INTEGER HOLDINGS CORP, 10-Q filed on 10/30/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 29, 2017
Oct. 26, 2017
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
INTEGER HOLDINGS CORPORATION 
 
Entity Central Index Key
0001114483 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 29, 2017 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Current Fiscal Year End Date
--12-29 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
31,669,830 
Condensed Consolidated Balance Sheets - Unaudited (USD $)
In Thousands, unless otherwise specified
Sep. 29, 2017
Dec. 30, 2016
Current assets:
 
 
Cash and cash equivalents
$ 43,637 
$ 52,116 
Accounts receivable, net of allowance for doubtful accounts of $1.0 million and $0.7 million, respectively
221,520 
204,626 
Inventories
246,972 
225,151 
Refundable income taxes
13,388 
Prepaid expenses and other current assets
16,167 
22,026 
Total current assets
528,300 
517,307 
Property, plant and equipment, net
374,436 
372,042 
Goodwill
987,316 
967,326 
Other intangible assets, net
930,644 
940,060 
Deferred income taxes
4,308 
3,970 
Other assets
28,468 
31,838 
Total assets
2,853,472 
2,832,543 
Current liabilities:
 
 
Current portion of long-term debt
28,125 
31,344 
Accounts payable
94,404 
77,896 
Income taxes payable
5,419 
3,699 
Accrued expenses
77,125 
72,281 
Total current liabilities
205,073 
185,220 
Long-term debt
1,601,829 
1,698,819 
Deferred income taxes
207,005 
208,579 
Other long-term liabilities
16,136 
14,686 
Total liabilities
2,030,043 
2,107,304 
Stockholders’ equity:
 
 
Common stock, $0.001 par value; 100,000,000 shares authorized; 31,776,356 and 31,059,038 shares issued, respectively; 31,669,830 and 30,925,496 shares outstanding, respectively
32 
31 
Additional paid-in capital
662,729 
637,955 
Treasury stock, at cost, 106,526 and 133,542 shares, respectively
(4,654)
(5,834)
Retained earnings
121,730 
109,087 
Accumulated other comprehensive income (loss)
43,592 
(16,000)
Total stockholders’ equity
823,429 
725,239 
Total liabilities and stockholders’ equity
$ 2,853,472 
$ 2,832,543 
Condensed Consolidated Balance Sheets - Unaudited (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 29, 2017
Dec. 30, 2016
Current assets:
 
 
Allowance for doubtful accounts
$ 1.0 
$ 0.7 
Stockholders’ equity:
 
 
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
31,776,356 
31,059,038 
Common stock, shares outstanding
31,669,830 
30,925,496 
Treasury stock, shares
106,526 
133,542 
Condensed Consolidated Statements of Operations and Comprehensive Income - Unaudited (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 29, 2017
Sep. 30, 2016
Sep. 29, 2017
Sep. 30, 2016
Income Statement [Abstract]
 
 
 
 
Sales
$ 363,308 
$ 346,567 
$ 1,071,440 
$ 1,027,187 
Cost of sales
265,073 
248,658 
782,707 
741,779 
Gross profit
98,235 
97,909 
288,733 
285,408 
Operating expenses:
 
 
 
 
Selling, general and administrative expenses
39,733 
36,265 
118,956 
115,781 
Research, development and engineering costs, net
13,607 
11,412 
39,907 
42,358 
Other operating expenses, net
6,264 
13,370 
24,955 
50,004 
Total operating expenses
59,604 
61,047 
183,818 
208,143 
Operating income
38,631 
36,862 
104,915 
77,265 
Interest expense, net
26,485 
27,870 
81,025 
83,395 
Other (income) loss, net
156 
275 
11,979 
(2,772)
Income (loss) before income taxes
11,990 
8,717 
11,900 
(3,358)
Benefit for income taxes
(1,700)
(2,741)
(430)
(1,400)
Net income (loss)
13,690 
11,458 
12,341 
(1,972)
Earnings (loss) per share:
 
 
 
 
Basic (in dollars per share)
$ 0.43 
$ 0.37 
$ 0.39 
$ (0.06)
Diluted (in dollars per share)
$ 0.43 
$ 0.37 
$ 0.39 
$ (0.06)
Weighted average shares outstanding:
 
 
 
 
Basic (in shares)
31,594 
30,782 
31,304 
30,756 
Diluted (in shares)
32,173 
31,153 
31,724 
30,756 
Comprehensive Income
 
 
 
 
Net income (loss)
13,690 
11,458 
12,341 
(1,972)
Foreign currency translation gain
16,728 
3,191 
57,863 
12,250 
Net change in cash flow hedges, net of tax
(339)
571 
1,729 
(309)
Other comprehensive income
16,389 
3,762 
59,592 
11,941 
Comprehensive income
$ 30,079 
$ 15,220 
$ 71,933 
$ 9,969 
Condensed Consolidated Statements of Cash Flows - Unaudited (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 29, 2017
Sep. 30, 2016
Cash flows from operating activities:
 
 
Net income (loss)
$ 12,341 
$ (1,972)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation and amortization
74,584 
67,414 
Debt related amortization included in interest expense
8,850 
5,387 
Stock-based compensation
9,895 
7,179 
Other non-cash losses
10,666 
1,938 
Deferred income taxes
(6,821)
(12,519)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(13,958)
12,510 
Inventories
(20,259)
(10,010)
Prepaid expenses and other current assets
8,460 
(4,663)
Accounts payable
12,905 
4,885 
Accrued expenses
4,191 
(5,650)
Income taxes
14,716 
7,300 
Net cash provided by operating activities
115,570 
71,799 
Cash flows from investing activities:
 
 
Acquisition of property, plant and equipment
(34,059)
(46,968)
Purchase of cost and equity method investments
(1,316)
(2,917)
Other investing activities
673 
(1,000)
Net cash used in investing activities
(34,702)
(50,885)
Cash flows from financing activities:
 
 
Principal payments of long-term debt
(156,526)
(28,750)
Proceeds from issuance of long-term debt
50,000 
57,000 
Proceeds from the exercise of stock options
17,074 
723 
Payment of debt issuance costs
(1,789)
(781)
Distribution of cash and cash equivalents to Nuvectra Corporation
(76,256)
Purchase of non-controlling interests
(6,818)
Other financing activities
(76)
(3,983)
Net cash used in financing activities
(91,317)
(58,865)
Effect of foreign currency exchange rates on cash and cash equivalents
1,970 
468 
Net decrease in cash and cash equivalents
(8,479)
(37,483)
Cash and cash equivalents, beginning of period
52,116 
82,478 
Cash and cash equivalents, end of period
$ 43,637 
$ 44,995 
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 Dec. 30, 2016
$ 725,239 
$ 31 
$ 637,955 
$ (5,834)
$ 109,087 
$ (16,000)
Balance, shares at Dec. 30, 2016
 
31,059 
 
134 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Net income (loss)
12,341 
 
 
 
12,341 
 
Other comprehensive income, net
59,592 
 
 
 
 
59,592 
Stock-based compensation
9,895 
 
9,895 
 
 
 
Net shares issued, shares
 
717 
 
27 
 
 
Net shares issued
16,872 
15,691 
1,180 
 
 
Balance at Sep. 29, 2017
$ 823,429 
$ 32 
$ 662,729 
$ (4,654)
$ 121,730 
$ 43,592 
Balance, shares at Sep. 29, 2017
 
31,776 
 
107 
 
 
Basis of Presentation
BASIS OF PRESENTATION
BASIS OF PRESENTATION
Integer Holdings Corporation (together with its consolidated subsidiaries, “Integer” or the “Company”) is a publicly traded corporation listed on the New York Stock Exchange under the symbol “ITGR.” Integer is one of the largest medical device outsource manufacturers in the world serving the cardiac, neuromodulation, orthopedics, vascular, advanced surgical and portable medical markets. The Company provides innovative, high-quality medical technologies that enhance the lives of patients worldwide. In addition, it develops batteries for high-end niche applications in the energy, military, and environmental markets. The Company’s reportable segments are: (1) Medical and (2) Non-Medical. The Company’s customers include large multi-national original equipment manufacturers (“OEMs”) and their affiliated subsidiaries.
On March 14, 2016, Integer completed the spin-off of a portion of its former QiG segment through a tax-free distribution of all of the shares of its QiG Group, LLC (“QiG”) subsidiary to the stockholders of Integer on a pro rata basis (the “Spin-off”). See Note 2 “Divestiture” for further description of this transaction. The Company’s results include the financial and operating results of QiG until the Spin-off on March 14, 2016.
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, these financial statements 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”). 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 the Company for the periods presented. Intercompany transactions and balances have been fully eliminated in consolidation.
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Refer to Note 15 “Segment Information,” for a description of the changes made to reflect the current year product line sales reporting and changes made to the Company’s reportable segment structure during the fourth quarter of 2016.
Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, certain components of equity, 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. 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 December 30, 2016.
The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31. The third quarter and first nine months of 2017 and 2016 each contained 13 weeks and 39 weeks, respectively, and ended on September 29, and September 30, respectively. The Company’s 2017 and 2016 fiscal years will end or ended on December 29, 2017 and December 30, 2016, respectively.
Divestiture
DIVESTITURE
DIVESTITURE
Spin-off of Nuvectra Corporation
On March 14, 2016, Integer completed the spin-off of a portion of its former QiG segment through a tax-free distribution of all of the shares of its QiG Group, LLC subsidiary to the stockholders of Integer on a pro rata basis. Immediately prior to completion of the Spin-off, QiG Group, LLC was converted into a corporation organized under the laws of Delaware and changed its name to Nuvectra Corporation (“Nuvectra”). On March 14, 2016, each of the Company’s stockholders of record as of the close of business on March 7, 2016 received one share of Nuvectra common stock for every three shares of Integer common stock held as of that date. Upon completion of the Spin-off, Nuvectra became an independent publicly traded company whose common stock is listed on the NASDAQ stock exchange under the symbol “NVTR.”
The portion of the QiG segment spun-off consisted of QiG Group, LLC and its subsidiaries: (i) Algostim, LLC (“Algostim”), (ii) PelviStim LLC (“PelviStim”), and (iii) the Company’s NeuroNexus Technologies (“NeuroNexus”) subsidiary. The operations of Centro de Construcción de Cardioestimuladores del Uruguay (“CCC”) and certain other existing QiG research and development capabilities were retained by the Company and not included as part of the Spin-off. As the Company continues to focus on the design and development of complete medical device systems and components, and more specifically on medical device systems and components in the neuromodulation market, the Spin-off was not considered a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the Spin-off is not presented as a discontinued operation in the Company’s Condensed Consolidated Financial Statements. The results of Nuvectra are included in the Condensed Consolidated Statements of Operations and Comprehensive Income through the date of the Spin-off.
In connection with the Spin-off, during the first quarter of 2016, the Company made a cash capital contribution of $75 million to Nuvectra and divested the following assets and liabilities (in thousands):
Assets divested
 
  Cash and cash equivalents
$
76,256

  Other current assets
977

  Property, plant and equipment, net
4,407

  Amortizing intangible assets, net
1,931

  Goodwill
40,830

  Deferred income taxes
6,446

Total assets divested
130,847

Liabilities transferred
 
     Current liabilities
2,119

Net assets divested
$
128,728


For the first quarter of 2016, Nuvectra contributed a pre-tax loss of $5.2 million to the Company’s results of operations.
In connection with the Spin-off, on March 14, 2016, Integer entered into several agreements with Nuvectra that govern its post Spin-off relationship with Nuvectra, including a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement and Transition Services Agreement. The Transition Services Agreement contains customary mutual indemnification provisions. Amounts earned by Integer under the Transition Services Agreement were immaterial for the nine month periods ended September 29, 2017 and September 30, 2016.
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
 
Nine Months Ended
(in thousands)
September 29,
2017
 
September 30,
2016
Noncash investing and financing activities:
 
 
 
Property, plant and equipment purchases included in accounts payable
$
6,406

 
$
5,062

Purchase of technology included in accrued expenses

 
1,000

Divestiture of noncash assets

 
54,591

Divestiture of liabilities

 
2,119

Inventories
INVENTORIES
INVENTORIES
Inventories are comprised of the following (in thousands):
 
September 29,
2017
 
December 30,
2016
Raw materials
$
102,247

 
$
100,738

Work-in-process
101,098

 
89,224

Finished goods
43,627

 
35,189

Total
$
246,972

 
$
225,151

Goodwill and Other Intangible Assets, Net
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 29, 2017 were as follows (in thousands):
 
Medical
 
Non- Medical
 
Total
December 30, 2016
$
950,326

 
$
17,000

 
$
967,326

Foreign currency translation
19,990

 

 
19,990

September 29, 2017
$
970,316

 
$
17,000

 
$
987,316


Intangible Assets
Intangible assets at September 29, 2017 and December 30, 2016 were as follows (in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Foreign
Currency
Translation
 
Net
Carrying
Amount
September 29, 2017
 
 
 
 
 
 

Definite-lived:
 
 
 
 
 
 
 
Purchased technology and patents
$
256,719

 
$
(113,460
)
 
$
4,434

 
$
147,693

Customer lists
759,987

 
(80,720
)
 
13,304

 
692,571

Other
4,534

 
(5,230
)
 
788

 
92

Total
$
1,021,240

 
$
(199,410
)
 
$
18,526

 
$
840,356

Indefinite-lived:
 
 
 
 
 
 
 
Trademarks and tradenames


 
 
 
 
 
$
90,288

 
 
 
 
 
 
 
 
December 30, 2016
 
 
 
 
 
 

Definite-lived:
 
 
 
 
 
 
 
Purchased technology and patents
$
256,719

 
$
(100,719
)
 
$
333

 
$
156,333

Customer lists
759,987

 
(60,474
)
 
(6,269
)
 
693,244

Other
4,534

 
(5,142
)
 
803

 
195

Total
$
1,021,240

 
$
(166,335
)
 
$
(5,133
)
 
$
849,772

Indefinite-lived:
 
 
 
 
 
 
 
Trademarks and tradenames


 
 
 
 
 
$
90,288


(5.)     GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Continued)
Aggregate intangible asset amortization expense is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Cost of sales
$
4,138

 
$
4,228

 
$
12,333

 
$
12,708

Selling, general and administrative expenses
6,776

 
5,109

 
20,333

 
15,368

Research, development and engineering costs, net
137

 
136

 
409

 
375

Total intangible asset amortization expense
$
11,051

 
$
9,473

 
$
33,075

 
$
28,451


Estimated future intangible asset amortization expense based on the carrying value as of September 29, 2017 is as follows (in thousands):
 
2017
 
2018
 
2019
 
2020
 
2021
 
After 2021
Amortization Expense
$
11,083

 
$
45,543

 
$
45,653

 
$
46,266

 
$
45,138

 
$
646,673

Debt
DEBT
DEBT
Long-term debt is comprised of the following (in thousands):
 
September 29,
2017
 
December 30,
2016
Senior secured term loan A
$
342,188

 
$
356,250

Senior secured term loan B
883,286

 
1,014,750

9.125% senior notes due 2023
360,000

 
360,000

Revolving line of credit
79,000

 
40,000

Unamortized discount on term loan B and debt issuance costs
(34,520
)
 
(40,837
)
Total debt
1,629,954

 
1,730,163

Less current portion of long-term debt
28,125

 
31,344

Total long-term debt
$
1,601,829

 
$
1,698,819


Senior Secured Credit Facilities
The Company has senior secured credit facilities (the “Senior Secured Credit Facilities”) consisting of (i) a $200 million revolving credit facility (the “Revolving Credit Facility”), (ii) a $375 million term loan A facility (the “TLA Facility”), and (iii) a $1,025 million term loan B facility (the “TLB Facility”). The TLA Facility and TLB Facility are collectively referred to as the “Term Loan Facilities.” The TLB facility was issued at a 1% discount.
On March 17, 2017, the Company amended the Senior Secured Credit Facilities to lower the interest rate on the TLB Facility. The amendment reduced the applicable interest rate margins of its TLB Facility for both base rate and adjusted LIBOR borrowings by 75 basis points. The amendment also includes a prepayment fee of 1.00% in the event of another repricing event (as defined in the Senior Secured Credit Facilities) on or before the six-month anniversary of this amendment. There was no change to maturities or covenants under the Senior Secured Credit Facilities as a result of this repricing amendment.
(6.)     DEBT (Continued)
Revolving Credit Facility
The Revolving Credit Facility matures on October 27, 2020. The Revolving Credit Facility also includes a $15 million sublimit for swingline loans and a $25 million sublimit for standby letters of credit. The Company is required to pay a commitment fee on the unused portion of the Revolving Credit Facility, which will range between 0.175% and 0.25%, depending on the Company’s Total Net Leverage Ratio (as defined in the Senior Secured Credit Facilities agreement). Interest rates on the Revolving Credit Facility, as well as the TLA Facility, are at the Company’s option, either at: (i) the prime rate plus the applicable margin, which will range between 0.75% and 2.25%, based on the Company’s Total Net Leverage Ratio, or (ii) the applicable LIBOR rate plus the applicable margin, which will range between 1.75% and 3.25%, based on the Company’s Total Net Leverage Ratio.
As of September 29, 2017, the Company had $79 million of outstanding borrowings on the Revolving Credit Facility and an available borrowing capacity of $111.7 million after giving effect to $9.3 million of outstanding standby letters of credit. As of September 29, 2017, the weighted average interest rate on all outstanding borrowings under the Revolving Credit Facility was 4.49%.
Subject to certain conditions, commitments under the Revolving Credit Facility may be increased through an incremental revolving facility so long as, on a pro forma basis, the Company’s first lien net leverage ratio does not exceed 4.25:1.00. The outstanding amount of the Revolving Credit Facility approximated its fair value as of September 29, 2017 based upon the debt being variable rate and short-term in nature.
Term Loan Facilities
The TLA Facility and TLB Facility mature on October 27, 2021 and October 27, 2022, respectively. Interest rates on the TLB Facility are, at the Company’s option, either at: (i) the prime rate plus 2.50% or (ii) the applicable LIBOR rate plus 3.50%, with LIBOR subject to a 1.00% floor. As of September 29, 2017, the interest rates on the TLA Facility and TLB Facility were 4.49% and 4.74%, respectively. Subject to certain conditions, one or more incremental term loan facilities may be added to the Term Loan Facilities so long as, on a pro forma basis, the Company’s first lien net leverage ratio does not exceed 4.25:1.00.
As of September 29, 2017, the estimated fair value of the TLB Facility was approximately $890 million, based on quoted market prices for the debt, recent sales prices for the debt and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as Level 2 measurements within the fair value hierarchy. The par amount of the TLA Facility approximated its fair value as of September 29, 2017 based upon the debt being variable rate in nature.
Covenants
The Revolving Credit Facility and TLA Facility contain covenants requiring (A) a maximum Total Net Leverage Ratio of 6.25:1.00, subject to step downs beginning in the first quarter of 2018 and (B) a minimum interest coverage ratio of adjusted EBITDA (as defined in the Senior Secured Credit Facilities) to interest expense of not less than 2.50:1.00 subject to step ups beginning in the first quarter of 2018. The TLB Facility does not contain any financial maintenance covenants. As of September 29, 2017, the Company was in compliance with these financial covenants.
The Senior Secured Credit Facilities also contain negative covenants that restrict the Company’s ability to (i) incur additional indebtedness; (ii) create certain liens; (iii) consolidate or merge; (iv) sell assets, including capital stock of the Company’s subsidiaries; (v) engage in transactions with the Company’s affiliates; (vi) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries; (vii) pay dividends on capital stock or redeem, repurchase or retire capital stock; (viii) pay, prepay, repurchase or retire certain subordinated indebtedness; (ix) make investments, loans, advances and acquisitions; (x) make certain amendments or modifications to the organizational documents of the Company or its subsidiaries or the documentation governing other senior indebtedness of the Company; and (xi) change the Company’s type of business. These negative covenants are subject to a number of limitations and exceptions that are described in the Senior Secured Credit Facilities agreement. As of September 29, 2017, the Company was in compliance with all negative covenants under the Senior Secured Credit Facilities.
The Senior Secured Credit Facilities provide for customary events of default. Upon the occurrence and during the continuance of an event of default, the outstanding advances and all other obligations under the Senior Secured Credit Facilities become immediately due and payable.
(6.)     DEBT (Continued)
9.125% Senior Notes due 2023
On October 27, 2015, the Company completed a private offering of $360 million aggregate principal amount of 9.125% senior notes due on November 1, 2023 (the “Senior Notes”). Interest on the Senior Notes is payable on May 1 and November 1 of each year.
As of September 29, 2017, the estimated fair value of the Senior Notes was approximately $392 million, based on quoted market prices of these Senior Notes, recent sales prices for the Senior Notes and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as Level 2 measurements within the fair value hierarchy.
The indenture for the Senior Notes contain certain restrictive covenants and provides for customary events of default, subject in certain cases to customary cure periods, in which the Senior Notes and any unpaid interest would become due and payable. As of September 29, 2017, the Company was in compliance with all restrictive covenants under the indenture governing the Senior Notes.
Contractual maturities under the Senior Secured Credit Facilities and Senior Notes for the remainder of 2017 and the five years and thereafter, excluding any discounts or premiums, as of September 29, 2017 are as follows (in thousands):
 
 
2017
 
2018
 
2019
 
2020
 
2021
 
After 2021
Future minimum principal payments
 
$
7,031

 
$
30,469

 
$
37,500

 
$
116,500

 
$
229,688

 
$
1,243,286


Debt Issuance Costs and Discounts
The change in deferred debt issuance costs related to the Revolving Credit Facility is as follows (in thousands):
December 30, 2016
$
3,800

Amortization during the period
(744
)
September 29, 2017
$
3,056

The change in unamortized discount and debt issuance costs related to the Term Loan Facilities and Senior Notes is as follows (in thousands):
 
Debt Issuance Costs
 
Unamortized Discount on TLB Facility
 
Total
December 30, 2016
$
32,096

 
$
8,741

 
$
40,837

Financing costs incurred
1,789

 

 
1,789

Write-off of debt issuance costs and unamortized discount(1)
(2,244
)
 
(1,028
)
 
(3,272
)
Amortization during the period
(3,878
)
 
(956
)
 
(4,834
)
September 29, 2017
$
27,763

 
$
6,757

 
$
34,520

(1) 
The Company prepaid portions of its TLB Facility during 2017. The Company recognized losses from extinguishment of debt during the three and nine months ended September 29, 2017 of $0.8 million and $3.3 million, respectively, which is included in Interest Expense, Net in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income. The loss from extinguishment of debt represents the portion of the unamortized discount and debt issuance costs related to the portion of the TLB Facility that was prepaid.
Interest Rate Swaps
From time to time, the Company enters into interest rate swap agreements in order to hedge against potential changes in cash flows on its outstanding variable rate debt. During 2016, the Company entered into a one-year $250 million interest rate swap, which expired during the second quarter of 2017, and a three-year $200 million interest rate swap to hedge against potential changes in cash flows on the outstanding variable rate debt, which is indexed to the one-month LIBOR rate. The variable rate received on the interest rate swap and the variable rate paid on the outstanding debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The swaps are being accounted for as cash flow hedges.
(6.)     DEBT (Continued)
Information regarding the Company’s outstanding interest rate swap designated as a cash flow hedge as of September 29, 2017 is as follows (dollars in thousands):
Notional Amount
 
Start Date
 
End Date
 
Pay Fixed Rate
 
Receive Current Floating Rate
 
Fair Value
 
Balance Sheet Location
$
200,000

 
Jun-17
 
Jun-20
 
1.1325
%
 
1.2367
%
 
$
3,054

 
Other Long-Term Assets

The estimated fair value of the interest rate swap agreement represents the amount the Company would 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 September 29, 2017 and September 30, 2016 was considered ineffective. The amount recorded to Interest Expense, Net during the nine months ended September 29, 2017 and September 30, 2016 related to the Company’s interest rate swaps was a reduction of $0.4 million and an increase of $0.05 million, respectively. The estimated Accumulated Other Comprehensive Income related to the Company’s interest rate swaps that is expected to be reclassified into earnings within the next twelve months is a $0.6 million gain.
Benefit Plans
BENEFIT PLANS
BENEFIT PLANS
The Company is required to provide its employees located in Switzerland, Mexico, France, and Germany certain statutorily mandated defined benefits. Under these plans, benefits accrue to employees based upon years of service, position, age and compensation. The defined benefit pension plan provided to the Company’s employees located in Switzerland is a funded contributory plan, while the plans that provide benefits to the Company’s employees located in Mexico, France, and Germany 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.
The change in net defined benefit plan liability is as follows (in thousands):
December 30, 2016
$
7,556

Net defined benefit cost
505

Benefit payments
(70
)
Foreign currency translation
927

September 29, 2017
$
8,918


Net defined benefit cost is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Service cost
$
120

 
$
108

 
$
345

 
$
326

Interest cost
42

 
44

 
120

 
132

Amortization of net loss
19

 
47

 
55

 
140

Expected return on plan assets
(5
)
 
(5
)
 
(15
)
 
(14
)
Net defined benefit cost
$
176

 
$
194

 
$
505

 
$
584

Stock-Based Compensation
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors, or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, shares of restricted stock, restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.
The components and classification of stock-based compensation expense were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Stock options
$
372

 
$
663

 
$
1,365

 
$
1,857

Restricted stock and restricted stock units
1,573

 
1,554

 
8,530

 
5,322

Total stock-based compensation expense
$
1,945

 
$
2,217

 
$
9,895

 
$
7,179

 
 
 
 
 
 
 
 
Cost of sales
$
131

 
$
158

 
$
612

 
$
505

Selling, general and administrative expenses
1,874

 
1,677

 
6,766

 
4,860

Research, development and engineering costs, net
144

 
115

 
428

 
408

Other operating expenses, net
(204
)
 
267

 
2,089

 
1,406

Total stock-based compensation expense
$
1,945

 
$
2,217

 
$
9,895

 
$
7,179


During the first quarter of 2017, the Company recorded $2.2 million of accelerated stock-based compensation expense in connection with the transition of its former Chief Executive Officer per the terms of his contract, which was classified as Other Operating Expenses, Net. In connection with the Spin-off, certain awards granted to employees who transferred to Nuvectra were canceled. As required, the Company accelerated the remaining expense related to these canceled awards of $0.5 million during the first quarter of 2016, which was classified as Other Operating Expenses, Net.
The weighted average fair value and assumptions used to value options granted are as follows:
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
Weighted average fair value
$
12.86

 
$
9.25

Risk-free interest rate
1.77
%
 
1.56
%
Expected volatility
37
%
 
26
%
Expected life (in years)
4.5

 
5.0

Expected dividend yield
%
 
%

(8.)     STOCK-BASED COMPENSATION (Continued)
The following table summarizes the Company’s stock option activity:
 
Number of
Stock
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(In Years)
 
Aggregate
Intrinsic
Value
(In Millions)
Outstanding at December 30, 2016
1,739,972

 
$
28.26

 
 
 
 
Granted
125,020

 
38.78

 
 
 
 
Exercised
(680,065
)
 
25.11

 
 
 
 
Forfeited or expired
(118,167
)
 
45.87

 
 
 
 
Outstanding at September 29, 2017
1,066,760

 
$
29.55

 
5.9
 
$
23.0

Exercisable at September 29, 2017
818,663

 
$
27.24

 
5.0
 
$
19.6


During the nine months ended September 29, 2017, the Company awarded grants of 0.7 million RSUs to certain members of management, of which 0.4 million are performance-based RSUs (“PSUs”) and the remainder are time-based RSUs that vest over three years. Of the PSUs, 0.3 million of the shares subject to each grant will be earned based upon achievement of specific Company performance metrics for the Company’s fiscal year ending December 29, 2017, and 0.1 million of the shares subject to each grant will be earned based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over a two-year performance period ending December 28, 2018. The number of PSUs earned based on the achievement of the Company performance metrics and TSR performance requirements, if any, will vest based on the recipient’s continuous service to the Company over a period of generally one to three years from the grant date. The time-based RSUs generally vest ratably over a three-year period. The RSUs do not have rights to dividends or dividend equivalents.
The grant-date fair value of the TSR portion of the PSUs granted during the nine months ended September 29, 2017 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 1.84 years, (ii) risk free interest rate of 1.14%, (iii) expected dividend yield of 0.0% and (iv) expected stock price volatility over the expected term of the TSR award of 48%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of Integer common stock on the date of grant.
The following table summarizes restricted stock and RSU activity:
 
Time-Vested
Activity
 
Weighted Average Fair Value
Nonvested at December 30, 2016
39,394

 
$
45.51

Granted
304,857

 
33.98

Vested
(62,543
)
 
32.45

Forfeited
(34,525
)
 
37.83

Nonvested at September 29, 2017
247,183

 
$
35.67

The following table summarizes PSU activity:
 
Performance-
Vested
Activity
 
Weighted
Average
Fair Value
Nonvested at December 30, 2016
356,586

 
$
31.87

Granted
419,112

 
31.62

Forfeited
(301,003
)
 
30.76

Nonvested at September 29, 2017
474,695

 
$
32.35

Other Operating Expenses, Net
OTHER OPERATING EXPENSES, NET
OTHER OPERATING EXPENSES, NET
Other Operating Expenses, Net is comprised of the following (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Investments in capacity and capabilities
$
1,542

 
$
4,542

 
$
4,407

 
$
13,821

Lake Region Medical consolidations
1,456

 
2,908

 
3,623

 
7,355

Acquisition and integration costs
2,267

 
5,319

 
10,057

 
23,143

Asset dispositions, severance and other
854

 
272

 
6,528

 
5,057

Other consolidation and optimization initiatives
145

 
329

 
340

 
628

Total other operating expenses, net
$
6,264

 
$
13,370

 
$
24,955

 
$
50,004


Investments in Capacity and Capabilities
One of the Company’s strategic objectives is to invest in its capacity and capabilities in order to better align its resources to meet its customers’ needs and drive organic growth and profitability. Currently this initiative includes the following:
Functions 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. This initiative is expected to be substantially completed by the end of 2017 and is dependent upon our customers’ validation and qualification of the transferred products as well as regulatory approvals worldwide.
Functions performed at the Company’s facilities in Beaverton, OR and Raynham, MA to manufacture products for the portable medical market were transferred to a new facility in Tijuana, Mexico. Products manufactured at the Beaverton facility, which do not serve the portable medical market, were transferred to the Company’s Raynham facility. This initiative was substantially completed during the first half of 2016. The final closure of the Beaverton, OR site occurred in the fourth quarter of 2016.
The design engineering responsibilities previously performed at the Company’s Cleveland, OH facility were transferred to the Company’s facilities in Minnesota in 2015.
The realignment of the Company’s commercial sales operations was completed in 2015.
The total capital investment expected for these initiatives is between $24.0 million and $25.0 million, of which $23.4 million has been expended through September 29, 2017. Total restructuring charges expected to be incurred in connection with these initiatives are between $54.0 million and $56.0 million, of which $53.5 million has been incurred through September 29, 2017. Expenses related to this initiative are primarily recorded within the Medical segment and include the following:
Severance and retention: $6.0 million - $7.0 million;
Accelerated depreciation and asset write-offs: $3.0 million; and
Other: $45.0 million - $46.0 million
Other expenses primarily consist of costs to relocate certain equipment and personnel, duplicate personnel costs, excess overhead, disposal, and travel expenditures. All expenses are cash expenditures except accelerated depreciation and asset write-offs. The change in accrued liabilities related to the Company’s investments in capacity and capabilities is as follows (in thousands):
 
Severance and Retention
 
Accelerated
Depreciation/
Asset Write-offs
 
Other
 
Total
December 30, 2016
$
66

 
$

 
$

 
$
66

Restructuring charges
264

 

 
4,143

 
4,407

Cash payments
(259
)
 

 
(4,140
)
 
(4,399
)
September 29, 2017
$
71


$

 
$
3

 
$
74


(9.)     OTHER OPERATING EXPENSES, NET (Continued)
Lake Region Medical Consolidations
In 2014, Lake Region Medical initiated plans to close its Arvada, CO site, consolidate its two Galway, Ireland sites into one facility, and other restructuring actions that will result in a reduction in staff across manufacturing and administrative functions at certain locations. This initiative was substantially completed by the end of 2016.
During the third quarter of 2016, the Company announced the planned closure of its Clarence, NY facility. The machined component product lines manufactured in this facility will be transferred to other Integer locations in the U.S. The project is expected to be completed by the first quarter of 2018.
The total capital investment expected to be incurred for these initiatives is between $5.0 million and $6.0 million, of which $3.2 million has been expended through September 29, 2017. Total expense expected to be incurred for these initiatives are between $20.0 million and $25.0 million, of which $14.2 million has been incurred through September 29, 2017. Expenses related to these initiatives have been and will be recorded within the Medical segment and are expected to include the following:
Severance and retention: $5.0 million - $7.0 million;
Accelerated depreciation and asset write-offs: approximately $1.0 million - $2.0 million; and
Other: $14.0 million - $16.0 million.
Other expenses primarily consist of production inefficiencies, moving, revalidation, personnel, training, consulting, 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 Lake Region Medical consolidation initiatives is as follows (in thousands):
 
Severance and Retention
 
Accelerated
Depreciation/
Asset Write-offs
 
Other
 
Total
December 30, 2016
$
729

 
$

 
$
402

 
$
1,131

Restructuring charges
1,129

 

 
2,494

 
3,623

Cash payments
(856
)
 

 
(2,896
)
 
(3,752
)
September 29, 2017
$
1,002


$

 
$

 
$
1,002


Acquisition and integration costs
During the first nine months of 2017 and 2016, the Company incurred $10.1 million and $23.1 million, respectively, in acquisition and integration costs related to the acquisition of Lake Region Medical, consisting primarily of integration costs. Integration costs primarily include professional, consulting, severance, retention, relocation, and travel costs. The first nine months of 2016 also includes transaction costs, primarily related to change-in-control payments to former Lake Region Medical executives, as well as professional and consulting fees. As of September 29, 2017 and December 30, 2016, $1.6 million and $4.5 million, respectively, of acquisition and integration costs related to the Lake Region Medical acquisition were accrued.
Total expense expected to be incurred in connection with the integration of Lake Region Medical is between $45.0 million and $50.0 million, of which $42.6 million were incurred through September 29, 2017. Total capital expenditures for this initiative are expected to be between $15.0 million and $20.0 million, of which $10.6 million were incurred through September 29, 2017.
Asset dispositions, severance and other
During the first nine months of 2017 and 2016, the Company recorded losses in connection with various asset disposals and/or write-downs. The 2017 amount also includes approximately $5.3 million in expense related to the Company’s leadership transitions, which were recorded within the corporate unallocated segment. The 2016 amount also includes legal and professional costs in connection with the Spin-off of $4.4 million. Expenses related to the Spin-off were primarily recorded within the corporate unallocated and the Medical segment. Refer to Note 2 “Divestiture” for additional information on the Spin-off.
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 discrete items, changes in the mix and amount of 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.
The Company’s worldwide effective tax rate for the third quarter of 2017 was (14.2)% on $12.0 million of income before the benefit for income taxes compared to (31.4)% on $8.7 million of income before the benefit for income taxes for the same period in 2016. An income tax benefit for the first nine months of 2017 of $0.4 million was recorded on $11.9 million of income before the benefit for income taxes compared to $1.4 million on $3.4 million of losses before the benefit for income taxes for the same period of 2016. The difference between the Company’s effective tax rate and the U.S. federal statutory income tax rate in the current year is primarily attributable to the Company’s overall lower effective tax rate in the foreign jurisdictions in which it operates and where its foreign earnings are derived, including Switzerland, Mexico, Germany, Uruguay, and Ireland. In addition, the Company has positive income before taxes in its foreign jurisdictions but losses before taxes in U.S. jurisdictions. The Company currently has a tax holiday in Malaysia through April 2018, with a potential extension through April 2023 if certain conditions are met.
As of September 29, 2017, the balance of unrecognized tax benefits is approximately $11.5 million. It is reasonably possible that a reduction of up to $1.2 million of the balance of unrecognized tax benefits may occur within the next twelve months as a result of potential audit settlements. Approximately $10.8 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
The Company is subject to litigation arising from time to time in the ordinary course of its business. The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future.
In April 2013, the Company commenced an action against AVX Corporation and AVX Filters Corporation (collectively “AVX”) alleging that AVX had infringed on the Company’s patents by manufacturing and selling filtered feedthrough assemblies used in implantable pacemakers and cardioverter defibrillators that incorporate the Company’s patented technology. On January 26, 2016, a jury in the U.S. District Court for the District of Delaware returned a verdict finding that AVX infringed two Integer patents and awarded Integer $37.5 million in damages. On August 10, 2017, a second jury found that AVX infringed an additional Integer patent. The Company has recorded no gains in connection with this litigation as no cash has been received.
Product Warranties
The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The Company does not expect future product warranty claims will have a material effect on its condensed consolidated results of operations, financial position, or cash flows. However, there can be no assurance that any future customer complaints or negative regulatory actions regarding the Company’s products, which the Company currently believes to be immaterial, does not become material in the future. The change in product warranty liability was comprised of the following (in thousands):
December 30, 2016
$
3,911

Additions to warranty reserve, net of reversals
2,316

Warranty claims settled
(2,102
)
September 29, 2017
$
4,125


(11.)     COMMITMENTS AND CONTINGENCIES (Continued)
Foreign Currency Contracts
The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges; and accordingly, the effective portions of the unrealized gains and losses on these contracts is reported in Accumulated Other Comprehensive Income (Loss) in the Condensed Consolidated Balance Sheets and is reclassified to earnings in the same periods during which the hedged transactions affect earnings. The estimated Accumulated Other Comprehensive Income related to the Company’s foreign currency contracts that is expected to be reclassified into earnings within the next twelve months is a $1.0 million gain.
In connection with the Lake Region Medical acquisition, the Company terminated its outstanding forward contracts resulting in a $2.4 million payment to the foreign currency contract counterparty during 2015. As of the date the contracts were terminated, the Company had $1.6 million recorded in Accumulated Other Comprehensive Income related to these contracts. This amount was fully amortized to Cost of Sales during 2016 as the inventory, which the contracts were hedging the cash flows to produce, was sold.
The impact to the Company’s results of operations from its forward contract hedges is as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Increase in sales
$
594

 
$

 
$
733

 
$

Increase (decrease) in cost of sales
(512
)
 
929

 
371

 
2,316

Ineffective portion of change in fair value

 

 

 


Information regarding outstanding foreign currency contracts designated as cash flow hedges as of September 29, 2017 is as follows (dollars in thousands):
Aggregate
Notional
Amount
 
Start
Date
 
End
Date
 
$/Foreign Currency
 
Fair
Value
 
Balance Sheet Location
$
6,163

 
Jan 2017
 
Dec 2017
 
0.0514

Peso
 
$
366

 
Prepaid expenses and other current assets
$
6,448

 
Feb 2017
 
Dec 2017
 
1.0747

Euro
 
$
660

 
Prepaid expenses and other current assets
Earnings (Loss) Per Share (EPS)
EARNINGS (LOSS) PER SHARE (EPS)
EARNINGS (LOSS) 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
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Numerator for basic and diluted EPS:
 
 
 
 
 
 
 
Net income (loss)
$
13,690

 
$
11,458

 
$
12,341

 
$
(1,972
)
Denominator for basic EPS:
 
 
 
 
 
 
 
Weighted average shares outstanding
31,594

 
30,782

 
31,304

 
30,756

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock and RSUs
579

 
371

 
420

 

Denominator for diluted EPS
32,173

 
31,153

 
31,724

 
30,756

Basic EPS
$
0.43

 
$
0.37


$
0.39

 
$
(0.06
)
Diluted EPS
$
0.43

 
$
0.37

 
$
0.39

 
$
(0.06
)

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 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Time-vested stock options, restricted stock and RSUs
295

 
629

 
850

 
1,862

Performance-vested restricted stock and PSUs
188

 
373

 
320

 
417

Accumulated Other Comprehensive Income (Loss)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated Other Comprehensive Income (Loss) 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
June 30, 2017
$
(1,475
)
 
$
4,601

 
$
25,475

 
$
28,601

 
$
(1,398
)
 
$
27,203

Unrealized gain on cash flow hedges

 
633

 

 
633

 
(222
)
 
411

Realized gain on foreign currency hedges

 
(1,106
)
 

 
(1,106
)
 
387

 
(719
)
Realized gain on interest rate swap hedges

 
(49
)
 

 
(49
)
 
18

 
(31
)
Foreign currency translation gain

 

 
16,728

 
16,728

 

 
16,728

September 29, 2017
$
(1,475
)
 
$
4,079

 
$
42,203

 
$
44,807

 
$
(1,215
)
 
$
43,592

 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
December 30, 2016
$
(1,475
)
 
$
1,420

 
$
(15,660
)
 
$
(15,715
)
 
$
(285
)
 
$
(16,000
)
Unrealized gain on cash flow hedges

 
3,414

 

 
3,414

 
(1,195
)
 
2,219

Realized gain on foreign currency hedges

 
(362
)
 

 
(362
)
 
127

 
(235
)
Realized gain on interest rate swap hedges

 
(393
)
 

 
(393
)
 
138

 
(255
)
Foreign currency translation gain

 

 
57,863

 
57,863

 

 
57,863

September 29, 2017
$
(1,475
)
 
$
4,079

 
$
42,203

 
$
44,807

 
$
(1,215
)
 
$
43,592


 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
July 1, 2016
$
(1,179
)
 
$
(3,746
)
 
$
12,668

 
$
7,743

 
$
1,806

 
$
9,549

Unrealized loss on cash flow hedges

 
(101
)
 

 
(101
)
 
35

 
(66
)
Realized loss on foreign currency hedges

 
929

 

 
929

 
(324
)
 
605

Realized loss on interest rate swap hedges

 
50

 

 
50

 
(18
)
 
32

Foreign currency translation gain

 

 
3,191

 
3,191

 

 
3,191

September 30, 2016
$
(1,179
)
 
$
(2,868
)
 
$
15,859

 
$
11,812

 
$
1,499

 
$
13,311

 
Defined
Benefit
Plan
Liability
 
Cash
Flow
Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Pre-Tax
Amount
 
Tax
 
Net-of-Tax
Amount
January 1, 2016
$
(1,179
)
 
$
(2,392
)
 
$
3,609

 
$
38

 
$
1,332

 
$
1,370

Unrealized loss on cash flow hedges

 
(2,842
)
 

 
(2,842
)
 
995

 
(1,847
)
Realized loss on foreign currency hedges

 
2,316

 

 
2,316

 
(810
)
 
1,506

Realized loss on interest rate swap hedges

 
50

 

 
50

 
(18
)
 
32

Foreign currency translation gain

 

 
12,250

 
12,250

 

 
12,250

September 30, 2016
$
(1,179
)
 
$
(2,868
)
 
$
15,859

 
$
11,812

 
$
1,499

 
$
13,311

The realized loss (gain) relating to the Company’s foreign currency hedges were reclassified from Accumulated Other Comprehensive Income (Loss) and included in Cost of Sales or Sales as the transactions they are hedging occur. The realized (gain) loss relating to the Company’s interest rate swap hedges were reclassified from Accumulated Other Comprehensive Income (Loss) and included in Interest Expense, Net as interest on the corresponding debt being hedged is accrued.
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. 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 were determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs included foreign exchange rate and credit spread curves. In addition, the Company received fair value estimates from the foreign currency contract counterparties 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. Refer to Note 11 “Commitments and Contingencies” for further discussion regarding the fair value of the Company’s foreign currency contracts.
Interest Rate Swaps
The fair value of the Company’s interest rate swap contracts outstanding were 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. Refer to Note 6 “Debt” for further discussion regarding the fair value of the Company’s interest rate swaps.
The following table provides information regarding assets and liabilities recorded at fair value on a recurring basis (in thousands):
 
 
Fair Value
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
September 29, 2017
 
 
 
 
 
 
 
 
Assets: Foreign currency contracts
 
$
1,026

 
$

 
$
1,026

 
$

Assets: Interest rate swap
 
3,054

 

 
3,054

 

 
 
 
 
 
 
 
 
 
December 30, 2016
 
 
 
 
 
 
 
 
Assets: Interest rate swaps
 
$
3,482

 
$

 
$
3,482

 
$

Liabilities: Foreign currency contracts
 
2,063

 

 
2,063

 


Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value standards also apply to certain 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. Refer to Note 6 “Debt” for further discussion regarding the fair value of the Company’s Senior Secured Credit Facilities and Senior Notes. A summary of the valuation methodologies for assets and liabilities measured on a nonrecurring basis is as follows:
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, which are classified as Other Assets on the Condensed Consolidated Balance Sheets. 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 method investments are 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.
(14.)     FAIR VALUE MEASUREMENTS (Continued)
Gains and losses realized on cost and equity method investments are recorded in Other (Income) Loss, Net. The aggregate recorded amount of cost and equity method investments at September 29, 2017 and December 30, 2016 was $19.9 million and $22.8 million, respectively. The Company’s equity method investment is in a Chinese venture capital fund focused on investing in life sciences companies. As of September 29, 2017 and December 30, 2016, the Company’s recorded amount of this equity method investment was $12.9 million and $10.7 million, respectively. This fund accounts for its investments at fair value with the unrealized change in fair value of these investments recorded as income or loss to the fund in the period of change. As of September 29, 2017, the Company owned 6.8% of this fund.
During the nine months ended September 29, 2017, the Company determined that the fair values of certain of its cost method investments were below their carrying values and that the carrying values of these investments was not expected to be recoverable within a reasonable period of time. As a result, the Company recognized impairment charges of $0.3 million and $5.3 million during the three and nine months ended September 29, 2017. The Company did not recognize any impairment charges related to cost method investments during the nine months ended September 30, 2016. The fair value of these investments is primarily determined by reference to recent sales data of similar shares to independent parties in an inactive market. This fair value calculation is categorized in Level 2 of the fair value hierarchy. During the nine month periods ended September 29, 2017 and September 30, 2016, the Company recognized a net loss of $2.9 million and income of $0.9 million, respectively, on its cost and equity method investments.
Segment Information
SEGMENT INFORMATION
SEGMENT INFORMATION
As a result of the Lake Region Medical acquisition and Spin-off, during 2016 the Company reorganized its operations including its internal management and financial reporting structure. As a result of this reorganization, the Company reevaluated and revised its reportable business segments during the fourth quarter of 2016 and began to disclose two reportable segments: (1) Medical and (2) Non-Medical. Prior period amounts have been reclassified to conform to the new segment reporting presentation. The two reportable segments, along with their related product lines, are described below:
Medical - includes the (i) Cardio & Vascular product line, which includes introducers, steerable sheaths, guidewires, catheters, and stimulation therapy components, subassemblies and finished devices 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; (ii) Cardiac & Neuromodulation product line, which includes batteries, capacitors, filtered and unfiltered feed-throughs, engineered components, implantable stimulation leads, and enclosures used in implantable medical devices; and (iii) Advanced Surgical, Orthopedics & Portable Medical product line, which includes components, sub-assemblies, finished devices, implants, instruments and delivery systems for a range of surgical technologies to the advanced surgical market, including laparoscopy, orthopedics and general surgery, biopsy and drug delivery, joint preservation and reconstruction, arthroscopy, and engineered tubing solutions. Products also include life-saving and life-enhancing applications comprising of automated external defibrillators, portable oxygen concentrators, ventilators, and powered surgical tools.
Non-Medical - includes primary (lithium) cells, and primary and secondary battery packs for applications in the energy, military and environmental markets.
During the first quarter of 2017, the Company revised the method used to present sales by product line in order to align the legacy Greatbatch and Lake Region Medical methodologies.  The Company believes the revised presentation will provide improved reporting and better transparency into the operational results of its business and markets.  Prior period amounts have been reclassified to conform to the new product line sales reporting presentation.







(15.)     SEGMENT INFORMATION (Continued)
The tables below present information about our reportable segments (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Segment sales by product line:
 
 
 
 
 
 
 
Medical
 
 
 
 
 
 
 
Cardio & Vascular
$
138,982

 
$
129,347

 
$
396,321

 
$
365,271

Cardiac & Neuromodulation
101,616

 
108,147

 
311,614

 
323,599

Advanced Surgical, Orthopedics & Portable Medical
107,581

 
100,203

 
321,287

 
307,956

Total Medical
348,179

 
337,697

 
1,029,222

 
996,826

Non-Medical
15,129

 
8,870

 
42,218

 
30,361

Total sales
$
363,308

 
$
346,567

 
$
1,071,440

 
$
1,027,187


There were no sales between segments during the nine months ended September 29, 2017 and September 30, 2016.
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 30,
2016
 
September 29,
2017
 
September 30,
2016
Segment income from operations:
 
 
 
 
 
 
 
Medical
$
50,168

 
$
54,979

 
$
155,761

 
$
138,151

Non-Medical
3,375

 
(1,425
)
 
9,877

 
626

Total segment income from operations
53,543

 
53,554

 
165,638

 
138,777

Unallocated operating expenses
(14,912
)
 
(16,692
)
 
(60,723
)
 
(61,512
)
Operating income
38,631

 
36,862

 
104,915

 
77,265

Unallocated expenses, net
(26,641
)
 
(28,145
)
 
(93,004
)
 
(80,623
)
Income (loss) before income taxes
$
11,990

 
$
8,717

 
$
11,911

 
$
(3,358
)
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 (“SEC”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s 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 Consolidated Financial Statements.
Recently Adopted
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies various aspects of the accounting for stock-based payments. The simplifications include:
recording all tax effects associated with stock-based compensation through the income statement, as opposed to recording certain amounts in other paid-in capital, which eliminates the requirements to calculate a windfall pool;
allowing entities to withhold shares to satisfy the employer’s statutory tax withholding requirement up to the highest marginal tax rate applicable to employees rather than the employer’s minimum statutory rate, without requiring liability classification for the award;
modifying the requirement to estimate the number of awards that will ultimately vest by providing an accounting policy election to either estimate the number of forfeitures or recognize forfeitures as they occur;
changing certain presentation requirements in the statement of cash flows, including removing the requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities, and requiring the cash paid to taxing authorities arising from withheld shares to be classified as a financing activity; and
the assumed proceeds from applying the treasury stock method when computing EPS is amended to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital.
The Company adopted the provisions of ASU 2016-09 on December 31, 2016, the beginning of its 2017 fiscal year. The adoption of ASU 2016-09 resulted in the Company making an accounting policy election to change how it will recognize the number of stock awards that will ultimately vest. In the past, the Company applied a forfeiture rate to shares granted. With the adoption of ASU 2016-09, the Company will recognize forfeitures as they occur. This change resulted in the Company making a cumulative effect change to retained earnings of $0.3 million. In addition, the Company recorded the tax effects associated with stock-based compensation through the income statement, which resulted in $0.4 million, net tax benefit for the first nine months of 2017, and will continue to record amounts prospectively through the income statement in accordance with ASU 2016-09.  Finally, the Company adjusted its dilutive shares calculation to remove the excess tax benefits from the calculation of EPS on a prospective basis. The revised calculation is more dilutive, but did not have a material impact on the Company's diluted EPS calculation for the first nine months of 2017.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this standard in the first quarter of fiscal year 2017 on a prospective basis. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)” to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company adopted the new guidance on a prospective basis during the first quarter of 2017. The adoption of this ASU did not impact the Company’s consolidated financial statements.
(16.)     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
Not Yet Adopted
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships, making more hedges eligible for hedge accounting, particularly for rates and commodities hedges. It also aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements by requiring an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. This guidance is effective for the Company in the first quarter of fiscal year 2019, with early adoption permitted. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Stock Compensation - Scope of Modification Accounting,” which provides guidance as to when a modification of a share-based award must be accounted for. In general, if a modification of the terms and conditions of an award does not change the fair value of the award (or calculated value or intrinsic value, if used instead of fair value), does not change the vesting conditions of the award, and does not change the classification of the award as an equity instrument or a liability instrument, then an entity need not account for the modification. This guidance is effective for the Company in the first quarter of fiscal year 2018, with early adoption permitted. The new rules are applied prospectively to awards modified after the adoption date. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715),” which requires employers to report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires other components of net periodic pension cost and net periodic postretirement benefit cost, including interest cost, return on plan assets and gains or losses, to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This guidance is effective for the Company in the first quarter of fiscal year 2018 and is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which outlines new minimum requirements for a set of assets to be considered a business. The intent of this ASU is to sharpen the distinction between the purchase or disposal of a business versus the purchase or disposal of assets. ASU 2017-01 is effective for the Company in the first quarter of 2018, with early adoption permitted, and prospective application required. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory,” which requires entities to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfers occur. This ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments: A Consensus of the FASB Emerging Issues Task Force.” ASU 2016-15 makes targeted changes to how cash receipts and cash payments are presented in the statement of cash flows. The areas specifically addressed include debt prepayment and debt extinguishment costs, the settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, cash premiums paid for and proceeds from corporate-owned life insurance policies, distributions received from equity method investees and cash receipts from payments on transferor’s beneficial interest on securitized trade receivables. Additionally, the amendment states that, in the absence of other prevailing guidance, cash receipts and payments that have characteristics of more than one class of cash flows should have each separately identifiable source or use of cash presented within the most predominant class of cash flows based on the nature of the underlying cash flows. This guidance is effective for the Company in the first quarter of fiscal year 2018, with early adoption permitted. The Company is currently evaluating this ASU, but does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
(16.)     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires companies to recognize a lease liability that represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and are required to be applied on a modified retrospective basis. Earlier application is permitted. The Company expects the adoption of ASU 2016-02 will result in a material increase in the assets and liabilities on its Consolidated Balance Sheets. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Statements of Operations and Other Comprehensive Income.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and requires entities to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option. The new ASU is effective for public companies for fiscal years beginning after December 15, 2017. Early adoption of the own credit provision is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which has been subsequently updated by ASU 2015-14, 2016-08, 2016-10 and 2016-12. The core principle behind ASU 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for delivering goods and services using a five-step model. Enhanced disclosures are required, including revenue recognition policies to identify performance obligations and significant judgments in measurement and recognition. This ASU can be adopted using either a full retrospective approach, where historical financial information is presented in accordance with the new standard, or a modified retrospective approach, where this ASU is applied to the most current period presented in the financial statements. This ASU is effective for the Company in the first quarter of fiscal year 2018.
The Company is continuing to evaluate the effect this guidance will have on its consolidated financial statements, including potential impacts on the amount and timing of revenue recognition and additional information that may be necessary for the required expanded disclosures.  The Company has substantially completed its inventory of all outstanding contracts and is in the process of applying the five-step model to those contracts to evaluate the quantitative and qualitative impacts the new standard will have on its business and reported revenues.  Based on the assessment completed to date, the Company believes (1) that the warranties offered to its customers are primarily assurance-type warranties and do not represent a separate performance obligation and (2) that the majority of its revenues related to its manufacturing and supply agreements will continue to be recognized at a point in time, as the criteria for over time recognition are not met.  Additionally, the Company has begun to assess when to recognize revenues related to its non-recurring engineering service arrangements under the new guidance.  At this time, the Company is unable to quantify the impact this new guidance will have on its reported revenues. The Company expects to adopt this ASU, as amended, in the first quarter of fiscal year 2018 on a modified retrospective basis.
Basis of Presentation (Policies)
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, these financial statements 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”). 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 the Company for the periods presented. Intercompany transactions and balances have been fully eliminated in consolidation.
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Refer to Note 15 “Segment Information,” for a description of the changes made to reflect the current year product line sales reporting and changes made to the Company’s reportable segment structure during the fourth quarter of 2016.
Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.
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 December 30, 2016.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, certain components of equity, 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 31. The third quarter and first nine months of 2017 and 2016 each contained 13 weeks and 39 weeks, respectively, and ended on September 29, and September 30, 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 discrete items, changes in the mix and amount of 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.
The Company holds investments in equity and other securities that are accounted for as either cost or equity method investments, which are classified as Other Assets on the Condensed Consolidated Balance Sheets. 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 method investments are 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.
(14.)     FAIR VALUE MEASUREMENTS (Continued)
Gains and losses realized on cost and equity method investments are recorded in Other (Income) Loss, Net.
Divestiture (Tables)
Summary of divested assets and liabilities
In connection with the Spin-off, during the first quarter of 2016, the Company made a cash capital contribution of $75 million to Nuvectra and divested the following assets and liabilities (in thousands):
Assets divested
 
  Cash and cash equivalents
$
76,256

  Other current assets
977

  Property, plant and equipment, net
4,407

  Amortizing intangible assets, net
1,931

  Goodwill
40,830

  Deferred income taxes
6,446

Total assets divested
130,847

Liabilities transferred
 
     Current liabilities
2,119

Net assets divested
$
128,728

Supplemental Cash Flow Information (Tables)
Schedule of Cash Flow, Supplemental Disclosures
 
Nine Months Ended
(in thousands)
September 29,
2017
 
September 30,
2016
Noncash investing and financing activities:
 
 
 
Property, plant and equipment purchases included in accounts payable
$
6,406

 
$
5,062

Purchase of technology included in accrued expenses

 
1,000

Divestiture of noncash assets

 
54,591

Divestiture of liabilities

 
2,119

Inventories (Tables)
Schedule of Inventory, Current
Inventories are comprised of the following (in thousands):
 
September 29,
2017
 
December 30,
2016
Raw materials
$
102,247

 
$
100,738

Work-in-process
101,098

 
89,224

Finished goods
43,627

 
35,189

Total
$
246,972

 
$
225,151

Goodwill and Other Intangible Assets, Net (Tables)
The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 29, 2017 were as follows (in thousands):
 
Medical
 
Non- Medical
 
Total
December 30, 2016
$
950,326

 
$
17,000

 
$
967,326

Foreign currency translation
19,990

 

 
19,990

September 29, 2017
$
970,316

 
$
17,000

 
$
987,316

Intangible assets at September 29, 2017 and December 30, 2016 were as follows (in thousands):
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Foreign
Currency
Translation
 
Net
Carrying
Amount
September 29, 2017
 
 
 
 
 
 

Definite-lived:
 
 
 
 
 
 
 
Purchased technology and patents
$
256,719

 
$
(113,460
)
 
$
4,434

 
$
147,693

Customer lists
759,987

 
(80,720
)
 
13,304

 
692,571

Other
4,534

 
(5,230
)
 
788

 
92

Total
$
1,021,240

 
$
(199,410
)
 
$
18,526

 
$
840,356

Indefinite-lived:
 
 
 
 
 
 
 
Trademarks and tradenames


 
 
 
 
 
$
90,288

 
 
 
 
 
 
 
 
December 30, 2016
 
 
 
 
 
 

Definite-lived:
 
 
 
 
 
 
 
Purchased technology and patents
$
256,719

 
$
(100,719
)
 
$
333

 
$
156,333

Customer lists
759,987

 
(60,474
)
 
(6,269
)
 
693,244

Other
4,534

 
(5,142
)
 
803

 
195

Total
$
1,021,240

 
$
(166,335
)
 
$
(5,133
)
 
$
849,772

Indefinite-lived:
 
 
 
 
 
 
 
Trademarks and tradenames


 
 
 
 
 
$
90,288

Intangible assets at September 29, 2017 and December 30, 2016 were as follows (in thousands):