and software. Estimated future operating lease expense is as follows (in thousands):
Remainder of 2014
$
1,285

2015
5,635

2016
5,036

2017
2,548

2018
2,099

Thereafter
6,352

Total estimated operating lease expense
$
22,955


Foreign Currency Contracts – The Company enters into forward contracts to purchase Mexican pesos in order to hedge the risk of peso-denominated payments associated with the operations at its Tijuana, Mexico facility. The impact to the Company’s results of operations from these forward contracts was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Reduction in cost of sales
$
(48
)
 
$
(346
)
 
$
(204
)
 
$
(908
)
Ineffective portion of change in fair value

 

 

 


 
Instrument
 
Type of
Hedge
 
Aggregate
Notional
Amount
 
Start
Date
 
End
Date
 
$/Peso
 
Fair
Value
 
Balance Sheet Location
FX Contract
 
Cash flow
 
$
1,927

 
Jan-14
 
Dec-14
 
0.0767

 
$
(72
)
 
Accrued expenses
FX Contract
 
Cash flow
 
$
1,580

 
Jan-14
 
Dec-14
 
0.0752

 
$
(30
)
 
Accrued expenses

Self-Insured Medical Plan The Company self-funds the medical insurance coverage provided to its U.S. based employees. The risk to the Company is being limited through the use of stop loss insurance, which has specific stop loss coverage per associate for claims in the year exceeding $225 thousand per associate with no annual maximum aggregate stop loss coverage. As of October 3, 2014, the Company had $1.8 million accrued related to the self-insurance portion of its medical plan, which is recorded in Accrued Expenses in the Condensed Consolidated Balance Sheet, and is primarily based upon claim history.
Earnings Per Share (EPS)
EARNINGS PER SHARE (EPS)
EARNINGS PER SHARE (“EPS”)
The following table illustrates the calculation of Basic and Diluted EPS (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Numerator for basic and diluted EPS:
 
 
 
 
 
 
 
Net income
$
14,012

 
$
11,071

 
$
41,282

 
$
26,486

Denominator for basic EPS:
 
 
 
 
 
 
 
Weighted average shares outstanding
24,899

 
24,047

 
24,784

 
23,904

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
1,024

 
1,141

 
1,066

 
1,113

Denominator for diluted EPS
25,923

 
25,188

 
25,850

 
25,017

Basic EPS
$
0.56

 
$
0.46

 
$
1.67

 
$
1.11

Diluted EPS
$
0.54

 
$
0.44

 
$
1.60

 
$
1.06


The diluted weighted average share calculations do not include the following securities, which are not dilutive to the EPS calculations or the performance criteria have not been met:
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Time-vested stock options, restricted stock and restricted stock units
163,000

 
43,000

 
177,000

 
59,000

Performance-vested restricted stock units
4,400

 
27,000

 
3,600

 
26,000


For the 2013 periods, no shares related to CSN were included in the diluted EPS calculations as the average share price of the Company’s common stock for that period did not exceed CSN’s conversion price per share.
Accumulated Other Comprehensive Income
ACCUMULATED OTHER COMPREHENSIVE INCOME
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income is comprised of the following (in thousands):
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At July 4, 2014
$
(672
)
 
$
(218
)
 
$
15,741

 
$
14,851

 
$
459

 
$
15,310

Unrealized loss on cash flow hedges

 
(133
)
 

 
(133
)
 
46

 
(87
)
Realized gain on foreign currency hedges

 
(48
)
 

 
(48
)
 
17

 
(31
)
Realized loss on interest rate swap hedges

 
106

 

 
106

 
(37
)
 
69

Foreign currency translation loss

 

 
(3,211
)
 
(3,211
)
 

 
(3,211
)
At October 3, 2014
$
(672
)
 
$
(293
)
 
$
12,530

 
$
11,565

 
$
485

 
$
12,050


 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At January 3, 2014
$
(672
)
 
$
(468
)
 
$
14,952

 
$
13,812

 
$
546

 
$
14,358

Unrealized gain on cash flow hedges

 
35

 

 
35

 
(12
)
 
23

Realized gain on foreign currency hedges

 
(204
)
 

 
(204
)
 
71

 
(133
)
Realized loss on interest rate swap hedges

 
344

 

 
344

 
(120
)
 
224

Foreign currency translation loss

 

 
(2,422
)
 
(2,422
)
 

 
(2,422
)
At October 3, 2014
$
(672
)
 
$
(293
)
 
$
12,530

 
$
11,565

 
$
485

 
$
12,050

 
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At June 28, 2013
$
(365
)
 
$
178

 
$
10,999

 
$
10,812

 
$
338

 
$
11,150

Unrealized loss on cash flow hedges

 
(419
)
 

 
(419
)
 
147

 
(272
)
Realized gain on foreign currency hedges

 
(346
)
 

 
(346
)
 
121

 
(225
)
Realized loss on interest rate swap hedges

 
145

 

 
145

 
(51
)
 
94

Foreign currency translation gain

 

 
3,579

 
3,579

 

 
3,579

At September 27, 2013
$
(365
)
 
$
(442
)
 
$
14,578

 
$
13,771

 
$
555

 
$
14,326

    
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At December 28, 2012
$
(962
)
 
$
120

 
$
13,431

 
$
12,589

 
$
358

 
$
12,947

Unrealized gain on cash flow hedges

 
2

 

 
2

 
(1
)
 
1

Realized gain on foreign currency hedges

 
(908
)
 

 
(908
)
 
318

 
(590
)
Realized loss on interest rate swap hedges

 
344

 

 
344

 
(120
)
 
224

Net defined benefit plan gain (Note 7)
597

 

 

 
597

 

 
597

Foreign currency translation gain

 

 
1,147

 
1,147

 

 
1,147

At September 27, 2013
$
(365
)
 
$
(442
)
 
$
14,578

 
$
13,771

 
$
555

 
$
14,326



The realized (gains) losses relating to the Company’s foreign currency and interest rate swap hedges were recognized in Cost of Sales and Interest Expense, respectively, in the Condensed Consolidated Statements of Operations.
The net defined benefit plan reclassifications from Accumulated Other Comprehensive Income are as follows (in thousands):
 
Nine Months Ended
 
September 27, 2013
Net gain occurring during the period
$
(171
)
Amortization of losses
(581
)
Prior service cost
155

Pre-tax adjustment
(597
)
Taxes

Net gain
$
(597
)
Fair Value Measurements
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments and accrued contingent consideration. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
Foreign currency contracts – The fair value of foreign currency contracts are determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs include foreign exchange rate and credit spread curves. In addition, the Company received fair value estimates from the foreign currency contract counterparty to verify the reasonableness of the Company’s estimates. The Company’s foreign currency contracts are categorized in Level 2 of the fair value hierarchy. The fair value of the Company’s foreign currency contracts will be realized as Cost of Sales as the inventory, which the contracts are hedging the cash flows to produce, is sold, of which approximately $0.1 million is expected to be realized within the next three months as an increase to Cost of Sales.
 
Interest rate swap – The fair value of the Company’s interest rate swap outstanding at October 3, 2014 was determined through the use of a cash flow model that utilizes observable market data inputs. These observable market data inputs include LIBOR, swap rates, and credit spread curves. In addition, the Company received a fair value estimate from the interest rate swap counterparty to verify the reasonableness of the Company’s estimate. This fair value calculation was categorized in Level 2 of the fair value hierarchy. The fair value of the Company’s interest rate swap will be realized as Interest Expense as interest on the Credit Facility is accrued.
Accrued contingent consideration – In circumstances where a business combination involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments it expects to make as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through Other Operating Expenses, Net. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing, amount, or the likelihood of achieving the applicable milestones.
The fair value of accrued contingent consideration recorded by the Company represents the estimated fair value of the contingent consideration the Company expects to pay to the former shareholders of NeuroNexus Technologies, Inc. acquired in 2012 based upon the achievement of certain financial and development-based milestones. The fair value of the contingent consideration liability was estimated by discounting to present value, the probability weighted contingent payments expected to be made utilizing a risk adjusted discount rate. During the first quarter of 2014, the financial milestone expired unachieved and as a result, was determined to have a fair value of zero. The maximum amount of future contingent consideration (undiscounted) that the Company could be required to pay for the development milestone is $1.0 million. The Company’s accrued contingent consideration is categorized in Level 3 of the fair value hierarchy. Changes in accrued contingent consideration were as follows (in thousands):
At January 3, 2014
$
840

Fair value adjustments
(750
)
At October 3, 2014
$
90


 
The recurring Level 3 fair value measurements of the Company’s contingent consideration liability include the following significant unobservable inputs (dollars in thousands):
Contingent Consideration Liability
 
Fair Value at October 3, 2014
 
Valuation Technique
 
Unobservable Inputs
Development milestone
 
$
90

 
Discounted cash flow
 
Discount rate
 
20
%
 
 
 
 
 
 
Projected year of payment
 
2015

 
 
 
 
 
 
Probability weighted payment amount
 
$
100


The following table provides information regarding assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheet (in thousands):
 
 
Fair Value Measurements Using
 
 
At 
 October 3,
 
Quoted
Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
Description
 
2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
Liabilities
 
 
 
 
 
 
 
 
Foreign currency contracts (Note 11)
 
$
102

 
$

 
$
102

 
$

Interest rate swap (Note 6)
 
191

 

 
191

 

Accrued contingent consideration (Note 14)
 
90

 

 

 
90


 


Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value standards also apply to certain nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these items. As of October 3, 2014, the fair value of the Company’s variable rate Long-Term Debt approximates its carrying value and is categorized in Level 2 of the fair value hierarchy. A summary of the valuation methodologies for the Company’s assets and liabilities measured on a nonrecurring basis is as follows:
Long-lived assets – The Company reviews the carrying amount of its long-lived assets to be held and used, other than goodwill and indefinite-lived intangible assets, for potential impairment whenever certain indicators are present such as: a significant decrease in the market price of the asset or asset group; a significant change in the extent or manner in which the long-lived asset or asset group is being used or in its physical condition; a significant change in legal factors or in the business climate that could affect the value of the long-lived asset or asset group, including an action or assessment by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the long-lived asset or asset group; or a current expectation that it is more likely than not the long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.
If an indicator is present, potential recoverability is measured by comparing the carrying amount of the long-lived asset or asset group to its related total future undiscounted cash flows. If the carrying value is not recoverable, the asset or asset group is considered to be impaired. Impairment is measured by comparing the asset or asset group’s carrying amount to its fair value, which is determined by using independent appraisals or discounted cash flow models. The discounted cash flow model requires inputs such as a risk-adjusted discount rate, terminal values, cash flow projections, and remaining useful lives of the asset or asset group. If the carrying value of the long-lived asset or asset group exceeds the fair value, the carrying value is written down to the fair value in the period identified. During the second quarter of 2014, the Company transferred $2.1 million of assets relating to the Company's Orvin, Switzerland property to held for sale. The Company did not record any impairment charges related to any of its long-lived assets during the first nine months of 2014 and 2013.
Goodwill and indefinite-lived intangible assets – The Company assesses the impairment of goodwill and other indefinite-lived intangible assets on the last day of each fiscal year, or more frequently if certain indicators are present as described above under long-lived assets. The Company assesses goodwill for impairment by comparing the fair value of its reporting units to their carrying amounts. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value. Fair values for reporting units are determined based on discounted cash flow models and market multiples. The discounted cash flow model requires inputs such as a risk-adjusted discount rate, terminal values, probability of success factor, and cash flow projections. The fair value from the discounted cash flow model is then combined, based on certain weightings, with market multiples in order to determine the fair value of the reporting unit. These market multiples include revenue multiples and multiples of earnings before interest, taxes, depreciation and amortization.
 
Indefinite-lived intangible assets are assessed for impairment by comparing the fair value of the intangible asset to its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds the fair value, the carrying value is written down to the fair value in the period identified. The fair value of indefinite-lived intangible assets is determined by using a discounted cash flow model. The discounted cash flow model requires inputs such as a risk-adjusted discount rate, royalty rates, and cash flow projections.
The Company did not record any impairment charges related to its indefinite-lived intangible assets, including goodwill, during the first nine months of 2014 and 2013, respectively. See Note 5 “Intangible Assets” for additional information on the Company’s intangible assets.
Cost and equity method investments – The Company holds investments in equity and other securities that are accounted for as either cost or equity method investments and are classified as Other Assets. The total carrying value of these investments is reviewed quarterly for changes in circumstance or the occurrence of events that suggest the Company’s investment may not be recoverable. The fair value of cost or equity method investments is not adjusted if there are no identified events or changes in circumstances that may have a material effect on the fair value of the investments. Gains and losses realized on cost and equity method investments are recorded in Other (Income) Expense, Net, unless separately stated. In the third quarter of 2014, the Company sold one of its cost method investments. This transaction resulted in a pre-tax gain of $3.2 million. The aggregate recorded amount of cost and equity method investments at October 3, 2014 and January 3, 2014 was $12.0 million and $12.3 million, respectively. The Company recorded income (loss) related to its cost and equity method investments of $3.9 million and ($0.6) million during the first nine months of 2014 and 2013, respectively.
Business Segment, Geographic and Concentration Risk Information
BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION
BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION
In connection with the realignment of the Company’s operating structure in 2013 to optimize profitable growth, which included changing the Company’s management and reporting structure, the Company reevaluated its operating and reporting segments. Beginning in the fourth quarter of 2013, the Company determined that it has two reportable segments: Greatbatch Medical and QiG Group (“QiG”). As required, the Company reclassified certain prior year amounts to conform them to the current year presentation, including goodwill, segment operating income (loss), and segment sales categorizations.
Greatbatch Medical designs and manufactures medical devices and components where Greatbatch either owns the intellectual property or has unique manufacturing and assembly expertise and includes the financial results of the former Implantable Medical and Electrochem segments, excluding QiG. Greatbatch Medical provides medical devices and components to the following markets:
Cardiac/Neuromodulation: Products include batteries, capacitors, filtered and unfiltered feed-throughs, engineered components, implantable stimulation leads, and enclosures used in implantable medical devices.
Orthopaedic: Products include hip and shoulder joint reconstruction implants, bone plates and spinal devices, and instruments and delivery systems used in hip and knee replacement, trauma fixation, and spinal surgeries.
Portable Medical: Products include batteries, chargers and power supplies for a wide range of medical devices including automated external defibrillators, portable oxygen concentrators, ventilators, and powered surgical tools.
Vascular: Products include introducers, medical coatings, steerable sheaths, and catheters that deliver therapies for various markets such as coronary and neurovascular disease, peripheral vascular disease, interventional radiology, vascular access, atrial fibrillation, and interventional cardiology, plus products for medical imaging and pharmaceutical delivery.
Energy, Military, and Environmental (“EME”): Products include primary and rechargeable batteries and battery packs for demanding applications such as down hole drilling tools.
Greatbatch Medical also offers value-added assembly and design engineering services for medical devices that utilize its component products.
QiG focuses on developing medical device systems for some of healthcare’s most pressing challenges and reflects Greatbatch’s strategic evolution of its product offerings in order to raise the growth and profitability profile of the Company. QiG utilizes a disciplined and diversified portfolio approach with three investment modes: new medical device systems commercialization, collaborative programs with original equipment manufacturers (“OEM”), and strategic equity positions in start-up companies. The development of new medical device systems are facilitated through the establishment of newly formed business entities, usually limited liability companies (“LLC”). These entities do not own, but have the exclusive right to use the technology of Greatbatch Medical in certain specifically designated fields of use and have an exclusive manufacturing agreement with Greatbatch Medical. QiG currently owns 89% - 100% of three LLCs. Minority interest in these LLCs was granted to key opinion leaders, clinicians and strategic partners. Under the agreements governing these LLCs, QiG is responsible for 100% of the expenses incurred by the LLC. However, no allocations of capital are made to the minority holders of the LLC until QiG is reimbursed for all expenses paid. Once QiG has been fully reimbursed, future net income is allocated based upon the respective LLCs ownership percentages. One of the LLCs established by QiG is for the Company's Algovita spinal cord stimulator to treat chronic intractable pain of the trunk and/or limbs. This product was submitted for premarket approval (“PMA”) to the United States Food & Drug Administration (“FDA”) in December 2013 and in January 2014 documentation for European CE Mark was submitted to the notified body, TÜV SÜD America. CE Mark approval was obtained on June 17, 2014.
QiG revenue includes sales of neural interface technology, components and systems to the neuroscience and clinical markets. As further discussed in Note 2 “Acquisition,” during the third quarter of 2014, the Company acquired CCC, a neuromodulation medical device developer and manufacturer. As a result of this transaction, QiG revenue also includes sales of various medical device products such as implantable pulse generators, programmer systems, battery chargers, patient wands and leads to medical device companies. For the 2014 and 2013 periods, no revenue earned by QiG was manufactured by Greatbatch Medical. Future income of QiG is expected to come from various sources including investment gains from the sales of its LLC ownership interests, technology licensing fees, royalty revenue, and/or the sales of medical device systems.
Historical results reflecting the new business segments for previously reported periods are shown below. An analysis and reconciliation of the Company’s business segment, product line and geographic information to the respective information in the Condensed Consolidated Financial Statements follows. Sales by geographic area are presented by allocating sales from external customers based on where the products are shipped to (in thousands): 
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Sales:
 
 
 
 
 
 
 
Greatbatch Medical
 
 
 
 
 
 
 
Cardiac/Neuromodulation
$
85,618

 
$
86,302

 
$
252,403

 
$
240,003

Orthopaedic
32,489

 
30,079

 
106,785

 
92,043

Portable Medical
17,199

 
19,320

 
53,139

 
60,376

Vascular
14,903

 
12,279

 
43,210

 
35,152

Energy, Military, Environmental
19,016

 
19,072

 
58,499

 
57,594

Total Greatbatch Medical
169,225

 
167,052

 
514,036

 
485,168

QiG
2,474

 
678

 
4,025

 
2,158

Total sales
$
171,699

 
$
167,730

 
$
518,061

 
$
487,326


 
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Segment income from operations:
 
 
 
 
 
 
 
Greatbatch Medical
$
31,121

 
$
28,236

 
$
98,688

 
$
84,596

QiG
(6,796
)
 
(6,946
)
 
(18,882
)
 
(21,679
)
Total segment income from operations
24,325

 
21,290

 
79,806

 
62,917

Unallocated operating expenses
(8,142
)
 
(4,288
)
 
(21,560
)
 
(14,441
)
Operating income as reported
16,183

 
17,002

 
58,246

 
48,476

Unallocated other income (expense)
2,717

 
(1,458
)
 
847

 
(10,855
)
Income before provision for income taxes
$
18,900

 
$
15,544

 
$
59,093

 
$
37,621


 
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Sales by geographic area:
 
 
 
 
 
 
 
United States
$
76,330

 
$
81,736

 
$
235,203

 
$
242,304

Non-Domestic locations:
 
 
 
 
 
 
 
Puerto Rico
34,581

 
31,936

 
101,064

 
87,592

Belgium
13,722

 
14,947

 
47,351

 
49,895

Rest of world
47,066

 
39,111

 
134,443

 
107,535

Total sales
$
171,699

 
$
167,730

 
$
518,061

 
$
487,326


Three customers accounted for a significant portion of the Company’s sales as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Customer A
19
%
 
21
%
 
19
%
 
20
%
Customer B
15
%
 
16
%
 
16
%
 
16
%
Customer C
11
%
 
11
%
 
12
%
 
13
%
Total
45
%
 
48
%
 
47
%
 
49
%

Long-lived tangible assets by geographic area are as follows (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
United States
$
113,310

 
$
116,484

Rest of world
29,026

 
29,289

Total
$
142,336

 
$
145,773

Impact of Recently Issued Accounting Standards
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), Securities and Exchange Commission, Emerging Issues Task Force, American Institute of Certified Public Accountants or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Condensed Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s Condensed Consolidated Financial Statements.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” The core principle behind ASU 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2016 with early application not permitted. This ASU allows two methods of adoption; a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. The Company is currently assessing the financial impact of adopting the new standard and the methods of adoption; however, given the scope of the new standard, the company is currently unable to provide a reasonable estimate regarding the financial impact or which method of adoption will be elected.
In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions that do not meet the discontinued operations criteria. The revised guidance changes how entities identify and disclose information about disposal transactions under U.S. GAAP. This ASU is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. This ASU will be applicable for disposal transactions, if any, that the Company enters into after the adoption date.
In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This ASU requires that entities present an unrecognized tax benefit, or portion of an unrecognized tax benefit, as a reduction to a deferred tax asset in the financial statements for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. This ASU was adopted during the first quarter of 2014 and did not impact the Company's Condensed Consolidated Financial Statements as the Company does not have any net operating loss carryforward deferred tax assets that are eligible to be reduced by an unrecognized tax benefit as required by the ASU.
Accounting Policies (Policies)
The January 3, 2014 condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2014.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of Greatbatch, Inc. and its wholly-owned subsidiary, Greatbatch Ltd. (collectively “Greatbatch” or the “Company”), for the periods presented.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ materially from these estimates.
The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. The third quarter and year-to-date periods of 2014 and 2013 each contained 13 weeks and 39 weeks, respectively, and ended on October 3, and September 27, respectively.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and foreign tax holidays, business reorganizations, settlements with taxing authorities and foreign currency fluctuations.
In circumstances where a business combination involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments it expects to make as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through Other Operating Expenses, Net. Increases or decreases in the fair value of the contingent consideration liability can result from changes in discount periods and rates, as well as changes in the timing, amount, or the likelihood of achieving the applicable milestones.
The Company reviews the carrying amount of its long-lived assets to be held and used, other than goodwill and indefinite-lived intangible assets, for potential impairment whenever certain indicators are present such as: a significant decrease in the market price of the asset or asset group; a significant change in the extent or manner in which the long-lived asset or asset group is being used or in its physical condition; a significant change in legal factors or in the business climate that could affect the value of the long-lived asset or asset group, including an action or assessment by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the long-lived asset or asset group; or a current expectation that it is more likely than not the long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.
If an indicator is present, potential recoverability is measured by comparing the carrying amount of the long-lived asset or asset group to its related total future undiscounted cash flows. If the carrying value is not recoverable, the asset or asset group is considered to be impaired. Impairment is measured by comparing the asset or asset group’s carrying amount to its fair value, which is determined by using independent appraisals or discounted cash flow models. The discounted cash flow model requires inputs such as a risk-adjusted discount rate, terminal values, cash flow projections, and remaining useful lives of the asset or asset group. If the carrying value of the long-lived asset or asset group exceeds the fair value, the carrying value is written down to the fair value in the period identified.
The Company assesses the impairment of goodwill and other indefinite-lived intangible assets on the last day of each fiscal year, or more frequently if certain indicators are present as described above under long-lived assets. The Company assesses goodwill for impairment by comparing the fair value of its reporting units to their carrying amounts. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value.
Indefinite-lived intangible assets are assessed for impairment by comparing the fair value of the intangible asset to its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds the fair value, the carrying value is written down to the fair value in the period identified.
The Company holds investments in equity and other securities that are accounted for as either cost or equity method investments and are classified as Other Assets. The total carrying value of these investments is reviewed quarterly for changes in circumstance or the occurrence of events that suggest the Company’s investment may not be recoverable. The fair value of cost or equity method investments is not adjusted if there are no identified events or changes in circumstances that may have a material effect on the fair value of the investments. Gains and losses realized on cost and equity method investments are recorded in Other (Income) Expense, Net, unless separately stated.
Acquisitions (Tables)
The following table summarizes the preliminary allocation of the CCC purchase price to the assets acquired and liabilities assumed as of the acquisition date (in thousands):
Assets acquired
 
Current assets
$
9,519

Property, plant and equipment
1,106

Amortizing intangible assets
6,100

Goodwill
8,321

Total assets acquired
25,046

Liabilities assumed
 
Current liabilities
3,874

Deferred income taxes
1,590

Total liabilities assumed
5,464

Net assets acquired
$
19,582

The purchase price was allocated to intangible assets as follows (dollars in thousands):
Amortizing Intangible Assets
 
Fair
Value
Assigned
 
Weighted
Average
Amortization
Period (Years)
 
Weighted
Average
Discount
Rate
 
 
 
 
 
 
 
Technology
 
$
1,400

 
10
 
18%
Customer lists
 
4,600

 
10
 
18%
Trademarks and tradenames
 
100

 
2
 
18%
 
 
6,100

 
 
 
 
The following unaudited pro forma information presents the consolidated results of operations of the Company and CCC as if that acquisition occurred as of the beginning of fiscal year 2013 (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
 
 
 
 
 
 
 
 
Sales
$
173,413

 
$
171,158

 
$
526,631

 
$
497,610

Net income
14,219

 
11,407

 
42,165

 
27,495

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.57

 
$
0.47

 
1.70

 
1.15

Diluted
$
0.55

 
$
0.45

 
1.63

 
1.10

Supplemental Cash Flow Information (Tables)
Schedule of Cash Flow, Supplemental Disclosures
 
Nine Months Ended
(in thousands)
October 3, 2014
 
September 27, 2013
Noncash investing and financing activities:
 
 
 
Common stock contributed to 401(k) Plan
$
4,341

 
$
2,477

Property, plant and equipment purchases included in accounts payable
2,618

 
711

Cash paid during the period for:
 
 
 
Interest
$
2,736

 
$
4,388

Income taxes
11,791

 
31,755

Acquisition of noncash assets
$
21,282

 
$

Liabilities assumed
5,464

 

Inventories (Tables)
Schedule of Inventory, Current
Inventories are comprised of the following (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
Raw materials
$
74,718

 
$
67,939

Work-in-process
39,604

 
36,670

Finished goods
14,405

 
13,749

Total
$
128,727

 
$
118,358

Intangible Assets (Tables)
Amortizing intangible assets are comprised of the following (in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Foreign
Currency
Translation
 
Net
Carrying
Amount
At October 3, 2014
 
 
 
 
 
 
 
Technology and patents
$
95,776

 
$
(74,287
)
 
$
1,966

 
$
23,455

Customer lists
72,857

 
(29,705
)
 
1,374

 
44,526

Other
4,534

 
(4,555
)
 
803

 
782

Total amortizing intangible assets
$
173,167

 
$
(108,547
)
 
$
4,143

 
$
68,763

At January 3, 2014
 
 
 
 
 
 
 
Technology and patents
$
97,376

 
$
(69,026
)
 
$
1,980

 
$
30,330

Customer lists
68,257

 
(24,671
)
 
1,367

 
44,953

Other
4,434

 
(4,399
)
 
804

 
839

Total amortizing intangible assets
$
170,067

 
$
(98,096
)
 
$
4,151

 
$
76,122

Aggregate intangible asset amortization expense is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Cost of sales
$
1,567

 
$
1,668

 
$
4,696

 
$
5,207

Selling, general and administrative expenses
1,756

 
1,446

 
5,190

 
4,343

Research, development and engineering costs, net
164

 
137

 
565

 
409

Total intangible asset amortization expense
$
3,487

 
$
3,251

 
$
10,451

 
$
9,959

Estimated future intangible asset amortization expense based on the current carrying value is as follows (in thousands):
 
Estimated
Amortization
Expense
Remainder of 2014
$
3,426

2015
12,988

2016
10,676

2017
9,520

2018
7,232

Thereafter
24,921

Total estimated amortization expense
$
68,763

Indefinite-lived intangible assets are comprised of the following (in thousands):
 
Trademarks
and
Tradenames
At January 3, 2014
$
20,288

At October 3, 2014
$
20,288

The change in goodwill is as follows (in thousands):
 
Greatbatch Medical
 
QiG
 
Total
At January 3, 2014
$
304,856

 
$
41,800

 
$
346,656

Goodwill acquired

 
8,321

 
8,321

Foreign currency translation
(394
)
 

 
(394
)
At October 3, 2014
$
304,462

 
$
50,121

 
$
354,583

Debt (Tables)
Long-term debt is comprised of the following (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
Revolving line of credit
$

 
$

Variable rate term loan
190,000

 
197,500

Total long-term debt
$
190,000

 
$
197,500

Information regarding the Company’s outstanding interest rate swap as of October 3, 2014 is as follows (dollars in thousands):
Instrument
Type of
Hedge
 
Notional
Amount
 
Start
Date
 
End
Date
 
Pay
Fixed
Rate
 
Current
Receive
Floating
Rate
 
Fair Value October 3, 2014
 
Balance
Sheet Location
Interest rate swap
Cash flow
 
$
100,000

 
Feb-13
 
Feb-16
 
0.573
%
 
0.154
%
 
$
(191
)
 
Other Long-Term Liabilities
The expected future minimum principal payments under the Term Loan as of October 3, 2014 are as follows (in thousands):
Remainder of 2014
$
2,500

2015
11,250

2016
16,250

2017
20,000

2018
20,000

Thereafter
120,000

Total
$
190,000

The contractual interest and discount amortization for CSN were as follows (in thousands):
 
Three Months ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Contractual interest
$

 
$

 
$

 
$
634

Discount amortization

 

 

 
5,368

The change in deferred financing fees is as follows (in thousands):
At January 3, 2014
$
3,860

Amortization during the period
(580
)
At October 3, 2014
$
3,280

Defined Benefit Plans (Tables)
The change in net defined benefit plan liability is as follows (in thousands):
At January 3, 2014
$
1,691

Net defined benefit cost
229

Benefit payments
(96
)
Foreign currency translation
(153
)
At October 3, 2014
$
1,671

Net defined benefit cost (income) is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Service cost
$
51

 
$
76

 
$
155

 
$
227

Interest cost
18

 
41

 
57

 
144

Curtailment gain (Other Operating Expenses, Net)

 

 

 
(1,150
)
Amortization of net loss
6

 

 
17

 

Net defined benefit (income) cost
$
75

 
$
117

 
$
229

 
$
(779
)
Stock-Based Compensation (Tables)
The components and classification of stock-based compensation expense were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Stock options
$
595

 
$
1,374

 
$
1,811

 
$
2,784

Restricted stock and units
1,850

 
2,013

 
5,008

 
4,958

401(k) Plan stock contribution
1,357

 
679

 
3,712

 
3,671

Total stock-based compensation expense
$
3,802

 
$
4,066

 
$
10,531

 
$
11,413

 
 
 
 
 
 
 
 
Cost of sales
$
1,129

 
$
1,117

 
$
3,187

 
$
3,246

Selling, general and administrative expenses
1,951

 
1,598

 
5,872

 
6,052

Research, development and engineering costs, net
429

 
215

 
1,179

 
979

Modification expense – Other Operating Expenses, Net (Note 9)
293

 
1,136

 
293

 
1,136

Total stock-based compensation expense
$
3,802

 
$
4,066

 
$
10,531

 
$
11,413

The weighted average fair value and assumptions used to value options granted are as follows:
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
Weighted average fair value
$
16.43

 
$
8.38

Risk-free interest rate
1.73
%
 
0.73
%
Expected volatility
39
%
 
39
%
Expected life (in years)
5

 
5

Expected dividend yield
%
 
%
The following table summarizes time-vested stock option activity:
 
Number of
Time-Vested
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(In Years)
 
Aggregate
Intrinsic
Value
(In Millions)
Outstanding at January 3, 2014
1,616,409

 
$
22.92

 
 
 
 
Granted
183,571

 
43.84

 
 
 
 
Exercised
(191,501
)
 
22.94

 
 
 
 
Forfeited or expired
(33,279
)
 
27.82

 
 
 
 
Outstanding at October 3, 2014
1,575,200

 
25.26

 
6.3
 
$
28.9

Exercisable at October 3, 2014
1,159,129

 
23.09

 
5.5
 
$
23.7

The following table summarizes performance-vested stock option activity:
 
Number of
Performance-
Vested Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(In Years)
 
Aggregate
Intrinsic
Value
(In Millions)
Outstanding at January 3, 2014
177,261

 
$
23.27

 
 
 
 
Exercised
(56,243
)
 
23.34

 
 
 
 
Outstanding at October 3, 2014
121,018

 
23.25

 
3.2
 
$
2.5

Exercisable at October 3, 2014
121,018

 
23.25

 
3.2
 
$
2.5

The following table summarizes time-vested restricted stock and restricted stock unit activity:
 
Time-Vested
Activity
 
Weighted
Average
Fair Value
Nonvested at January 3, 2014
67,575

 
$
26.37

Granted
63,817

 
44.78

Vested
(14,118
)
 
43.80

Forfeited
(7,073
)
 
33.79

Nonvested at October 3, 2014
110,201

 
34.32

The following table summarizes performance-vested restricted stock and restricted stock unit activity:
 
Performance-
Vested
Activity
 
Weighted
Average
Fair Value
Nonvested at January 3, 2014
779,678

 
$
16.41

Granted
186,825

 
31.33

Vested
(221,470
)
 
18.51

Forfeited
(28,870
)
 
18.42

Nonvested at October 3, 2014
716,163

 
19.57

Other Operating (Income) Expenses, Net (Tables)
Other Operating Expenses, Net is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
2014 investments in capacity and capabilities
$
2,787

 
$

 
$
5,005

 
$

2013 operating unit realignment
(31
)
 
2,214

 
1,004

 
3,066

Orthopaedic facility optimization costs
996

 
1,420

 
1,032

 
6,723

Medical device facility optimization

 
52

 
11

 
282

ERP system upgrade (income) costs

 
(121
)
 
(82
)
 
264

Acquisition and integration (income) costs
133

 
(522
)
 
(248
)
 
(340
)
Asset dispositions, severance and other
2,291

 
457

 
3,501

 
565

 
$
6,176

 
$
3,500

 
$
10,223

 
$
10,560

The change in accrued liabilities related to the ERP system upgrade is as follows (in thousands):
 
Training &
Consulting
Costs
 
Accelerated
Depreciation/Asset
Write-offs
 
Total
At January 3, 2014
$

 
$

 
$

Restructuring income
(82
)
 

 
(82
)
Cash receipts
82

 

 
82

At October 3, 2014
$

 
$

 
$

The change in accrued liabilities related to the 2014 investments in capacity and capabilities is as follows (in thousands):
 
Severance and
Retention
 
Accelerated
Depreciation/Asset
Write-offs
 
Other
 
Total
At January 3, 2014
$

 
$

 
$

 
$

Restructuring charges
1,445

 
33

 
3,527

 
5,005

Write-offs

 
(33
)
 

 
(33
)
Cash payments
(434
)
 

 
(2,838
)
 
(3,272
)
At October 3, 2014
$
1,011


$

 
$
689

 
$
1,700

The change in accrued liabilities related to the 2013 operating unit realignment is as follows (in thousands):
 
Severance and
Retention
 
Other
 
Total
At January 3, 2014
$
465

 
$
746

 
$
1,211

Restructuring charges
849

 
155

 
1,004

Cash payments
(1,314
)
 
(901
)
 
(2,215
)
At October 3, 2014
$

 
$

 
$

The change in accrued liabilities related to the orthopaedic facility optimization is as follows (in thousands):
 
Severance
and
Retention
 
Accelerated
Depreciation/Asset
Write-offs
 
Other
 
Total
At January 3, 2014
$

 
$

 
$
857

 
$
857

Restructuring charges (income)

 
(2,655
)
 
3,687

 
1,032

Cash (payments) receipts

 
2,655

 
(4,004
)
 
(1,349
)
At October 3, 2014
$

 
$

 
$
540

 
$
540

The change in accrued liabilities related to the medical device facility optimization is as follows (in thousands):
 
Production
Inefficiencies,
Moving and
Revalidation
 
Personnel
 
Other
 
Total
At January 3, 2014
$

 
$

 
$

 
$

Restructuring charges

 
1

 
10

 
11

Cash payments

 
(1
)
 
(10
)
 
(11
)
At October 3, 2014
$

 
$

 
$

 
$

Commitments and Contingencies (Tables)
The change in aggregate product warranty liability is as follows (in thousands):
At January 3, 2014
$
1,819

Increase to warranty reserve
680

Warranty claims paid
(1,934
)
At October 3, 2014
$
565

Estimated future operating lease expense is as follows (in thousands):
Remainder of 2014
$
1,285

2015
5,635

2016
5,036

2017
2,548

2018
2,099

Thereafter
6,352

Total estimated operating lease expense
$
22,955

The impact to the Company’s results of operations from these forward contracts was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Reduction in cost of sales
$
(48
)
 
$
(346
)
 
$
(204
)
 
$
(908
)
Ineffective portion of change in fair value

 

 

 

Instrument
 
Type of
Hedge
 
Aggregate
Notional
Amount
 
Start
Date
 
End
Date
 
$/Peso
 
Fair
Value
 
Balance Sheet Location
FX Contract
 
Cash flow
 
$
1,927

 
Jan-14
 
Dec-14
 
0.0767

 
$
(72
)
 
Accrued expenses
FX Contract
 
Cash flow
 
$
1,580

 
Jan-14
 
Dec-14
 
0.0752

 
$
(30
)
 
Accrued expenses
Earnings Per Share (EPS) (Tables)
The following table illustrates the calculation of Basic and Diluted EPS (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Numerator for basic and diluted EPS:
 
 
 
 
 
 
 
Net income
$
14,012

 
$
11,071

 
$
41,282

 
$
26,486

Denominator for basic EPS:
 
 
 
 
 
 
 
Weighted average shares outstanding
24,899

 
24,047

 
24,784

 
23,904

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and restricted stock units
1,024

 
1,141

 
1,066

 
1,113

Denominator for diluted EPS
25,923

 
25,188

 
25,850

 
25,017

Basic EPS
$
0.56

 
$
0.46

 
$
1.67

 
$
1.11

Diluted EPS
$
0.54

 
$
0.44

 
$
1.60

 
$
1.06

The diluted weighted average share calculations do not include the following securities, which are not dilutive to the EPS calculations or the performance criteria have not been met:
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Time-vested stock options, restricted stock and restricted stock units
163,000

 
43,000

 
177,000

 
59,000

Performance-vested restricted stock units
4,400

 
27,000

 
3,600

 
26,000

Comprehensive Income (Tables)
Accumulated Other Comprehensive Income is comprised of the following (in thousands):
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At July 4, 2014
$
(672
)
 
$
(218
)
 
$
15,741

 
$
14,851

 
$
459

 
$
15,310

Unrealized loss on cash flow hedges

 
(133
)
 

 
(133
)
 
46

 
(87
)
Realized gain on foreign currency hedges

 
(48
)
 

 
(48
)
 
17

 
(31
)
Realized loss on interest rate swap hedges

 
106

 

 
106

 
(37
)
 
69

Foreign currency translation loss

 

 
(3,211
)
 
(3,211
)
 

 
(3,211
)
At October 3, 2014
$
(672
)
 
$
(293
)
 
$
12,530

 
$
11,565

 
$
485

 
$
12,050


 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At January 3, 2014
$
(672
)
 
$
(468
)
 
$
14,952

 
$
13,812

 
$
546

 
$
14,358

Unrealized gain on cash flow hedges

 
35

 

 
35

 
(12
)
 
23

Realized gain on foreign currency hedges

 
(204
)
 

 
(204
)
 
71

 
(133
)
Realized loss on interest rate swap hedges

 
344

 

 
344

 
(120
)
 
224

Foreign currency translation loss

 

 
(2,422
)
 
(2,422
)
 

 
(2,422
)
At October 3, 2014
$
(672
)
 
$
(293
)
 
$
12,530

 
$
11,565

 
$
485

 
$
12,050

 
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At June 28, 2013
$
(365
)
 
$
178

 
$
10,999

 
$
10,812

 
$
338

 
$
11,150

Unrealized loss on cash flow hedges

 
(419
)
 

 
(419
)
 
147

 
(272
)
Realized gain on foreign currency hedges

 
(346
)
 

 
(346
)
 
121

 
(225
)
Realized loss on interest rate swap hedges

 
145

 

 
145

 
(51
)
 
94

Foreign currency translation gain

 

 
3,579

 
3,579

 

 
3,579

At September 27, 2013
$
(365
)
 
$
(442
)
 
$
14,578

 
$
13,771

 
$
555

 
$
14,326

    
 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
At December 28, 2012
$
(962
)
 
$
120

 
$
13,431

 
$
12,589

 
$
358

 
$
12,947

Unrealized gain on cash flow hedges

 
2

 

 
2

 
(1
)
 
1

Realized gain on foreign currency hedges

 
(908
)
 

 
(908
)
 
318

 
(590
)
Realized loss on interest rate swap hedges

 
344

 

 
344

 
(120
)
 
224

Net defined benefit plan gain (Note 7)
597

 

 

 
597

 

 
597

Foreign currency translation gain

 

 
1,147

 
1,147

 

 
1,147

At September 27, 2013
$
(365
)
 
$
(442
)
 
$
14,578

 
$
13,771

 
$
555

 
$
14,326

The net defined benefit plan reclassifications from Accumulated Other Comprehensive Income are as follows (in thousands):
 
Nine Months Ended
 
September 27, 2013
Net gain occurring during the period
$
(171
)
Amortization of losses
(581
)
Prior service cost
155

Pre-tax adjustment
(597
)
Taxes

Net gain
$
(597
)
Fair Value (Tables)
Changes in accrued contingent consideration were as follows (in thousands):
At January 3, 2014
$
840

Fair value adjustments
(750
)
At October 3, 2014
$
90

The recurring Level 3 fair value measurements of the Company’s contingent consideration liability include the following significant unobservable inputs (dollars in thousands):
Contingent Consideration Liability
 
Fair Value at October 3, 2014
 
Valuation Technique
 
Unobservable Inputs
Development milestone
 
$
90

 
Discounted cash flow
 
Discount rate
 
20
%
 
 
 
 
 
 
Projected year of payment
 
2015

 
 
 
 
 
 
Probability weighted payment amount
 
$
100

The following table provides information regarding assets and liabilities recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheet (in thousands):
 
 
Fair Value Measurements Using
 
 
At 
 October 3,
 
Quoted
Prices in
Active Markets
for Identical
Assets
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
Description
 
2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
Liabilities
 
 
 
 
 
 
 
 
Foreign currency contracts (Note 11)
 
$
102

 
$

 
$
102

 
$

Interest rate swap (Note 6)
 
191

 

 
191

 

Accrued contingent consideration (Note 14)
 
90

 

 

 
90

Business Segment, Geographic and Concentration Risk Information (Tables)
Sales by geographic area are presented by allocating sales from external customers based on where the products are shipped to (in thousands): 
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Sales:
 
 
 
 
 
 
 
Greatbatch Medical
 
 
 
 
 
 
 
Cardiac/Neuromodulation
$
85,618

 
$
86,302

 
$
252,403

 
$
240,003

Orthopaedic
32,489

 
30,079

 
106,785

 
92,043

Portable Medical
17,199

 
19,320

 
53,139

 
60,376

Vascular
14,903

 
12,279

 
43,210

 
35,152

Energy, Military, Environmental
19,016

 
19,072

 
58,499

 
57,594

Total Greatbatch Medical
169,225

 
167,052

 
514,036

 
485,168

QiG
2,474

 
678

 
4,025

 
2,158

Total sales
$
171,699

 
$
167,730

 
$
518,061

 
$
487,326

 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Segment income from operations:
 
 
 
 
 
 
 
Greatbatch Medical
$
31,121

 
$
28,236

 
$
98,688

 
$
84,596

QiG
(6,796
)
 
(6,946
)
 
(18,882
)
 
(21,679
)
Total segment income from operations
24,325

 
21,290

 
79,806

 
62,917

Unallocated operating expenses
(8,142
)
 
(4,288
)
 
(21,560
)
 
(14,441
)
Operating income as reported
16,183

 
17,002

 
58,246

 
48,476

Unallocated other income (expense)
2,717

 
(1,458
)
 
847

 
(10,855
)
Income before provision for income taxes
$
18,900

 
$
15,544

 
$
59,093

 
$
37,621

Three customers accounted for a significant portion of the Company’s sales as follows:
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Customer A
19
%
 
21
%
 
19
%
 
20
%
Customer B
15
%
 
16
%
 
16
%
 
16
%
Customer C
11
%
 
11
%
 
12
%
 
13
%
Total
45
%
 
48
%
 
47
%
 
49
%
 
Three Months Ended
 
Nine Months Ended
 
October 3, 2014
 
September 27, 2013
 
October 3, 2014
 
September 27, 2013
Sales by geographic area:
 
 
 
 
 
 
 
United States
$
76,330

 
$
81,736

 
$
235,203

 
$
242,304

Non-Domestic locations:
 
 
 
 
 
 
 
Puerto Rico
34,581

 
31,936

 
101,064

 
87,592

Belgium
13,722

 
14,947

 
47,351

 
49,895

Rest of world
47,066

 
39,111

 
134,443

 
107,535

Total sales
$
171,699

 
$
167,730

 
$
518,061

 
$
487,326

Long-lived tangible assets by geographic area are as follows (in thousands):
 
As of
 
October 3, 2014
 
January 3, 2014
United States
$
113,310

 
$
116,484

Rest of world
29,026

 
29,289

Total
$
142,336

 
$
145,773

Basis of Presentation (Details)
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Accounting Policies [Abstract]
 
 
 
 
Weeks In Reporting Period
13 
13 
39 
39 
Acquisitions (Summary of Assets Acquired and Liabilities Assumed) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Aug. 12, 2014
CCC [Member]
Assets acquired
 
 
 
Current assets
 
 
$ 9,519 
Property, plant and equipment
 
 
1,106 
Amortizing intangible assets
 
 
6,100 
Goodwill
354,583 
346,656 
8,321 
Total assets acquired
 
 
25,046 
Liabilities assumed
 
 
 
Current liabilities
 
 
3,874 
Deferred income taxes
 
 
1,590 
Total liabilities assumed
 
 
5,464 
Net assets acquired
 
 
$ 19,582 
Acquisitions (Summary of Intangible Assets) (Details) (CCC [Member], USD $)
In Thousands, unless otherwise specified
0 Months Ended
Aug. 12, 2014
Acquired Finite-Lived Intangible Assets [Line Items]
 
Fair value assigned
$ 6,100 
Technology And Patents [Member]
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Fair value assigned
1,400 
Weighted average amortization period (years)
10 years 
Weighted average discount rate
18.00% 
Customer Lists [Member]
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Fair value assigned
4,600 
Weighted average amortization period (years)
10 years 
Weighted average discount rate
18.00% 
Trademarks And Tradenames [Member]
 
Acquired Finite-Lived Intangible Assets [Line Items]
 
Fair value assigned
$ 100 
Weighted average amortization period (years)
2 years 
Weighted average discount rate
18.00% 
Acquisitions (Pro Forma Information) (Details) (CCC [Member], USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
CCC [Member]
 
 
 
 
Business Acquisition [Line Items]
 
 
 
 
Sales
$ 173,413 
$ 171,158 
$ 526,631 
$ 497,610 
Net income
$ 14,219 
$ 11,407 
$ 42,165 
$ 27,495 
Earnings per share:
 
 
 
 
Basic (in dollars per share)
$ 0.57 
$ 0.47 
$ 1.70 
$ 1.15 
Diluted (in dollars per share)
$ 0.55 
$ 0.45 
$ 1.63 
$ 1.10 
Acquisitions (Narrative) (Details) (CCC [Member], USD $)
In Millions, unless otherwise specified
0 Months Ended 3 Months Ended 9 Months Ended
Aug. 12, 2014
Oct. 3, 2014
Oct. 3, 2014
Aug. 12, 2014
Business Acquisition [Line Items]
 
 
 
 
Business Acquisition, Effective Date of Acquisition
Aug. 12, 2014 
 
 
 
Business Acquisition, Name of Acquired Entity
Centro de Construcción de Cardioestimuladores del Uruguay (“CCC”) 
 
 
 
Business Acquisition, Description of Acquired Entity
CCC is an active implantable neuromodulation medical device systems developer and manufacturer that produces a range of medical devices including implantable pulse generators, programmer systems, battery chargers, patient wands and leads. 
 
 
 
Business Combination, Reason for Business Combination
This acquisition allows the Company to more broadly partner with medical device companies, complements the Company’s core discrete technology offerings and enhances the Company’s medical device innovation efforts.  
 
 
 
Business Combinations, Inventory Step-up Adjustment
 
 
 
$ 0.3 
Total revenue included from the acquired entity
 
1.6 
1.6 
 
Total net income included from acquired entity
 
0.4 
0.4 
 
Payment to acquire entity
$ 19.6 
 
 
 
Technology And Patents [Member]
 
 
 
 
Business Acquisition [Line Items]
 
 
 
 
Royalty rate (percent)
 
 
3.00% 
 
Customer Lists [Member]
 
 
 
 
Business Acquisition [Line Items]
 
 
 
 
Customer annual attrition rate
 
 
15.00% 
 
Trademarks And Tradenames [Member]
 
 
 
 
Business Acquisition [Line Items]
 
 
 
 
Royalty rate (percent)
 
 
0.50% 
 
Supplemental Cash Flow Information (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Noncash investing and financing activities:
 
 
Common stock contributed to 401(k) Plan
$ 4,341 
$ 2,477 
Property, plant and equipment purchases included in accounts payable
2,618 
711 
Cash paid during the period for:
 
 
Interest
2,736 
4,388 
Income taxes
11,791 
31,755 
Acquisition of noncash assets
21,282 
Liabilities assumed
$ 5,464 
$ 0 
Inventories (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Inventory Disclosure [Abstract]
 
 
Inventory Raw Materials
$ 74,718 
$ 67,939 
Inventory, Work in Process
39,604 
36,670 
Inventory, Finished Goods
14,405 
13,749 
Inventories
$ 128,727 
$ 118,358 
Intangible Assets (Amortizing Intangible Assets) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Finite-Lived Intangible Assets [Line Items]
 
 
Finite-Lived Intangible Assets, Gross
$ 173,167 
$ 170,067 
Finite-Lived Intangible Assets, Accumulated Amortization
(108,547)
(98,096)
Foreign Currency Translation
4,143 
4,151 
Amortizing intangible assets, net
68,763 
76,122 
Purchased Technology And Patents [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Finite-Lived Intangible Assets, Gross
95,776 
97,376 
Finite-Lived Intangible Assets, Accumulated Amortization
(74,287)
(69,026)
Foreign Currency Translation
1,966 
1,980 
Amortizing intangible assets, net
23,455 
30,330 
Customer Lists [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Finite-Lived Intangible Assets, Gross
72,857 
68,257 
Finite-Lived Intangible Assets, Accumulated Amortization
(29,705)
(24,671)
Foreign Currency Translation
1,374 
1,367 
Amortizing intangible assets, net
44,526 
44,953 
Other Intangible Assets [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Finite-Lived Intangible Assets, Gross
4,534 
4,434 
Finite-Lived Intangible Assets, Accumulated Amortization
(4,555)
(4,399)
Foreign Currency Translation
803 
804 
Amortizing intangible assets, net
$ 782 
$ 839 
Intangible Assets (Amortization Expense by Categories) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Jan. 3, 2014
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
Finite Lived Intangible Assets, Amortization Expense
$ 3,487 
$ 3,251 
$ 10,451 
$ 9,959 
 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
 
 
Remainder of 2014
3,426 
 
3,426 
 
 
2015
12,988 
 
12,988 
 
 
2016
10,676 
 
10,676 
 
 
2017
9,520 
 
9,520 
 
 
2018
7,232 
 
7,232 
 
 
Thereafter
24,921 
 
24,921 
 
 
Amortizing intangible assets, net
68,763 
 
68,763 
 
76,122 
Cost of Sales [Member]
 
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
Finite Lived Intangible Assets, Amortization Expense
1,567 
1,668 
4,696 
5,207 
 
Selling General And Administrative Expense [Member]
 
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
Finite Lived Intangible Assets, Amortization Expense
1,756 
1,446 
5,190 
4,343 
 
Research and Development Expense [Member]
 
 
 
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
 
 
 
Finite Lived Intangible Assets, Amortization Expense
$ 164 
$ 137 
$ 565 
$ 409 
 
Intangible Assets (Indefinite Lived Intangible Assets) (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Oct. 3, 2014
Greatbatch Medical [Member]
Oct. 3, 2014
QiG [Member]
Oct. 3, 2014
Trademarks And Tradenames [Member]
Jan. 3, 2014
Trademarks And Tradenames [Member]
Indefinite-lived Intangible Assets [Roll Forward]
 
 
 
 
 
Indefinite-lived intangible assets, beginning
$ 20,288 
 
 
$ 20,288 
$ 20,288 
Indefinite-lived intangible assets, ending
20,288 
 
 
20,288 
20,288 
Goodwill [Roll Forward]
 
 
 
 
 
Goodwill
346,656 
304,856 
41,800 
 
 
Goodwill, Acquired During Period
8,321 
8,321 
 
 
Foreign currency translation
(394)
(394)
 
 
Goodwill
$ 354,583 
$ 304,462 
$ 50,121 
 
 
Intangible Assets (Narratives) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Oct. 3, 2014
Jan. 3, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
Contingent Liability From Intangible Asset Purchase
 
$ 4 
Reversal of Contingent Liability From Intangible Asset Purchase
$ 3 
 
Debt (Schedule of Long-Term Debt) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Debt Disclosure [Abstract]
 
 
Revolving line of credit
$ 0 
$ 0 
Variable rate term loan
190,000 
197,500 
Long-term debt
$ 190,000 
$ 197,500 
Debt (Credit Facility Details) (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Line of Credit Facility [Abstract]
 
Credit Facility, Amendment Date
Sep. 20, 2013 
Line of Credit Facility, Maximum Borrowing Capacity
$ 300 
Term Loan, Maximum Borrowing Capacity
200 
Letter of Credit Subfacility Maximum Borrowing Capacity
15 
Swingline Subfacility Maximum Borrowing Capacity
15 
Credit Facility Borrowing Capacity Increase
200 
Line of Credit Facility, Expiration Date
Sep. 20, 2018 
Line Of Credit Expiration Date Extension
Sep. 20, 2019 
Debt Instrument, Maturity Date
Sep. 20, 2019 
Debt Instrument, Collateral
The Credit Facility is secured by the Company’s non-realty assets including cash, accounts receivable and inventories. 
Interest Margin Above Prime Minimum Credit Facility
0.00% 
Interest Margin Above Prime Maximum Credit Facility
0.75% 
Interest Margin Above LIBOR Minimum Credit Facility
1.375% 
Interest Margin Above LIBOR Maximum Credit Facility
2.75% 
Interest Margin Above Prime Minimum Swingline
0.00% 
Interest Margin Above Prime Maximum Swingline
0.75% 
Line of Credit Facility Commitment Fee Percentage Minimum
0.175% 
Line of Credit Facility Commitment Fee Percentage Maximum
0.25% 
Credit Facility Aggregate Restricted Activities Limit
300 
Credit Facility Maximum Permitted Acquisitions
250 
Credit Facility Maximum Other Investment Purchases
100 
Credit Facility Maximum Stock Repurchases and Declare Dividends
150 
Credit Facility Maximum Foreign Subsidiary Investment
20 
Line of Credit, Adjustments to Limitations on Incurrence of Indebtedness, Maximum Leverage Ratio
2.75 
Credit Facility Restriction Available
100.00% 
Credit Facility Aggregate Restricted Activities Limit Remaining
280 
Credit Facility Maximum Permitted Acquisitions Remaining
230 
Line of Credit Covenant, Adjusted EBITDA to Interest Expense, Ratio Required
3.0 
Line of Credit Covenant, Leverage Ratio, Maximum
4.5 
Line of Credit Covenant, Leverage Ratio, Maximum, As of Covenant Restrictive Effective Date
4.25 
Total Leverage Covenant Restriction Effective Date
Jan. 02, 2016 
Debt Instrument, Covenant Compliance
As of October 3, 2014, the Company was in compliance with all covenants under the Credit Facility. 
Debt Weighted Average Interest Rate
1.56% 
Debt Instrument, Unused Borrowing Capacity Amount
$ 300 
Debt (Convertible Notes and Interest Rate Swap Details) (Details) (USD $)
0 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 0 Months Ended 0 Months Ended
Feb. 20, 2013
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Mar. 31, 2007
Oct. 3, 2014
Interest Rate Swap [Member]
Sep. 27, 2013
Interest Rate Swap [Member]
Dec. 28, 2012
Interest Rate Swap [Member]
Oct. 3, 2014
Interest Rate Swap [Member]
Other Liabilities [Member]
Nov. 3, 2014
Subsequent Event [Member]
Nov. 3, 2014
Subsequent Event [Member]
Interest Rate Swap 2 [Member]
Nov. 3, 2014
Subsequent Event [Member]
Interest Rate Swap 2 [Member]
Nov. 3, 2014
Subsequent Event [Member]
Interest Rate Swap 3 [Member]
Nov. 3, 2014
Subsequent Event [Member]
Interest Rate Swap 3 [Member]
Derivative [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notional Amount
 
 
 
 
 
 
$ 100,000,000 
 
$ 150,000,000 
 
 
 
$ 45,000,000 
 
$ 45,000,000 
Type of Hedge
 
 
 
 
 
 
Cash flow 
 
 
 
 
 
 
 
 
Start Date
 
 
 
 
 
 
Feb. 20, 2013 
 
 
 
 
Feb. 20, 2015 
 
Feb. 22, 2016 
 
End Date
 
 
 
 
 
 
Feb. 22, 2016 
 
 
 
 
 
 
Sep. 20, 2019 
 
Pay Fixed Interest Rate
 
 
 
 
 
 
0.573% 
 
 
 
 
 
1.921% 
 
 
Current Receive Variable Interest Rate
 
 
 
 
 
 
0.154% 
 
 
 
 
 
 
 
 
Fair Value
 
 
 
 
 
 
 
 
 
(191,000)
 
 
 
 
 
Gain (Loss) Recognized In Income Ineffective Portion
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
1,051,000 
1,515,000 
3,208,000 
9,948,000 
 
300,000 
300,000 
 
 
 
 
 
 
 
Subsequent Event, Date
 
 
 
 
 
 
 
 
 
 
Nov. 03, 2014 
 
 
 
 
Annual Notional Amortizing Amount
 
 
 
 
 
 
50,000,000 
 
 
 
 
 
10,000,000 
 
 
Notional amortizing start date
 
 
 
 
 
 
 
 
 
 
Feb. 21, 2017 
 
 
 
 
Description Of Interest Rate Risk Exposure
 
 
 
 
 
 
This swap was entered into in order to hedge against potential changes in cash flows on the outstanding Credit Facility borrowings, which are also indexed to the one-month LIBOR rate. 
 
 
 
 
The Company entered into an additional interest rate swap in order to hedge against potential changes in cash flows on the outstanding borrowings on the Credit Facility.  
 
 
 
Description Of Interest Rate Cash Flow Hedge Accounting Method
 
 
 
 
 
 
This swap is being accounted for as a cash flow hedge. 
 
 
 
 
The swap will be accounted for as a cash flow hedge.  
 
 
 
Debt Instruments [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible Subordinated Debt
 
 
 
 
 
$ 197,800,000 
 
 
 
 
 
 
 
 
 
Debt Discount Percentage at Issuance
 
 
 
 
 
5.00% 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage
 
 
 
 
 
2.25% 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate During Period
 
 
 
 
8.50% 
 
 
 
 
 
 
 
 
 
 
Debt Redemption Date
Feb. 20, 2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt (Contractual Interest) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Interest Costs Incurred [Abstract]
 
 
 
 
Contractual interest
$ 0 
$ 0 
$ 0 
$ 634 
Discount amortization
$ 0 
$ 0 
$ 0 
$ 5,368 
Debt (Long-term Debt Maturity Schedule) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Long-term Debt, Fiscal Year Maturity [Abstract]
 
 
Remainder of 2014
$ 2,500 
 
2015
11,250 
 
2016
16,250 
 
2017
20,000 
 
2018
20,000 
 
Thereafter
120,000 
 
Long-term debt
$ 190,000 
$ 197,500 
Debt (Deferred Financing Fees) (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Deferred Finance Costs [Roll Forward]
 
Deferred Finance Costs, Net, Beginning Balance
$ 3,860 
Amortization during the period
(580)
Deferred Finance Costs, Net, Ending Balance
$ 3,280 
Defined Benefit Plans (Benefit Obligation Roll Forward) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward]
 
 
 
 
At January 3, 2014
 
 
$ 1,691 
 
Net defined benefit cost
75 
117 
229 
(779)
Benefit payments
 
 
(96)
 
Foreign currency translation
 
 
(153)
 
At October 3, 2014
$ 1,671 
 
$ 1,671 
 
Defined Benefit Plans (Defined Benefit Plan Costs) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]
 
 
 
 
Service cost
$ 51 
$ 76 
$ 155 
$ 227 
Interest cost
18 
41 
57 
144 
Curtailment gain (Other Operating Expenses, Net)
(1,150)
Amortization of net loss
17 
Net defined benefit (income) cost
$ 75 
$ 117 
$ 229 
$ (779)
Stock-Based Compensation (Expense Details) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
$ 3,802 
$ 4,066 
$ 10,531 
$ 11,413 
Stock Option [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
595 
1,374 
1,811 
2,784 
Restricted Stock And Unit Awards [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
1,850 
2,013 
5,008 
4,958 
Retirement Plan [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
1,357 
679 
3,712 
3,671 
Cost of Sales [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
1,129 
1,117 
3,187 
3,246 
Selling General And Administrative Expense [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
1,951 
1,598 
5,872 
6,052 
Research and Development Expense [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
429 
215 
1,179 
979 
Other Operating Expenses, net [Member]
 
 
 
 
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
 
 
 
 
Allocated Share-based Compensation Expense
$ 293 
$ 1,136 
$ 293 
$ 1,136 
Stock-Based Compensation (Fair Value Assumptions) (Details)
9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
Weighted average fair value
$ 16.43 
$ 8.38 
Risk-free interest rate
1.73% 
0.73% 
Expected volatility
39.00% 
39.00% 
Expected life (in years)
5 years 
5 years 
Expected dividend yield
0.00% 
0.00% 
Stock-Based Compensation (Stock Option Activity) (Details) (USD $)
In Millions, except Share data, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Stock Options Time Based [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
Stock Options Outstanding, Beginning
1,616,409 
Option Grants in Period, Gross
183,571 
Option Exercises in Period
(191,501)
Option Forfeitures and Expirations in Period
(33,279)
Stock Options Outstanding, Ending
1,575,200 
Options Exercisable, Number
1,159,129 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
Options Outstanding, Weighted Average Exercise Price, Beginning
$ 22.92 
Option Grants in Period, Weighted Average Exercise Price
$ 43.84 
Option Exercises in Period, Weighted Average Exercise Price
$ 22.94 
Option Forfeitures and Expirations in Period, Weighted Average Exercise Price
$ 27.82 
Options Outstanding, Weighted Average Exercise Price, Ending
$ 25.26 
Options Exercisable, Weighted Average Exercise Price
$ 23.09 
Options Outstanding, Weighted Average Remaining Contractual Term
6 years 3 months 18 days 
Options Exercisable, Weighted Average Remaining Contractual Term
5 years 6 months 
Options Outstanding, Intrinsic Value
$ 28.9 
Options Exercisable, Intrinsic Value
23.7 
Stock Options Performance Based [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
Stock Options Outstanding, Beginning
177,261 
Option Exercises in Period
(56,243)
Stock Options Outstanding, Ending
121,018 
Options Exercisable, Number
121,018 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
Options Outstanding, Weighted Average Exercise Price, Beginning
$ 23.27 
Option Exercises in Period, Weighted Average Exercise Price
$ 23.34 
Options Outstanding, Weighted Average Exercise Price, Ending
$ 23.25 
Options Exercisable, Weighted Average Exercise Price
$ 23.25 
Options Outstanding, Weighted Average Remaining Contractual Term
3 years 2 months 12 days 
Options Exercisable, Weighted Average Remaining Contractual Term
3 years 2 months 12 days 
Options Outstanding, Intrinsic Value
2.5 
Options Exercisable, Intrinsic Value
$ 2.5 
Stock-Based Compensation (Stock Award Activity) (Details) (USD $)
9 Months Ended
Oct. 3, 2014
Restricted Stock And Restricted Stock Units Time Based [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
 
Nonvested Restricted Stock Units and Awards, Beginning
67,575 
Restricted Stock Units and Awards Granted
63,817 
Restricted Stock Units and Awards Vested
(14,118)
Restricted Stock Units and Awards Forfeited
(7,073)
Nonvested Restricted Stock Units and Awards, Ending
110,201 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
 
Restricted Stock Units and Awards, Weighted Average Grant Date Fair Value, Beginning
$ 26.37 
Restricted Stock Units and Awards Granted, Weighted Average Fair Value
$ 44.78 
Restricted Stock Units and Awards Vested, Weighted Average Fair Value
$ 43.80 
Restricted Stock Units and Awards Forfeited, Weighted Average Fair Value
$ 33.79 
Restricted Stock Units and Awards, Weighted Average Grant Date Fair Value, Ending
$ 34.32 
Restricted Stock And Restricted Stock Units Performance Based [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
 
Nonvested Restricted Stock Units and Awards, Beginning
779,678 
Restricted Stock Units and Awards Granted
186,825 
Restricted Stock Units and Awards Vested
(221,470)
Restricted Stock Units and Awards Forfeited
(28,870)
Nonvested Restricted Stock Units and Awards, Ending
716,163 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
 
Restricted Stock Units and Awards, Weighted Average Grant Date Fair Value, Beginning
$ 16.41 
Restricted Stock Units and Awards Granted, Weighted Average Fair Value
$ 31.33 
Restricted Stock Units and Awards Vested, Weighted Average Fair Value
$ 18.51 
Restricted Stock Units and Awards Forfeited, Weighted Average Fair Value
$ 18.42 
Restricted Stock Units and Awards, Weighted Average Grant Date Fair Value, Ending
$ 19.57 
Other Operating (Income) Expenses, Net (Expense Categories) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
$ 6,176 
$ 3,500 
$ 10,223 
$ 10,560 
Investments in Capacity and Capabilities [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
2,787 
5,005 
Operating Unit Realignment [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
(31)
2,214 
1,004 
3,066 
Orthopaedic Facility Optimization [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
996 
1,420 
1,032 
6,723 
Medical Device Facility Optimization [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
52 
11 
282 
ERP System Upgrade [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
(121)
(82)
264 
Acquisition And Integration Costs [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
133 
(522)
(248)
(340)
Asset Dispositions Severance And Other [Member]
 
 
 
 
Other Operating Income Expense Detail [Line Items]
 
 
 
 
Other Operating (Income) Expenses, Net
$ 2,291 
$ 457 
$ 3,501 
$ 565 
Other Operating (Income) Expenses, Net (Restructuring Costs and Reserve Details) (Details) (USD $)
9 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended 3 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Minimum [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Minimum [Member]
Severance And Retention [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Minimum [Member]
Accelerated Depreciation And Asset Write Offs [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Minimum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Maximum [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Maximum [Member]
Severance And Retention [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Maximum [Member]
Accelerated Depreciation And Asset Write Offs [Member]
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
Maximum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Minimum [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Minimum [Member]
Severance And Retention [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Minimum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Maximum [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Maximum [Member]
Severance And Retention [Member]
Oct. 3, 2014
Operating Unit Realignment [Member]
Maximum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
building
Jan. 3, 2014
Orthopaedic Facility Optimization [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Severance And Retention [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Accelerated Depreciation And Asset Write Offs [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Minimum [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Minimum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Maximum [Member]
Oct. 3, 2014
Orthopaedic Facility Optimization [Member]
Maximum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
facility
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Production Inefficiencies, Moving And Revalidation [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Personnel [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Minimum [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Minimum [Member]
Other Restructuring [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Maximum [Member]
Oct. 3, 2014
Medical Device Facility Optimization [Member]
Maximum [Member]
Other Restructuring [Member]
Oct. 3, 2014
ERP System Upgrade [Member]
Oct. 3, 2014
ERP System Upgrade [Member]
Training And Consulting Costs [Member]
Oct. 3, 2014
ERP System Upgrade [Member]
Accelerated Depreciation And Asset Write Offs [Member]
Oct. 3, 2014
Executive Vice President [Member]
Restructuring Cost and Reserve [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring and Related Activities, Description
 
 
In 2014, the Company announced several initiatives to invest in capacity and capabilities and to better align its resources to meet its customers' needs and drive organic growth and profitability. This included the following: Functions currently performed at the Company’s facility in Plymouth, MN to manufacture catheters and introducers will transfer into the Company’s existing facility in Tijuana, Mexico by the first half of 2016. Functions currently performed at the Company’s facilities in Beaverton, OR and Raynham, MA to manufacture products for the portable medical market will transfer to a new facility in Tijuana, Mexico by the end of 2015. Products currently manufactured at the Beaverton facility, which do not serve the portable medical market, are planned to transfer to the Company’s Raynham facility. Establishing a R&D hub in the Minneapolis/St. Paul, MN area for the Company's Global R&D QiG - Medical Device Systems team, which will serve as the technical center of expertise for active implantable medical device development, implantable leads design, system level design verification testing, and continuation engineering. As part of this initiative, the design engineering responsibilities currently performed at our Cleveland, OH facility will be transferred to the new R&D hub by the end of 2014. Establishing a commercial operations hub at the Company's global headquarters in Frisco, Texas. This initiative will build upon the investment the Company has made in its global sales and marketing function and is expected to be completed during the first half of 2015.  
 
 
 
 
 
 
 
 
In June 2013, the Company initiated a plan to realign its operating structure in order to optimize its continued focus on profitable growth. As part of this initiative, the sales and marketing and operations groups of its former Implantable Medical and Electrochem Solutions ("Electrochem") reportable segments were combined into one sales and marketing and one operations group serving the entire Company. This initiative is expected to be completed by the end of 2014. 
 
 
 
 
 
 
In 2010, the Company began updating its Indianapolis, IN facility to streamline operations, consolidate two buildings, increase capacity, further expand capabilities and reduce dependence on outside suppliers. This initiative was completed in 2011. In 2011, the Company began construction on an orthopaedic manufacturing facility in Fort Wayne, IN and transferred manufacturing operations being performed at its Columbia City, IN location into this new facility. This initiative was completed in 2012. During 2012, the Company transferred manufacturing and development operations performed at its facilities in Orvin and Corgemont, Switzerland into existing facilities in Fort Wayne, IN and Tijuana, Mexico. During 2013, the Company initiated a project to expand its Chaumont, France facility in order to enhance its capabilities and fulfill larger volume customer supply agreements. This initiative is expected to be completed over the next three years. 
 
 
 
 
 
 
 
Near the end of 2011, the Company initiated plans to upgrade and expand its manufacturing infrastructure in order to support its medical device strategy. This includes the transfer of certain product lines to create additional capacity for the manufacture of medical devices, expansion of two existing facilities, as well as the purchase of equipment to enable the production of medical devices. These initiatives are expected to be completed over the next three months. 
 
 
 
 
 
 
In 2011, the Company initiated plans to upgrade its existing global ERP system. This initiative was completed during the first half of 2014. 
 
 
 
Restructuring Initiation Date
 
 
2014 
 
 
 
 
 
 
 
 
June 2013 
 
 
 
 
 
 
2010 
 
 
 
 
 
 
 
2011 
 
 
 
 
 
 
2011 
 
 
 
Restructuring and Related Costs, Facility Consolidations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring and Related Costs, Facility Expansions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring And Related Activities Expected Capital Expenditures
 
 
 
$ 25,000,000 
 
 
 
$ 27,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 30,000,000 
 
$ 35,000,000 
 
 
 
 
$ 12,500,000 
 
$ 13,000,000 
 
 
 
 
 
Restructuring And Related Activities Capital Expenditures Incurred To Date
 
 
1,400,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23,700,000 
 
 
 
 
 
 
 
12,500,000 
 
 
 
 
 
 
4,000,000 
 
 
 
Restructuring and Related Cost, Expected Cost
 
 
 
29,000,000 
7,000,000 
2,000,000 
20,000,000 
34,000,000 
9,000,000 
3,000,000 
22,000,000 
 
6,600,000 
5,000,000 
1,600,000 
7,000,000 
5,200,000 
1,800,000 
 
 
11,000,000 
13,000,000 
43,000,000 
19,000,000 
48,000,000 
24,000,000 
 
700,000 
600,000 
1,800,000 
500,000 
2,000,000 
700,000 
 
 
 
 
Restructuring and Related Cost, Cost Incurred to Date
 
 
5,000,000 
 
 
 
 
 
 
 
 
6,600,000 
 
 
 
 
 
 
42,000,000 
 
 
 
 
 
 
 
1,800,000 
 
 
 
 
 
 
5,800,000 
3,300,000 
2,500,000 
 
Proceeds from sale of orthopaedic product lines
2,655,000 
3,228,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,700,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities Assumed By Third Parties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,400,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (Loss) on Disposition of Business
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,700,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring and Related Costs, Expected Completion
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 years 
 
 
 
 
 
 
 
3 months 
 
 
 
 
 
 
 
 
 
 
Severance Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 800,000 
Other Operating (Income) Expenses, Net Changes in Accrued Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Investments in Capacity and Capabilities [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
$ 0 
Restructuring charges
5,005 
Restructuring Reserve, Settled without Cash
(33)
Cash (payments) receipts
(3,272)
Restructuring Reserve, Ending Balance
1,700 
Operating Unit Realignment [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
1,211 
Restructuring charges
1,004 
Cash (payments) receipts
(2,215)
Restructuring Reserve, Ending Balance
Orthopaedic Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
857 
Restructuring charges
1,032 
Cash (payments) receipts
(1,349)
Restructuring Reserve, Ending Balance
540 
Medical Device Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
11 
Cash (payments) receipts
(11)
Restructuring Reserve, Ending Balance
ERP System Upgrade [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
(82)
Cash (payments) receipts
82 
Restructuring Reserve, Ending Balance
Severance And Retention [Member] |
Investments in Capacity and Capabilities [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
1,445 
Restructuring Reserve, Settled without Cash
Cash (payments) receipts
(434)
Restructuring Reserve, Ending Balance
1,011 
Severance And Retention [Member] |
Operating Unit Realignment [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
465 
Restructuring charges
849 
Cash (payments) receipts
(1,314)
Restructuring Reserve, Ending Balance
Severance And Retention [Member] |
Orthopaedic Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
Cash (payments) receipts
Restructuring Reserve, Ending Balance
Production Inefficiencies, Moving And Revalidation [Member] |
Medical Device Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
Cash (payments) receipts
Restructuring Reserve, Ending Balance
Training And Consulting Costs [Member] |
ERP System Upgrade [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
(82)
Cash (payments) receipts
82 
Restructuring Reserve, Ending Balance
Accelerated Depreciation And Asset Write Offs [Member] |
Investments in Capacity and Capabilities [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
33 
Restructuring Reserve, Settled without Cash
(33)
Cash (payments) receipts
Restructuring Reserve, Ending Balance
Accelerated Depreciation And Asset Write Offs [Member] |
Orthopaedic Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
(2,655)
Cash (payments) receipts
2,655 
Restructuring Reserve, Ending Balance
Accelerated Depreciation And Asset Write Offs [Member] |
ERP System Upgrade [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
Cash (payments) receipts
Restructuring Reserve, Ending Balance
Personnel [Member] |
Medical Device Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
Cash (payments) receipts
(1)
Restructuring Reserve, Ending Balance
Other Restructuring [Member] |
Investments in Capacity and Capabilities [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
3,527 
Restructuring Reserve, Settled without Cash
Cash (payments) receipts
(2,838)
Restructuring Reserve, Ending Balance
689 
Other Restructuring [Member] |
Operating Unit Realignment [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
746 
Restructuring charges
155 
Cash (payments) receipts
(901)
Restructuring Reserve, Ending Balance
Other Restructuring [Member] |
Orthopaedic Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
857 
Restructuring charges
3,687 
Cash (payments) receipts
(4,004)
Restructuring Reserve, Ending Balance
540 
Other Restructuring [Member] |
Medical Device Facility Optimization [Member]
 
Restructuring Reserve [Roll Forward]
 
Restructuring Reserve, Beginning Balance
Restructuring charges
10 
Cash (payments) receipts
(10)
Restructuring Reserve, Ending Balance
$ 0 
Income Taxes (Narratives) (Details) (USD $)
In Millions, unless otherwise specified
Oct. 3, 2014
Income Tax Disclosure [Abstract]
 
Unrecognized Tax Benefits
$ 1.6 
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit
0.6 
Unrecognized Tax Benefits that Would Impact Effective Tax Rate
$ 1.5 
Commitments and Contingencies (Narratives) (Details) (USD $)
9 Months Ended
Oct. 3, 2014
Loss Contingencies [Line Items]
 
Standard Product Warranty Description
The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. 
Significant Purchase Commitment Description
Contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The Company’s purchase orders are normally based on its current manufacturing needs and are fulfilled by its vendors within short time horizons. The Company also enters into blanket orders with vendors that have preferred pricing and terms, however these orders are normally cancelable without penalty. 
Significant Purchase Commitment Remaining Minimum Amount Committed
$ 31,700,000 
Description of Types of Foreign Currency Cash Flow Hedging Instruments Used
The Company enters into forward contracts to purchase Mexican pesos in order to hedge the risk of peso-denominated payments associated with the operations at its Tijuana, Mexico facility. 
Maximum Aggregate Loss Under Medical Plan Stop Loss Insurance Per Employee
225,000 
Accrued Self Insured Medical Plan Liability
1,800,000 
Litigation One [Member]
 
Loss Contingencies [Line Items]
 
Customer Product Liability Insurance Coverage
5,000,000 
Loss Contingency Domicile Of Litigation
113th Judicial District Court of Harris County, Texas 
Loss Contingency Allegations
The complaint seeks damages alleging marketing and product defects and failure to warn, negligence and gross negligence relating to a product the Company manufactured and sold to a customer, one of the other named defendants. The Company's customer, in turn, incorporated the Greatbatch product into its own product which it sold to its customer, another named defendant. 
Product Liability Insurance Coverage
$ 10,000,000 
Loss Contingency Opinion Of Counsel
To date, the Company has not recorded a reserve in connection with this matter since any potential loss is not currently probable and the range of loss is not reasonably estimable at this time. 
Commitments and Contingencies (Product Warranty Rollforward) (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Movement in Standard Product Warranty Accrual [Roll Forward]
 
Standard Product Warranty Accrual, Beginning Balance
$ 1,819 
Standard Product Warranty Accrual, Warranties Issued
680 
Standard Product Warranty Accrual, Payments
(1,934)
Standard Product Warranty Accrual, Ending Balance
$ 565 
Commitments and Contingencies (Future Lease Payments) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
 
Remainder of 2014
$ 1,285 
2015
5,635 
2016
5,036 
2017
2,548 
2018
2,099 
Thereafter
6,352 
Total estimated operating lease expense
$ 22,955 
Commitments and Contingencies (FX Contract Details) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Foreign Currency Cash Flow Hedges [Abstract]
 
 
 
 
Increase (reduction) in Cost of Sales
$ (48)
$ (346)
$ (204)
$ (908)
Ineffective portion of change in fair value
Fx Contract 1 [Member]
 
 
 
 
Derivative [Line Items]
 
 
 
 
Derivative, Type of Instrument
 
 
FX Contract 
 
Notional Amount of Foreign Currency Cash Flow Hedge Derivatives
1,927 
 
1,927 
 
Start Date
 
 
Jan. 01, 2014 
 
End Date
 
 
Dec. 31, 2014 
 
$/Peso
0.0767 
 
0.0767 
 
Foreign Currency Cash Flow Hedge Liability at Fair Value
(72)
 
(72)
 
Balance Sheet Location
 
 
Accrued expenses 
 
Fx Contract 2 [Member]
 
 
 
 
Derivative [Line Items]
 
 
 
 
Derivative, Type of Instrument
 
 
FX Contract 
 
Notional Amount of Foreign Currency Cash Flow Hedge Derivatives
1,580 
 
1,580 
 
Start Date
 
 
Jan. 01, 2014 
 
End Date
 
 
Dec. 31, 2014 
 
$/Peso
0.0752 
 
0.0752 
 
Foreign Currency Cash Flow Hedge Liability at Fair Value
$ (30)
 
$ (30)
 
Balance Sheet Location
 
 
Accrued expenses 
 
Earnings Per Share (EPS) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Net Income (Loss) Available to Common Stockholders, Diluted [Abstract]
 
 
 
 
Net income
$ 14,012 
$ 11,071 
$ 41,282 
$ 26,486 
Weighted Average Number of Shares Outstanding Reconciliation [Abstract]
 
 
 
 
Basic
24,899,000 
24,047,000 
24,784,000 
23,904,000 
Effect of dilutive securities stock options, restricted stock and restricted stock units
1,024,000 
1,141,000 
1,066,000 
1,113,000 
Denominator for diluted EPS
25,923,000 
25,188,000 
25,850,000 
25,017,000 
Basic EPS
$ 0.56 
$ 0.46 
$ 1.67 
$ 1.11 
Diluted EPS
$ 0.54 
$ 0.44 
$ 1.60 
$ 1.06 
Incremental Common Shares Attributable to Dilutive Effect of Conversion of Debt Securities
 
 
 
Anitdilutive Securities Excluded From Earnings Per Share [Abstract]
 
 
 
 
Time-vested stock options, restricted stock and restricted stock units
163,000 
43,000 
177,000 
59,000 
Performance-vested stock options and restricted stock units
4,400 
27,000 
3,600 
26,000 
Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Other Comprehensive (Income) Loss, Pension and Other Postretirement Benefit Plans, Adjustment, before Tax, [Abstract]
 
 
 
 
Defined Benefit Plan Liability, Beginning
$ (672)
$ (365)
$ (672)
$ (962)
Defined Benefit Plan Liability, Ending
(672)
(365)
(672)
(365)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, before Tax [Abstract]
 
 
 
 
Cash Flow Hedges, Beginning
(218)
178 
(468)
120 
Unrealized gain (loss) on cash flow hedges
(133)
(419)
35 
Realized Gain Loss On Foreign Currency Contracts Before Tax
(48)
(346)
(204)
(908)
Realized Gain Loss On Interest Rate Swaps Before Tax
106 
145 
344 
344 
Cash Flow Hedges, End
(293)
(442)
(293)
(442)
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, before Tax [Abstract]
 
 
 
 
Foreign Currency Translation Adjustment, Beginning
15,741 
10,999 
14,952 
13,431 
Net foreign currency translation gain (loss)
(3,211)
3,579 
(2,422)
1,147 
Foreign Currency Translation Adjustment, End
12,530 
14,578 
12,530 
14,578 
Other Comprehensive Income (Loss), before Tax [Abstract]
 
 
 
 
Total Pre-Tax Amount, Beginning
14,851 
10,812 
13,812 
12,589 
Unrealized gain (loss) on cash flow hedges
(133)
(419)
35 
Realized gain loss on foreign currency hedges - before tax
(48)
(346)
(204)
(908)
Realized gain loss on interest rate swaps - before tax
106 
145 
344 
344 
Net defined benefit plan liability adjustments
 
 
 
597 
Net foreign currency translation gain (loss)
(3,211)
3,579 
(2,422)
1,147 
Total Pre-Tax Amount, End
11,565 
13,771 
11,565 
13,771 
Other Comprehensive Income (Loss), Tax [Abstract]
 
 
 
 
Tax, Beginning
459 
338 
546 
358 
Unrealized gain (loss) on cash flow hedges
46 
147 
(12)
(1)
Realized gain loss on foreign currency contracts - tax
17 
121 
71 
318 
Realized gain loss on interest rate swap hedges - tax
(37)
(51)
(120)
(120)
Net defined benefit plan gain - tax
 
 
 
Net foreign currency translation gain (loss)
Tax, End
485 
555 
485 
555 
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
 
Net-of-Tax Amount, Beginning
15,310 
11,150 
14,358 
12,947 
Unrealized gain (loss) on cash flow hedges, net of tax
(87)
(272)
23 
Realized gain loss on foreign currency hedges, net of tax
(31)
(225)
(133)
(590)
Realized gain loss on interest rate swap hedges, net of tax
69 
94 
224 
224 
Net defined benefit plan gain, net of tax
597 
Foreign currency translation gain (loss)
(3,211)
3,579 
(2,422)
1,147 
Net-of-Tax Amount, End
$ 12,050 
$ 14,326 
$ 12,050 
$ 14,326 
Accumulated Other Comprehensive Income Amounts Recognized in AOCI (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net gain occurring during the period
 
 
 
$ (171)
Amortization of losses
 
 
 
(581)
Prior service cost
 
 
 
155 
Pre-tax adjustment
 
 
 
(597)
Taxes
 
 
 
Net
$ 0 
$ 0 
$ 0 
$ (597)
Fair Value Measurement (Recurring Measurements) (Details) (USD $)
In Millions, unless otherwise specified
Oct. 3, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]
 
Foreign Currency Cash Flow Hedge Gain (Loss) to be Reclassified During Next 12 Months
$ 0.1 
Fair Value Measurement (Contingent Consideration Roll Forward) (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Oct. 3, 2014
Contingent Consideration Liability [Roll Forward]
 
At January 3, 2014
$ 840 
Fair value adjustments
(750)
At October 3, 2014
$ 90 
Fair Value Measurement (Contingent Consideration Assumptions) (Details) (USD $)
9 Months Ended
Oct. 3, 2014
Jan. 3, 2014
Oct. 3, 2014
Development Milestones [Member]
Fair Value Assumptions [Line Items]
 
 
 
Business Combination, Contingent Consideration, Liability
$ 90,000 
$ 840,000 
$ 90,000 
Risk Adjusted Discount Rate For Contingent Consideration
 
 
20.00% 
Contingent Consideration Liability Projected Year Of Payment
 
 
2015 
Contingent Consideration Liability Probability Weighted Payment Amount
 
 
$ 100,000 
Fair Value Measurement (Recurring and Nonrecurring Measurement Basis) (Details) (USD $)
3 Months Ended 9 Months Ended
Oct. 3, 2014
Oct. 3, 2014
Sep. 27, 2013
Jan. 3, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Foreign Currency Contracts, Liability, Fair Value Disclosure
$ 102,000 
$ 102,000 
 
 
Interest rate swap
191,000 
191,000 
 
 
Business Combination, Contingent Consideration, Liability
90,000 
90,000 
 
840,000 
Assets, Fair Value Disclosure [Abstract]
 
 
 
 
Assets Held-for-sale, Long Lived, Fair Value Disclosure
2,100,000 
2,100,000 
 
 
Long Lived Assets Impairment Loss
 
 
Maximum Potential Payment Due Upon Achievement Of Certain Milestones
1,000,000 
1,000,000 
 
 
Goodwill, Impairment Loss
 
 
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill)
 
 
 
Impairment of Intangible Assets (Excluding Goodwill)
 
 
 
Cost-method Investments, Realized Gains
3,200,000 
 
 
 
Cost And Equity Method Investments Aggregate Carrying Amount
12,000,000 
12,000,000 
 
12,300,000 
Cost And Equity Method Investments Realized Gains Losses Net
 
3,900,000 
(600,000)
 
Fair Value, Inputs, Level 1 [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Foreign Currency Contracts, Liability, Fair Value Disclosure
 
 
Interest rate swap
 
 
Business Combination, Contingent Consideration, Liability
 
 
Fair Value, Inputs, Level 2 [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Foreign Currency Contracts, Liability, Fair Value Disclosure
102,000 
102,000 
 
 
Interest rate swap
191,000 
191,000 
 
 
Business Combination, Contingent Consideration, Liability
 
 
Fair Value, Inputs, Level 3 [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Foreign Currency Contracts, Liability, Fair Value Disclosure
 
 
Interest rate swap
 
 
Business Combination, Contingent Consideration, Liability
90,000 
90,000 
 
 
Financial Milestones [Member]
 
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
 
 
Business Combination, Contingent Consideration, Liability
$ 0 
$ 0 
 
 
Business Segment, Geographic And Concentration Risk Information (Segment Revenue by Categories) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Segment
Sep. 27, 2013
Segment Reporting [Abstract]
 
 
 
 
Number of Reportable Segments
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
$ 171,699 
$ 167,730 
$ 518,061 
$ 487,326 
Revenue, Major Customer [Line Items]
 
 
 
 
Revenue Major Customer Percent
45.00% 
48.00% 
47.00% 
49.00% 
Customer A [Member]
 
 
 
 
Revenue, Major Customer [Line Items]
 
 
 
 
Revenue Major Customer Percent
19.00% 
21.00% 
19.00% 
20.00% 
Customer B [Member]
 
 
 
 
Revenue, Major Customer [Line Items]
 
 
 
 
Revenue Major Customer Percent
15.00% 
16.00% 
16.00% 
16.00% 
Customer C [Member]
 
 
 
 
Revenue, Major Customer [Line Items]
 
 
 
 
Revenue Major Customer Percent
11.00% 
11.00% 
12.00% 
13.00% 
United States [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
76,330 
81,736 
235,203 
242,304 
Puerto Rico [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
34,581 
31,936 
101,064 
87,592 
Belgium [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
13,722 
14,947 
47,351 
49,895 
Rest Of World [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
47,066 
39,111 
134,443 
107,535 
Greatbatch Medical [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
169,225 
167,052 
514,036 
485,168 
Greatbatch Medical [Member] |
Cardiac Neuromodulation [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
85,618 
86,302 
252,403 
240,003 
Greatbatch Medical [Member] |
Orthopaedic [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
32,489 
30,079 
106,785 
92,043 
Greatbatch Medical [Member] |
Portable Medical [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
17,199 
19,320 
53,139 
60,376 
Greatbatch Medical [Member] |
Vascular [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
14,903 
12,279 
43,210 
35,152 
Greatbatch Medical [Member] |
EME and Other [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
19,016 
19,072 
58,499 
57,594 
QiG [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Controlling Interest, Number of Ownership Interests
 
 
Controlling Interest, Liability of Expenses Incurred, Percentage
 
 
100.00% 
 
FDA submission date
 
 
Dec. 16, 2013 
 
CE submission date
 
 
Jan. 10, 2014 
 
CE Approval Date
 
 
Jun. 17, 2014 
 
Sales Revenue, Net
2,474 
678 
4,025 
2,158 
Minimum [Member] |
QiG [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Noncontrolling Interest, Ownership Percentage by Parent
89.00% 
 
89.00% 
 
Maximum [Member] |
QiG [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Noncontrolling Interest, Ownership Percentage by Parent
100.00% 
 
100.00% 
 
Between Operating Segments [Member]
 
 
 
 
Segment Reporting, Revenue Reconciling Item [Line Items]
 
 
 
 
Sales Revenue, Net
 
 
$ 0 
 
Business Segment, Geographic And Concentration Risk Information (Segment Income From Operations) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Oct. 3, 2014
Sep. 27, 2013
Oct. 3, 2014
Sep. 27, 2013
Segment Reporting Information [Line Items]
 
 
 
 
Operating income as reported
$ 16,183 
$ 17,002 
$ 58,246 
$ 48,476 
Unallocated Other Expense
2,717 
(1,458)
847 
(10,855)
Income before provision for income taxes
18,900 
15,544 
59,093 
37,621 
Greatbatch Medical [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Operating income as reported
31,121 
28,236 
98,688 
84,596 
QiG [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Operating income as reported
(6,796)
(6,946)
(18,882)
(21,679)
Operating Segments [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Operating income as reported
24,325 
21,290 
79,806 
62,917 
Segment Reconciling Items [Member]
 
 
 
 
Segment Reporting Information [Line Items]
 
 
 
 
Operating income as reported
$ (8,142)
$ (4,288)
$ (21,560)
$ (14,441)
Business Segment, Geographic And Concentration Risk Information (Long-lived Assets by Category) (Details) (USD $)
In Thousands, unless otherwise specified
Oct. 3, 2014
Jan. 3, 2014
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Property, plant and equipment, net
$ 142,336 
$ 145,773 
United States [Member]
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Property, plant and equipment, net
113,310 
116,484 
Rest Of World [Member]
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Property, plant and equipment, net
$ 29,026 
$ 29,289