Exhibit 99.1
Greatbatch, Inc. Reports First Quarter 2008 Results
CLARENCE, N.Y.--(BUSINESS WIRE)--Greatbatch, Inc. (the “Company”) (NYSE: GB) today reported its results for the first quarter ended March 28, 2008.
Business Highlights
- Recorded sales of $122.2 million, including acquisitions, for the first quarter of 2008; an increase of 59% compared to $76.9 million in 2007.
- Electrochem manufacturing facility and the expansion of the Research and Development Center are on schedule for completion in the second half of 2008.
- Successful entry into the key Orthopedics market with acquisitions of Precimed and the DePuy Chaumont Orthopaedics manufacturing facility.
- Excluding charges related to other operating expenses and purchase price adjustments; earnings per share were $0.16. (See Table C for US GAAP reconciliation).
Thomas J. Hook, President & Chief Executive Officer, stated: “Twelve months ago we initiated our gap fill acquisition strategy into higher growth markets. We successfully completed seven acquisitions that diversified Greatbatch’s revenue base and significantly expanded our product offerings to customers. First quarter sales of $122 million, with CRM market concentration below 50%, is clear evidence of accomplishing one of the prime objectives of our long-term strategy.
“We are focused on steadily improving operating profitability across Greatbatch to drive value for our shareholders. This is a straight forward process of consolidation, integration and optimization that we have successfully implemented within Greatbatch over the last three years. We will leverage this experience together with the expertise from the acquired companies to drive core operating profitability improvement in the combined businesses. We have organized our improvement plans into a series of major initiatives and we are aggressively pursuing them. I am pleased the acquisitions have generated more opportunities than originally contemplated and we are confident in our ability to deliver the projected financial performance for 2008.”
1st Quarter Sales Summary
The following table summarizes the Company’s sales by major product line for the first quarters of 2008 and 2007 (in thousands):
| Product Lines | | 2008 | | 2007 | | % |
| 1st Qtr. | | 1st Qtr. | | Change |
| Implantable Medical Components (“IMC”): | | | | | | |
| ICD Batteries | | $ | 10,023 | | $ | 11,651 | | -14 | % |
| Pacemaker & Other Batteries | | | 5,598 | | | 5,845 | | -4 | % |
| ICD Capacitors | | | 6,498 | | | 8,514 | | -24 | % |
| Feedthroughs | | | 16,312 | | | 18,393 | | -11 | % |
| Introducers, Catheters and Leads | | | 16,522 | | | - | | N/A | |
| Orthopedic | | | 27,786 | | | - | | N/A | |
| Enclosures | | | 5,128 | | | 5,706 | | -10 | % |
| Other Medical | | | 14,650 | | | 15,087 | | -3 | % |
| Total Implantable Medical Components | | | 102,517 | | | 65,196 | | 57 | % |
| Electrochem | | | 19,637 | | | 11,664 | | 68 | % |
| Total Sales | | $ | 122,154 | | $ | 76,860 | | 59 | % |
1st Quarter Profit & Loss Summary
The following table summarizes selected information derived from the condensed consolidated statements of operations for the first quarters of 2008 and 2007 (in thousands):
| | | 2008 | | 2007 | | % |
| 1st Qtr. | | 1st Qtr. | | Change |
Cost of Sales | | $ | 95,455 | | | $ | 48,236 | | | 98 | % |
| Cost of Sales as % of Sales | | | 78.1 | % | | | 62.8 | % | | |
| | | | | | |
| SG&A Expenses | | $ | 18,347 | | | $ | 10,033 | | | 83 | % |
| SG&A Expenses as % of Sales | | | 15.0 | % | | | 13.1 | % | | |
| | | | | | |
| RD&E Expenses, net | | $ | 9,224 | | | $ | 6,452 | | | 43 | % |
| RD&E Expenses, net as % of Sales | | | 7.6 | % | | | 8.4 | % | | |
| | | | | | |
| Operating Income (Loss) | | $ | (4,140 | ) | | $ | 10,606 | | | N/A | |
| Operating Margin | | | (3.4 | )% | | | 13.8 | % | | |
| | | | | | |
| Effective Tax Rate | | | 41.0 | % | | | 32.5 | % | | |
Sales excluding the acquisitions for the first quarter of 2008 decreased by approximately 8% primarily due to lower sales of capacitor and coated components. Capacitors sales for the first quarter of 2007 included a high level of demand due to a customer supply issue and coated component sales for 2008 reflect the impact of lower demand due to a customer recall issue not relating to Greatbatch products.
The first quarter 2008 results include one-time charges for inventory step-up amortization of $6.4 million included in cost of goods sold and write-off of in process research and development of $2.2 million related to the purchase accounting for recent acquisitions that were excluded from our guidance.
The cost of sales percentage increased from the prior year primarily due to the increased manufacturing costs at our newly acquired companies.
Approximately $7.0 million of the increase in SG&A expenses was related to the acquisitions completed in 2007 and 2008, which includes $1.0 million in additional amortization of intangibles as a result of purchase accounting.
Net RD&E expenses were in line with our expectations and decreased as a percentage of sales.
| The other operating expense in the first quarter consists of: |
| -- Columbia closure/relocations | | $ 0.2 million |
| -- Electrochem expansion | | $ 0.1 million |
| -- Integration and severance | | $ 0.7 million |
| -- Acquired in process research and development | | $ 2.2 million |
As a result of $2.2 million of the acquired in-process research and development write-off not being deductible for tax purposes and expiration of the Research and Development tax credit, the effective tax rate for 2008 is expected to be 39%.
Table A: Operating Income Reconciliation (in thousands): |
| | | | |
| | 2008 | | 2007 |
| | 1st Qtr. | | 1st Qtr. |
Operating income (loss) as reported: | | $ | (4,140 | ) | | $ | 10,606 | |
| In-process research and development | | | 2,240 | | | | - | |
| Acquisition charges(Inventory step-up) | | | 6,422 | | | | - | |
| Sub-total | | | 4,522 | | | | 10,606 | |
| Adjustments: | | | | |
| Carson City facility closure/relocation | | | - | | | | 386 | |
| Columbia facility closure/relocation | | | 224 | | | | 1,303 | |
| Electrochem building expansion | | | 106 | | | | 137 | |
| Acquisition integration | | | 660 | | | | - | |
| Asset dispositions & other | | | 38 | | | | (293 | ) |
| Operating Income – adjusted | | $ | 5,550 | | | $ | 12,139 | |
| Operating margin – adjusted | | | 4.5 | % | | | 15.8 | % |
Table B: Net Income Reconciliation (in thousands): |
| | | | |
| | | 2008 | | 2007 |
| | 1st Qtr. | | 1st Qtr. |
Net income (loss) as reported: | | $ | (3,374 | ) | | $ | 10,669 | |
| In-process research and development | | | 2,240 | | | | - | |
| Gain on extinguishment of debt | | | - | | | | (2,907 | ) |
| Acquisition charges | | | 4,110 | | | | - | |
| Sub-total | | | 2,976 | | | | 7,762 | |
| Adjustments: | | | | |
| Carson City facility closure/relocation | | | - | | | | 251 | |
| Columbia facility closure/relocation | | | 143 | | | | 847 | |
| Electrochem building expansion | | | 68 | | | | 89 | |
| Acquisition Integration | | | 422 | | | | - | |
| Asset disposition & other | | | 24 | | | | (190 | ) |
| Net income adjusted | | $ | 3,633 | | | $ | 8,759 | |
Table C: GAAP EPS Reconciliation: |
| | | | |
| | | 2008 | | 2007 |
| | 1st Qtr. | | 1st Qtr. |
EPS as reported: | | $ | (0.15 | ) | | $ | 0.43 | |
| In-process research and development | | | 0.10 | | | | - | |
| Gain on extinguishment of debt | | | - | | | | (0.11 | ) |
| Acquisition charges | | | 0.18 | | | | - | |
| Sub-total | | | 0.13 | | | | 0.32 | |
| Adjustments: | | | | |
| Carson City facility closure/relocation | | | - | | | | 0.01 | |
| Columbia facility closure/relocation | | | 0.01 | | | | 0.03 | |
| Electrochem building expansion | | | - | | | | 0.01 | |
| Acquisition Integration | | | 0.02 | | | | - | |
| Asset dispositions & other | | | - | | | | (0.01 | ) |
| Adjusted EPS | | $ | 0.16 | | | $ | 0.36 | |
| | | | |
| Shares Outstanding (000's) | | | 22,500 | | | | 26,500 | |
The adjustments to the 2008 net income and EPS calculations have been made based on the full year after-tax impact assuming an effective tax rate of 36.0%, except for the IPR&D write-off. EPS for 2008 includes $0.05 related to a forward contract exchange gain.
Conference Call
The Company will host a conference call on Wednesday, May 7, 2008 at 8:30 a.m. E.T. to discuss these results. The scheduled conference call will be webcast live and is accessible through the Company’s website at www.greatbatch.com. An audio replay will also be available beginning from 10:30 a.m. E.T. on May 7, 2008 until May 14, 2008. To access the replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 48200830.
Forward-Looking Statements
Some of the statements in this press release and other written and oral statements made from time to time by the Company and its representatives are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and involve a number of risks and uncertainties. These statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of these terms or other comparable terminology. These statements are based on the Company’s current expectations. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those stated or implied by such forward-looking statements include, among others, the following matters affecting the Company: dependence upon a limited number of customers; customer ordering patterns; product obsolescence; inability to market current or future products; pricing pressure from customers; our ability to timely and successfully implement our cost reduction and plant consolidation initiatives; reliance on third party suppliers for raw materials, products and subcomponents; fluctuating operating results; inability to maintain high quality standards for our products; challenges to our intellectual property rights; product liability claims; inability to successfully consummate and integrate acquisitions including the recent Precimed and DePuy Chaumont acquisitions and to realize synergies and to operate these acquired businesses in accordance with expectations; unsuccessful expansion into new markets including our expansion into the orthopedics market resulting from the Precimed acquisition; competition; inability to obtain licenses to key technology; regulatory changes or consolidation in the healthcare industry; global economic factors including currency exchange rates and interest rates; and other risks and uncertainties described in the Company’s Annual Report on Form 10-K and in other periodic filings with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.
About Greatbatch, Inc.
Greatbatch, Inc. (NYSE: GB) is a leading developer and manufacturer of critical products used in medical devices for the cardiac rhythm management, neurostimulation, vascular, orthopedic and interventional radiology markets. Additionally, Electrochem, a subsidiary of Greatbatch, is a world leader in the design and manufacture of technology solutions for some of the world’s most demanding and extreme applications. Additional information about the Company is available at www.greatbatch.com.
GREATBATCH, INC. |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited |
| (In thousands except per share amounts) |
| |
| | Three months ended |
| | March 28, | | March 30, |
| | 2008 | | 2007 |
| | | | |
| Sales | | $ | 122,154 | | | $ | 76,860 | |
| Cost and expenses: | | | | |
Cost of sales - excluding amortization of intangible assets | | | 93,745 | | | | 47,288 | |
| Cost of sales - amortization of intangible assets | | | 1,710 | | | | 948 | |
| Selling, general and administrative expenses | | | 18,347 | | | | 10,033 | |
| Research, development and engineering costs, net | | | 9,224 | | | | 6,452 | |
| Acquired in-process research and development | | | 2,240 | | | | - | |
| Other operating expense, net | | | 1,028 | | | | 1,533 | |
| Operating income (loss) | | | (4,140 | ) | | | 10,606 | |
| Interest expense | | | 3,431 | | | | 1,144 | |
| Interest income | | | (396 | ) | | | (1,856 | ) |
| Gain on extinguishment of debt | | | - | | | | (4,473 | ) |
| Other income, net | | | (1,457 | ) | | | (16 | ) |
| Income (loss) before provision for income taxes | | | (5,718 | ) | | | 15,807 | |
| Provision (benefit) for income taxes | | | (2,344 | ) | | | 5,138 | |
| Net income (loss) | | $ | (3,374 | ) | | $ | 10,669 | |
| | | | |
| Earnings (loss) per share: | | | | |
| Basic | | $ | (0.15 | ) | | $ | 0.48 | |
| Diluted | | $ | (0.15 | ) | | $ | 0.43 | |
| | | | |
| Weighted average shares outstanding: | | | | |
| Basic | | | 22,500 | | | | 22,000 | |
| Diluted | | | 22,500 | | | | 26,500 | |
GREATBATCH, INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited |
| (In thousands) |
| | | | |
| ASSETS | | March 28, 2008 | | December 28, 2007 |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 14,307 | | $ | 33,473 | |
| Short-term investments available for sale | | | 6,455 | | | 7,017 | |
| Accounts receivable, net | | | 79,499 | | | 56,962 | |
| Inventories, net | | | 93,960 | | | 71,882 | |
| Refundable income taxes | | | 4,249 | | | 377 | |
| Deferred income taxes | | | 6,715 | | | 6,469 | |
| Prepaid expenses and other current assets | | | 3,654 | | | 5,044 | |
| Total current assets | | | 208,839 | | | 181,224 | |
| | | | |
| Property, plant, and equipment, net | | | 158,321 | | | 114,946 | |
| Intangible assets, net | | | 99,505 | | | 71,268 | |
| Trademarks and trade names | | | 34,863 | | | 32,582 | |
| Goodwill | | | 298,816 | | | 248,540 | |
| Other assets | | | 14,242 | | | 15,291 | |
| Total assets | | $ | 814,586 | | $ | 663,851 | |
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 40,794 | | $ | 33,433 | |
| Accrued expenses and other current liabilities | | | 33,121 | | | 30,975 | |
| Current portion of long-term debt | | | 2,101 | | | - | |
| Total current liabilities | | | 76,016 | | | 64,408 | |
| | | | |
| Convertible subordinated notes | | | 358,571 | | | 241,198 | |
| Deferred income taxes | | | 42,593 | | | 35,346 | |
| Other long-term liabilities | | | 5,155 | | | 228 | |
| Total liabilities | | | 482,335 | | | 341,180 | |
| | | | |
| Stockholders' equity: | | | | |
| Preferred stock | | | - | | | - | |
| Common stock | | | 23 | | | 22 | |
| Additional paid-in capital | | | 244,604 | | | 238,574 | |
| Treasury stock | | | - | | | (140 | ) |
| Retained earnings | | | 80,841 | | | 84,215 | |
| Accumulated other comprehensive income | | | 6,783 | | | - | |
| Total stockholders’ equity | | | 322,251 | | | 322,671 | |
| Total liabilities and stockholders' equity | | $ | 814,586 | | $ | 663,851 | |
CONTACT:
Greatbatch, Inc.
Marco Benedetti, 716-759-5856
Corporate Controller
mbenedetti@greatbatch.com
