BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION | BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION The Company has two reportable segments: Greatbatch Medical and QiG. Greatbatch Medical designs and manufactures medical devices and components where Greatbatch either owns the intellectual property or has unique manufacturing and assembly expertise. Greatbatch Medical provides medical devices and components to the following markets: • Cardiac/Neuromodulation: Products include complete implantable medical devices and components such as batteries, capacitors, filtered and unfiltered feed-throughs, engineered components, implantable stimulation leads, and enclosures. • Orthopaedic: Products include implants, instruments and delivery systems for large joint, spine, extremity and trauma procedures. • Portable Medical: Products include automated external defibrillators, portable oxygen concentrators, ventilators, and powered surgical tools. • Vascular: Products include introducers, steerable sheaths, and catheters that deliver therapies for various markets such as coronary and neurovascular disease, peripheral vascular disease, interventional radiology, vascular access, atrial fibrillation, and interventional cardiology, plus products for medical imaging and pharmaceutical delivery. • Energy, Military, and Environmental: Products include primary and rechargeable batteries and battery packs for demanding applications such as down hole drilling tools. Greatbatch Medical also offers value-added assembly and design engineering services for medical devices that utilize its component products. QiG is a medical device company formed in 2008 to develop and commercialize a neurostimulation technology platform for treatment of various disorders by stimulating tissues associated with the nervous system. QiG facilitates this development through the establishment of limited liability companies (“LLCs”). These LLCs do not own, but have the exclusive right to use the technology of Greatbatch in specific fields of use and have an exclusive manufacturing agreement with Greatbatch Medical. QiG currently owns 89% of two LLCs - Algostim, LLC (“Algostim”) and PelviStim LLC (“PelviStim”). Minority interests in these LLCs are held by key opinion leaders and clinicians. Under the agreements governing these LLCs, QiG funds 100% of the expenses incurred by the LLC. No distributions are made to the minority holders until QiG is reimbursed for these expenses. Once QiG has been fully reimbursed, any potential future distributions will be applied first to return contributions made by minority partners and thereafter will be made pro rata based upon ownership percentages. Algostim is focused on the development and commercialization of its Algovita spinal cord stimulation (“SCS”) system (“Algovita”) , the first application of QiG’s neurostimulation technology platform. Algovita is indicated for the treatment of chronic pain of the trunk and limbs. Algovita was submitted for premarket approval (“PMA”) to the United States Food & Drug Administration (“FDA”) in December 2013 and in January 2014 documentation for European CE Mark was submitted to the notified body, TÜV SÜD America. CE Mark approval was obtained on June 17, 2014 . In April 2015, the Company announced receipt of a letter from the FDA informing it that its PMA application for Algovita is approvable subject to completion of an FDA inspection that finds that the manufacturing facilities, methods and controls used in the production of Algovita comply with the applicable requirements of the FDA’s Quality System Regulation. During the fourth quarter of 2015, the Company announced that it successfully completed its pre-PMA inspection. QiG expects to obtain final approval of its PMA application for Algovita in the fourth quarter of 2015 and to launch Algovita commercially in the United States shortly thereafter. QiG is also in the process of developing additional applications for its neurostimulation technology platform for other emerging indications such as sacral nerve stimulation (“SNS”), and deep brain stimulation (“DBS”), among others. QiG’s PelviStim subsidiary is focused on the commercialization of QiG’s neurostimulation technology platform for SNS. QiG revenue includes sales of neural interface technology, components and systems to the neuroscience and clinical markets from NeuroNexus, and a limited release of Algovita in Europe. As further discussed in Note 2 “Acquisition,” in August 2014, the Company acquired CCC, a neuromodulation medical device developer and manufacturer for development stage companies. As a result of this transaction, QiG revenue also includes sales of various medical device products such as implantable pulse generators, programmer systems, battery chargers, patient wands and leads to medical device companies. Once the medical devices developed by CCC reach significant production levels, the responsibility for manufacturing these products may be transferred to Greatbatch Medical. On July 30, 2015, Greatbatch announced a proposed spin-off of a portion of its QiG segment through a tax-free distribution of all of the shares of its QiG Group LLC subsidiary to the stockholders of Greatbatch on a pro rata basis. Immediately prior to completion of the Spin-off, QiG Group LLC will be converted into a corporation and change its name to Nuvectra. The portion of the QiG segment being spun-off is expected to consist of QiG Group LLC and its subsidiaries: (i) Algostim, (ii) PelviStim, and (iii) Greatbatch’s NeuroNexus subsidiary. Upon completion of the Spin-off, Nuvectra will be an independent, publicly-traded company and Greatbatch will not own any shares of Nuvectra common stock but will retain the operations of QiG not spun-off, which includes CCC. The total financial impact of the Spin-off on the Company’s Condensed Consolidated Financial Statements cannot be determined at this time. However, if completed, deal related costs for the Spin-off are estimated to be between $10 million to $12 million . O nce completed, the Spin-off is expected to deliver Greatbatch improved financial performance through its long-term manufacturing agreement with Nuvectra for the supply of Algovita and lower operating expenses estimated in the range of $12 million to $16 million on an annualized basis. As a result of the Lake Region Medical acquisition and proposed Spin-off, the Company is reevaluating its operating and reporting segments. See Note 17 “Subsequent Events” for further description of this transaction and the significant impact it will have on the Company’s financial position and results of operations. An analysis and reconciliation of the Company’s business segment, product line and geographic information to the respective information in the Condensed Consolidated Financial Statements follows. Sales by geographic area are presented by allocating sales from external customers based on where the products are shipped to (in thousands): Three Months Ended Nine Months Ended October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014 Sales: Greatbatch Medical Cardiac/Neuromodulation $ 72,961 $ 85,618 $ 239,387 $ 252,403 Orthopaedic 27,752 32,489 102,204 106,785 Portable Medical 17,224 17,199 48,591 53,139 Vascular 14,107 14,903 37,370 43,210 Energy, Military, Environmental 11,977 19,016 46,232 58,499 Total Greatbatch Medical 144,021 169,225 473,784 514,036 QiG 2,776 2,474 10,564 4,025 Elimination of Intersegment Sales (a) (160 ) — (1,501 ) — Total sales $ 146,637 $ 171,699 $ 482,847 $ 518,061 (a) Intersegment sales between Greatbatch Medical and QiG are eliminated in consolidation and are included in Greatbatch Medical’s cardiac and neuromodulation product line. Three Months Ended Nine Months Ended October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014 Segment income (loss) from operations: Greatbatch Medical $ 21,512 $ 31,121 $ 72,179 $ 98,688 QiG (7,680 ) (6,796 ) (20,132 ) (18,882 ) Total segment income from operations 13,832 24,325 52,047 79,806 Unallocated operating expenses (12,637 ) (8,142 ) (28,429 ) (21,560 ) Operating income as reported 1,195 16,183 23,618 58,246 Unallocated other expense (1,189 ) 2,717 (1,857 ) 847 Income before provision for income taxes $ 6 $ 18,900 $ 21,761 $ 59,093 Three Months Ended Nine Months Ended October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014 Sales by geographic area: United States $ 71,545 $ 76,330 $ 217,102 $ 235,203 Non-Domestic locations: Puerto Rico 26,816 34,581 98,247 101,064 Belgium 12,305 13,722 45,690 47,351 Rest of world 35,971 47,066 121,808 134,443 Total sales $ 146,637 $ 171,699 $ 482,847 $ 518,061 Three customers accounted for a significant portion of the Company’s sales as follows: Three Months Ended Nine Months Ended October 2, 2015 October 3, 2014 October 2, 2015 October 3, 2014 Customer A 17 % 19 % 20 % 19 % Customer B 19 % 15 % 18 % 16 % Customer C 10 % 11 % 12 % 12 % Total 46 % 45 % 50 % 47 % Long-lived tangible assets by geographic area are as follows (in thousands): As of October 2, 2015 January 2, 2015 United States $ 112,260 $ 113,851 Rest of world 43,749 31,074 Total $ 156,009 $ 144,925 |