Other Operating (Income) Expenses, Net | 6 Months Ended |
Jul. 04, 2014 |
Other Income and Expenses [Abstract] | ' |
OTHER OPERATING (INCOME) EXPENSES, NET | ' |
OTHER OPERATING EXPENSES, NET |
Other Operating Expenses, Net is comprised of the following (in thousands): |
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| Three Months Ended | | Six Months Ended |
| 4-Jul-14 | | 28-Jun-13 | | 4-Jul-14 | | 28-Jun-13 |
2014 investments in capacity and capabilities | $ | 2,166 | | | $ | — | | | $ | 2,218 | | | $ | — | |
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2013 operating unit realignment | 32 | | | 852 | | | 1,035 | | | 852 | |
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Orthopaedic facility optimization costs | 1,187 | | | 2,667 | | | 36 | | | 5,303 | |
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Medical device facility optimization | — | | | 125 | | | 11 | | | 230 | |
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ERP system upgrade (income) costs | (10 | ) | | 64 | | | (82 | ) | | 385 | |
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Acquisition and integration (income) costs | 47 | | | 71 | | | (381 | ) | | 182 | |
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Asset dispositions, severance and other | 839 | | | 43 | | | 1,210 | | | 108 | |
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| $ | 4,261 | | | $ | 3,822 | | | $ | 4,047 | | | $ | 7,060 | |
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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. This included the following: |
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• | 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. | | | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | | | |
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• | Establishing a commercial operations hub at its global headquarters in Frisco, Texas. This initiative will build upon the investment the Company has made to 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 $18.0 million and $20.0 million, of which $0.3 million has been expended to date. Total restructuring charges expected to be incurred in connection with this realignment are between $22.0 million and $27.0 million, of which $2.2 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: $13.0 million - $15.0 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): |
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| Severance and | | Accelerated | | Other | | Total |
Retention | Depreciation/Asset |
| Write-offs |
At January 3, 2014 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Restructuring charges | 531 | | | 33 | | | 1,654 | | | 2,218 | |
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Write-offs | — | | | (33 | ) | | — | | | (33 | ) |
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Cash payments | — | | | — | | | (1,234 | ) | | (1,234 | ) |
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At July 4, 2014 | $ | 531 | | | $ | — | | | $ | 420 | | | $ | 951 | |
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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 and one operations group serving the entire Company. This initiative is expected to be completed during 2014. Total restructuring charges expected to be incurred in connection with this realignment are between $6.7 million and $7.1 million, of which $6.7 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: |
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• | Severance and retention: $5.0 million – $5.2 million; and | | | | | | | | | | | | | | |
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• | Other: $1.7 million – $1.9 million. | | | | | | | | | | | | | | |
Other costs primarily consist of relocation, recruitment and travel expenditures. |
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The change in accrued liabilities related to the 2013 operating unit realignment is as follows (in thousands): |
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| Severance and | | Other | | Total | | | | |
Retention | | | | |
At January 3, 2014 | $ | 465 | | | $ | 746 | | | $ | 1,211 | | | | | |
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Restructuring charges | 852 | | | 183 | | | 1,035 | | | | | |
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Cash payments | (1,205 | ) | | (774 | ) | | (1,979 | ) | | | | |
At July 4, 2014 | $ | 112 | | | $ | 155 | | | $ | 267 | | | | | |
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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 and 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 6 "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 $23.6 million has been expended to date. Total expense expected to be incurred for these initiatives is between $43 million and $48 million, of which $41.2 million has been incurred to date. All expenses are recorded within the Greatbatch Medical segment and are expected to include the following: |
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• | Severance and retention: approximately $11 million; | | | | | | | | | | | | | | |
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• | Accelerated depreciation and asset write-offs: approximately $13 million; and | | | | | | | | | | | | | | |
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• | 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): |
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| Severance | | Accelerated | | Other | | Total |
and | Depreciation/Asset |
Retention | Write-offs |
At January 3, 2014 | $ | — | | | $ | — | | | $ | 857 | | | $ | 857 | |
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Restructuring charges (income) | — | | | (2,655 | ) | | 2,691 | | | 36 | |
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Cash (payments) receipts | — | | | 2,655 | | | (2,952 | ) | | (297 | ) |
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At July 4, 2014 | $ | — | | | $ | — | | | $ | 596 | | | $ | 596 | |
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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 year. Total capital investment under these initiatives is expected to be between $15 million and $20 million, of which approximately $12.5 million has been expended to date. Total expenses expected to be incurred on these projects is between $2.0 million and $3.0 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: |
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• | Production inefficiencies, moving and revalidation: $0.5 million – $1.0 million; | | | | | | | | | | | | | | |
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• | Personnel: $1.0 million – $1.5 million; and | | | | | | | | | | | | | | |
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• | Other: approximately $1.0 million. | | | | | | | | | | | | | | |
The change in accrued liabilities related to the medical device facility optimization is as follows (in thousands): |
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| Production | | Personnel | | Other | | Total |
Inefficiencies, |
Moving and |
Revalidation |
At January 3, 2014 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Restructuring charges | — | | | 1 | | | 10 | | | 11 | |
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Cash payments | — | | | (1 | ) | | (10 | ) | | (11 | ) |
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At July 4, 2014 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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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: |
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• | Training and consulting costs: $3.3 million; and | | | | | | | | | | | | | | |
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• | Accelerated depreciation and asset write-offs: $2.5 million. | | | | | | | | | | | | | | |
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The change in accrued liabilities related to the ERP system upgrade is as follows (in thousands): |
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| Training & | | Accelerated | | Total | | | | |
Consulting | Depreciation/Asset | | | | |
Costs | Write-offs | | | | |
At January 3, 2014 | $ | — | | | $ | — | | | $ | — | | | | | |
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Restructuring income | (82 | ) | | — | | | (82 | ) | | | | |
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Cash receipts | 82 | | | — | | | 82 | | | | | |
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At July 4, 2014 | $ | — | | | $ | — | | | $ | — | | | | | |
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Acquisition and integration (income) costs. During 2014 and 2013, the Company incurred (income) cost related to the integration of Micro Power Electronics, Inc. and NeuroNexus Technologies, Inc., which were acquired in December 2011 and February 2012, 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 13 "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 for the first two quarters of 2014. |
Asset dispositions, severance and other. During 2014 and 2013, the Company recorded charges in connection with various asset disposals and write downs. Additionally, during 2014 the Company recorded charges as a result of various tax planning initiatives 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, which are expected to be completed during the second half of 2014. |