Business Segment, Geographic and Concentration Risk Information

9 Months Ended

Oct. 03, 2014

Segment Reporting [Abstract]

BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION

BUSINESS SEGMENT, GEOGRAPHIC AND CONCENTRATION RISK INFORMATION

In connection with the realignment of the Company’s operating structure in 2013 to optimize profitable growth, which included changing the Company’s management and reporting structure, the Company reevaluated its operating and reporting segments. Beginning in the fourth quarter of 2013, the Company determined that it has two reportable segments: Greatbatch Medical and QiG Group (“QiG”). As required, the Company reclassified certain prior year amounts to conform them to the current year presentation, including goodwill, segment operating income (loss), and segment sales categorizations.

Greatbatch Medical designs and manufactures medical devices and components where Greatbatch either owns the intellectual property or has unique manufacturing and assembly expertise and includes the financial results of the former Implantable Medical and Electrochem segments, excluding QiG. Greatbatch Medical provides medical devices and components to the following markets:

• Cardiac/Neuromodulation: Products include batteries, capacitors, filtered and unfiltered feed-throughs, engineered components, implantable stimulation leads, and enclosures used in implantable medical devices.

• Orthopaedic: Products include hip and shoulder joint reconstruction implants, bone plates and spinal devices, and instruments and delivery systems used in hip and knee replacement, trauma fixation, and spinal surgeries.

• Portable Medical: Products include batteries, chargers and power supplies for a wide range of medical devices including automated external defibrillators, portable oxygen concentrators, ventilators, and powered surgical tools.

• Vascular: Products include introducers, medical coatings, steerable sheaths, and catheters that deliver therapies for various markets such as coronary and neurovascular disease, peripheral vascular disease, interventional radiology, vascular access, atrial fibrillation, and interventional cardiology, plus products for medical imaging and pharmaceutical delivery.

• Energy, Military, and Environmental (“EME”): Products include primary and rechargeable batteries and battery packs for demanding applications such as down hole drilling tools.

Greatbatch Medical also offers value-added assembly and design engineering services for medical devices that utilize its component products.

QiG focuses on developing medical device systems for some of healthcare’s most pressing challenges and reflects Greatbatch’s strategic evolution of its product offerings in order to raise the growth and profitability profile of the Company. QiG utilizes a disciplined and diversified portfolio approach with three investment modes: new medical device systems commercialization, collaborative programs with original equipment manufacturers (“OEM”), and strategic equity positions in start-up companies. The development of new medical device systems are facilitated through the establishment of newly formed business entities, usually limited liability companies (“LLC”). These entities do not own, but have the exclusive right to use the technology of Greatbatch Medical in certain specifically designated fields of use and have an exclusive manufacturing agreement with Greatbatch Medical. QiG currently owns 89% - 100% of three LLCs. Minority interest in these LLCs was granted to key opinion leaders, clinicians and strategic partners. Under the agreements governing these LLCs, QiG is responsible for 100% of the expenses incurred by the LLC. However, no allocations of capital are made to the minority holders of the LLC until QiG is reimbursed for all expenses paid. Once QiG has been fully reimbursed, future net income is allocated based upon the respective LLCs ownership percentages. One of the LLCs established by QiG is for the Company's Algovita spinal cord stimulator to treat chronic intractable pain of the trunk and/or limbs. This product was submitted for premarket approval (“PMA”) to the United States Food & Drug Administration (“FDA”) in December 2013 and in January 2014 documentation for European CE Mark was submitted to the notified body, TÜV SÜD America. CE Mark approval was obtained on June 17, 2014.

QiG revenue includes sales of neural interface technology, components and systems to the neuroscience and clinical markets. As further discussed in Note 2 “Acquisition,” during the third quarter of 2014, the Company acquired CCC, a neuromodulation medical device developer and manufacturer. As a result of this transaction, QiG revenue also includes sales of various medical device products such as implantable pulse generators, programmer systems, battery chargers, patient wands and leads to medical device companies. For the 2014 and 2013 periods, no revenue earned by QiG was manufactured by Greatbatch Medical. Future income of QiG is expected to come from various sources including investment gains from the sales of its LLC ownership interests, technology licensing fees, royalty revenue, and/or the sales of medical device systems.

Historical results reflecting the new business segments for previously reported periods are shown below. An analysis and reconciliation of the Company’s business segment, product line and geographic information to the respective information in the Condensed Consolidated Financial Statements follows. Sales by geographic area are presented by allocating sales from external customers based on where the products are shipped to (in thousands):

	Three Months Ended				Nine Months Ended
	October 3, 2014		September 27, 2013		October 3, 2014		September 27, 2013
Sales:
Greatbatch Medical
Cardiac/Neuromodulation	$	85,618	$	86,302	$	252,403	$	240,003
Orthopaedic	32,489		30,079		106,785		92,043
Portable Medical	17,199		19,320		53,139		60,376
Vascular	14,903		12,279		43,210		35,152
Energy, Military, Environmental	19,016		19,072		58,499		57,594
Total Greatbatch Medical	169,225		167,052		514,036		485,168
QiG	2,474		678		4,025		2,158
Total sales	$	171,699	$	167,730	$	518,061	$	487,326

	Three Months Ended						Nine Months Ended
	October 3, 2014			September 27, 2013			October 3, 2014			September 27, 2013
Segment income from operations:
Greatbatch Medical	$	31,121		$	28,236		$	98,688		$	84,596
QiG	(6,796		)	(6,946		)	(18,882		)	(21,679		)
Total segment income from operations	24,325			21,290			79,806			62,917
Unallocated operating expenses	(8,142		)	(4,288		)	(21,560		)	(14,441		)
Operating income as reported	16,183			17,002			58,246			48,476
Unallocated other income (expense)	2,717			(1,458		)	847			(10,855		)
Income before provision for income taxes	$	18,900		$	15,544		$	59,093		$	37,621

	Three Months Ended				Nine Months Ended
	October 3, 2014		September 27, 2013		October 3, 2014		September 27, 2013
Sales by geographic area:
United States	$	76,330	$	81,736	$	235,203	$	242,304
Non-Domestic locations:
Puerto Rico	34,581		31,936		101,064		87,592
Belgium	13,722		14,947		47,351		49,895
Rest of world	47,066		39,111		134,443		107,535
Total sales	$	171,699	$	167,730	$	518,061	$	487,326

Three customers accounted for a significant portion of the Company’s sales as follows:

	Three Months Ended				Nine Months Ended
	October 3, 2014		September 27, 2013		October 3, 2014		September 27, 2013
Customer A	19	%	21	%	19	%	20	%
Customer B	15	%	16	%	16	%	16	%
Customer C	11	%	11	%	12	%	13	%
Total	45	%	48	%	47	%	49	%

Long-lived tangible assets by geographic area are as follows (in thousands):

	As of
	October 3, 2014		January 3, 2014
United States	$	113,310	$	116,484
Rest of world	29,026		29,289
Total	$	142,336	$	145,773