Exhibit 99.1
Greatbatch, Inc. Reports Third Quarter Results; Sales Increase by 38%; Company
Raises 2005 Financial Guidance
CLARENCE, N.Y.--(BUSINESS WIRE)--Nov. 9, 2005--Greatbatch, Inc.
(the "Company") (NYSE: GB) today reported its results for the third
quarter ended September 30, 2005.
Business Summary
-- Achieved sales growth of 38% for the third quarter of 2005,
compared to the prior year; consisting of 43% growth in
Implantable Medical Components and 11% growth in Commercial
products.
-- Installation of the remaining assembly equipment at the
Greatbatch Mexico facility is expected to be completed in the
fourth quarter of 2005. The move of the filtered feedthrough
operation in Carson City to Tijuana is progressing.
Manufacturing equipment is currently being installed and
validated. The project continues to move according to plan and
is expected to be completed in its entirety during the first
half of 2006.
-- The move of the manufacturing equipment from the existing
capacitor plant to the Alden facility is in process. The move
is expected to be substantially complete by the end of the
fourth quarter of 2005. Due to increased capacitor volume, the
final manufacturing equipment moves may extend into next year
to ensure production requirements are met.
-- Entered into a royalty-based licensing agreement with
Medtronic, Inc. with respect to certain intellectual property
pertaining to tantalum capacitors. The use of tantalum
technology and any purchase of tantalum capacitors by
Medtronic are subject to their further evaluation. The Company
does not expect any significant near-term financial impact
from this agreement.
-- Raised 2005 full year financial guidance as follows:
-- Full year 2005 projected sales were increased to a
range of $235 - $240 million.
-- Full year 2005 EPS estimates were increased to a range
of $0.45 - $0.55, inclusive of charges of $0.58 per
share, representing costs for the Alden and Greatbatch
Mexico startups, restructuring charges and various
asset write-offs and $0.23 per share in excess
capacity costs pertaining to the Tijuana and capacitor
plants.
Net sales totaled $62.4 million during the third quarter of 2005,
an increase of 38% from the third quarter of 2004. Net income totaled
$0.8 million and diluted earnings per share were $0.03; compared to
$3.0 million and $0.14 per diluted share in the prior year.
During the third quarter of 2005, the Company recorded a $4.5
million charge for the disposition of certain manufacturing and
building related assets. In addition, the Company incurred on-going
consolidation and relocation costs for its Tijuana, Alden and Carson
City facilities totaling $3.3 million, which were in line with
previously announced estimates. Excluding these items, net earnings
for the third quarter were $6.2 million or $0.28 per diluted share, an
increase of 100% over the $0.14 per diluted share in the third quarter
of 2004.
Edward F. Voboril, Chairman and Chief Executive Officer commented,
"We are very pleased with our results for the third quarter,
highlighted by the 43% growth in our Implantable Medical Components
segment. As previously discussed, we most likely received some
on-going benefit in this quarter from the marketplace field actions.
However, we believe that our growth is also being driven by a number
of sustainable factors as well. First, the underlying cardiac rhythm
management market remains very robust, in both the domestic and
international markets. Second, we are beginning to see increased
market penetration for a number of our medical products, specifically
batteries, capacitors and feedthrough products. Third, sales of
assembly products are progressing as planned. Lastly, the Commercial
segment continues to exhibit broad-based growth across the oil and
gas, oceanographic and military markets. All of these growth drivers
contributed to the significant operating leverage we achieved in the
quarter," Voboril concluded.
Sales Summary
The following table summarizes the Company's sales by business
unit and major product line for the third quarters of 2005 and 2004
(in thousands):
Business Unit/Product Lines 2005 2004 %
3rd Qtr 3rd Qtr Change
- ------------------------------------------- -------- -------- --------
Implantable Medical Components ("IMC"):
- ------------------------------------------- -------- -------- --------
ICD Batteries $11,345 $7,734 +47%
- ------------------------------------------- -------- -------- --------
Pacemaker & Other Batteries 5,424 4,092 +33%
- ------------------------------------------- -------- -------- --------
ICD Capacitors 5,349 4,103 +30%
- ------------------------------------------- -------- -------- --------
Feedthroughs 16,386 9,533 +72%
- ------------------------------------------- -------- -------- --------
Enclosures 6,203 5,631 +10%
- ------------------------------------------- -------- -------- --------
Other Medical 9,378 6,653 +41%
------ ------ ----
- ------------------------------------------- -------- -------- --------
Total Implantable Medical Components 54,085 37,746 +43%
- ------------------------------------------- -------- -------- --------
Electrochem Commercial Power ("ECP") 8,273 7,431 +11%
----- ----- ----
- ------------------------------------------- -------- -------- --------
Total Sales $62,358 $45,177 +38%
- ------------------------------------------- -------- -------- --------
The increase in IMC sales is primarily attributable to organic
growth in the core products, specifically batteries, ICD capacitors
and feedthrough products. Additionally, the third quarter of 2004 was
negatively impacted by lower sales volume to one major CRM customer.
These growth factors were partially offset by an average 1% reduction
in selling prices. The increase in ECP sales is primarily due to
higher demand for power sources used in oil and gas, oceanographic and
military and applications.
Profit & Loss
Summary The following table summarizes selected information
derived from the condensed consolidated statements of operations for
the third quarters in 2005 and 2004 (in thousands):
2005 2004 %
3rd Qtr 3rd Qtr Change
- ------------------------------------------- -------- -------- --------
Gross Profit $24,180 $17,402 +39%
- ------------------------------------------- -------- -------- --------
Gross Margin 38.8% 38.5%
- ------------------------------------------- -------- -------- --------
- ------------------------------------------- -------- -------- --------
SG&A Expenses $8,842 $6,913 +28%
- ------------------------------------------- -------- -------- --------
SG&A Expenses as % of Sales 14.2% 15.3%
- ------------------------------------------- -------- -------- --------
- ------------------------------------------- -------- -------- --------
RD&E Expenses, net $5,124 $4,156 +23%
- ------------------------------------------- -------- -------- --------
RD&E Expenses, net as % of Sales 8.2% 9.2%
- ------------------------------------------- -------- -------- --------
- ------------------------------------------- -------- -------- --------
Other Operating Expense $7,818 $346
- ------------------------------------------- -------- -------- --------
- ------------------------------------------- -------- -------- --------
Operating Income $1,429 $4,913 -71%
- ------------------------------------------- -------- -------- --------
Operating Margin 2.3% 10.9%
- ------------------------------------------- -------- -------- --------
- ------------------------------------------- -------- -------- --------
Effective Tax Rate 30.0% 25.5%
- ------------------------------------------- -------- -------- --------
The increase in gross margin is primarily due to the favorable
effect of spreading fixed manufacturing expenses over higher volume.
This factor contributed to a 550 basis point improvement in gross
margins. This increase was partially offset by a 340 basis point
reduction in gross margin due to the excess capacity costs at the
Greatbatch Mexico and tantalum capacitor facilities and a 110 basis
point percentage reduction due to lower medical selling prices.
The increase in SG&A expenses is primarily due to increased
incentive compensation and higher selling and marketing costs from the
planned expansion of the medical and commercial sales forces.
The increase in RD&E expenses is primarily due to increased
personnel costs for research and development programs, coupled with
decreased reimbursement on new product development projects in the
current quarter compared to last year.
The other operating expense in the current quarter consists of:
-- Tijuana, Alden and Carson City consolidations/relocations $3.3
million
-- Asset dispositions $4.5 million
Outlook
Considering the Company's third quarter performance and the
continued strength of the core Medical and Commercial segments, the
Company now expects 2005 sales to be in the range of $235 to $240
million, compared to $220 to $235 million as previously announced. The
Company is also increasing its earnings per share guidance and is now
anticipating 2005 earnings per share in the range of $0.45 to $0.55.
This is inclusive of charges of $0.58 per share, representing costs
for the Alden and Greatbatch Mexico startups, restructuring charges
and various asset write-offs and $0.23 per share in excess capacity
costs pertaining to the Tijuana and existing capacitor plants. Capital
spending in 2005 is expected to be in the range of $27 to $32 million,
compared to $30 to $35 million as previously announced.
Earnings per share guidance for 2005 excludes the effect of
expensing stock options. Consistent with the Securities and Exchange
Commission's announcement amending the compliance dates for Financial
Accounting Standards Board Statement ("FAS") 123R, the Company will
begin implementing FAS123R when it becomes effective, which is
currently anticipated to be the in first quarter of 2006.
Restatements
Classification of Auction Rate Securities
Effective September 30, 2005 we restated the classification of our
auction rate securities from cash and cash equivalents to short-term
investments in accordance with guidance issued by the U.S. Securities
and Exchange Commission. Auction rate securities (ARS) are securities
that have stated maturities beyond three months, but are priced and
traded as short-term investments due to the liquidity provided through
the auction mechanism that generally resets interest rates every 7 to
35 days.
Recording of Net Operating Loss Carryforward
During the quarter ended September 30, 2005, the Company
determined that it had not accounted for a deferred tax asset related
to net operating losses from the Company's acquisition of NanoGram in
2004. These net operating loss carryforwards relate to net operating
losses incurred prior to the acquisition date. The recording of the
net operating losses decreased long-term deferred income tax
liabilities and correspondingly decreased goodwill by $1.7 million.
As a result of these restatements, the consolidated Balance Sheet
as of December 31, 2004 and the Consolidated Statement of Cash Flows
for the nine months ended September 30, 2004 have been amended. These
restatements had no impact on our results of operations or changes in
stockholders' equity. The Company will be issuing revisions to
applicable prior period financial statements in the near future.
Conference Call
The Company will host a conference call today, Wednesday, November
9, at 11:00 a.m. E.T. to discuss its quarterly 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 1:00 p.m. E.T. on Wednesday, November 9, 2005
until Wednesday, November 16. To access the replay, dial 888-286-8010
(U.S.) or 617-801-6888 (International) and enter the passcode
24535384.
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; unsuccessful expansion into new markets; competition;
inability to obtain licenses to key technology; regulatory changes or
consolidation in the healthcare industry; and other risks and
uncertainties described in the Company's Annual Report on Form 10-K,
including Exhibit 99.1 thereto, 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 components used in implantable medical
devices and other technically demanding applications. Additional
information about the Company is available at www.greatbatch.com.
GREATBATCH, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
--------- -------- --------- ---------
Sales $ 62,358 $45,177 $182,240 $153,644
Cost of sales 38,178 27,775 112,154 89,249
--------- -------- --------- ---------
Gross profit 24,180 17,402 70,086 64,395
Selling, general and
administrative expenses 8,842 6,913 24,089 20,227
Research, development and
engineering costs, net 5,124 4,156 13,182 14,725
Amortization of intangible
assets 967 1,074 2,883 2,925
Other operating expense, net 7,818 346 14,207 3,524
--------- -------- --------- ---------
Operating income 1,429 4,913 15,725 22,994
Interest expense 1,154 1,144 3,476 3,448
Interest income (796) (244) (2,024) (802)
Other (income) expense, net (9) (75) (69) (75)
--------- -------- --------- ---------
Income before income taxes 1,080 4,088 14,342 20,423
Provision for income taxes 324 1,042 4,303 6,025
--------- -------- --------- ---------
Net income $ 756 $ 3,046 $ 10,039 $ 14,398
========= ======== ========= =========
Diluted earnings per share $ 0.03 $ 0.14 $ 0.46 $ 0.65
GREATBATCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
ASSETS September 30, December 31,
2005 2004
------------- ------------
Current assets:
Cash and cash equivalents $ 39,316 $ 34,795
Short-term investments 62,762 57,437
Accounts receivable, net 34,600 24,288
Inventories 36,157 34,027
Refundable income taxes 5,629 3,673
Deferred income taxes 3,622 3,622
Prepaid expenses and other current assets 4,883 4,637
------------- ------------
Total current assets 186,969 162,479
Property, plant, and equipment, net 99,535 92,210
Intangible assets, net 61,100 63,984
Goodwill 155,039 155,039
Other assets 4,310 4,493
------------- ------------
Total assets $ 506,953 $ 478,205
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,260 $ 8,971
Accrued expenses and other current
liabilities 24,400 18,109
Current portion of long-term debt 762 1,000
------------- ------------
Total current liabilities 37,422 28,080
Long-term debt, net of current portion - 652
Convertible subordinated notes 170,000 170,000
Deferred income taxes 29,230 23,296
------------- ------------
Total liabilities 236,652 222,028
------------- ------------
Stockholders' equity:
Preferred stock - -
Common stock 22 21
Additional paid-in capital 216,766 212,131
Deferred stock-based compensation (1,419) (833)
Treasury stock, at cost - (95)
Retained earnings 55,010 44,971
Accumulated other comprehensive loss (78) (18)
------------- ------------
Total stockholders' equity 270,301 256,177
------------- ------------
Total liabilities and stockholders' equity $ 506,953 $ 478,205
============= ============
CONTACT: Greatbatch, Inc.
Anthony W. Borowicz, 716-759-5809
tborowicz@greatbatch.com