-
2012 Revenues of $646 million grew 14%; 0% constant currency organic
growth
-
Portable Medical acquisition contributes $82.4 million; 38%
pro-forma organic growth
-
GAAP Operating Income of $25.8 million down 58% to prior year
-
Continued success with Orthopaedic consolidation
-
Adjusted Operating Income of $73.9 million an increase of 9%
FRISCO, Texas--(BUSINESS WIRE)--Feb. 25, 2013--
Greatbatch, Inc. (NYSE: GB), today announced results for its fourth
quarter and full-year ended December 28, 2012:
FOURTH QUARTER
-
Sales increased 12% over the prior year to $159.2 million and included
a 2% organic constant currency decline offset by additional revenue
from our recent acquisitions:
-
Cardiac/Neuromodulation product line revenue decreased 5%
primarily due to the tough comparable versus the prior year
quarter, continued market headwinds and strong shipments in the
third quarter of 2012.
-
Portable medical product line continues to benefit from our
acquisition and new product introductions, which contributed $18.8
million to our growth.
-
Vascular product line growth of 14% was driven by growth in the
underlying market and market share gains.
-
Orthopaedics constant currency revenue was consistent with the
prior year quarter as stronger implant revenue offset the decline
in instrument sales due to the transition of our Swiss facility.
-
GAAP net loss of $5.6 million resulted in a diluted EPS loss of $0.23
per share. This loss was primarily due to charges incurred in
connection with the consolidation of our Swiss orthopaedic operations,
which are expected to improve profitability beginning in the first
quarter of 2013.
-
Fourth quarter adjusted operating income increased 34% due to gross
profit from our acquisitions and a reduction in our RD&E expenses.
These increases also contributed to a 36% increase in adjusted diluted
EPS to $0.53 per share for the fourth quarter (Refer to Tables A and B
at the end of this release).
TOTAL YEAR
-
Sales increased 14% over the prior year to $646.2 million and included
a $1.2 million decline in organic constant currency revenue offset by
additional sales from our recent acquisitions:
-
Cardiac/Neuromodulation product line revenue increased 2% and
benefitted from further adoption of our Q series batteries.
-
Portable medical product line benefited from our acquisition and
new product introductions, which contributed $72.1 million to our
growth.
-
Vascular product line growth of 15% included the benefits of the
commercialization of medical devices.
-
Orthopaedics constant currency revenue declined 8%, as the
transition of our Swiss facility, which was completed in the
fourth quarter of 2012, negatively impacted our revenues.
-
GAAP net loss of $4.8 million resulted in a diluted EPS loss of $0.20
per share. This loss was primarily due to charges incurred in
connection with the consolidation of our Swiss orthopaedic operations,
which are expected to improve profitability beginning in the first
quarter of 2013.
-
Adjusted operating income increased 9% due to revenue growth and
operating leverage improvements. These resulted in a 5% increase in
adjusted diluted EPS to $1.77 per share for the year.
-
Cash flows from operations were $25 million for the fourth quarter and
$65 million for the full year compared to $31 million and $90 million,
respectively, for the comparable 2011 periods. During the 2012 fourth
quarter and full year the Company paid down $8 million and $22
million, respectively, of long-term debt.
|
|
Three months ended
|
(Dollars in thousands, except EPS data)
|
|
December 28,
|
|
December 30,
|
|
%
|
|
September 28,
|
|
%
|
|
2012
|
|
2011
|
|
Change
|
|
2012
|
|
Change
|
Sales
|
|
$
|
159,186
|
|
|
$
|
141,746
|
|
|
12
|
%
|
|
$
|
161,340
|
|
|
-1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income
|
|
$
|
1,405
|
|
|
$
|
12,542
|
|
|
-89
|
%
|
|
$
|
2,127
|
|
|
-34
|
%
|
GAAP Operating Income as % of Sales
|
|
|
0.9
|
%
|
|
|
8.8
|
%
|
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income*
|
|
$
|
21,121
|
|
|
$
|
15,748
|
|
|
34
|
%
|
|
$
|
18,664
|
|
|
13
|
%
|
Adjusted Operating Income as % of Sales
|
|
|
13.3
|
%
|
|
|
11.1
|
%
|
|
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS
|
|
$
|
(0.23
|
)
|
|
$
|
0.24
|
|
|
N/A
|
|
|
$
|
(0.32
|
)
|
|
-28
|
%
|
Adjusted Diluted EPS*
|
|
$
|
0.53
|
|
|
$
|
0.39
|
|
|
36
|
%
|
|
$
|
0.46
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
(Dollars in thousands, except EPS data)
|
|
December 28,
|
|
December 30,
|
|
%
|
|
|
|
2012
|
|
2011
|
|
Change
|
|
|
Sales
|
|
$
|
646,177
|
|
|
$
|
568,822
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating Income
|
|
$
|
25,821
|
|
|
$
|
61,699
|
|
|
-58
|
%
|
|
|
GAAP Operating Income as % of Sales
|
|
|
4.0
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income*
|
|
$
|
73,889
|
|
|
$
|
67,602
|
|
|
9
|
%
|
|
|
Adjusted Operating Income as % of Sales
|
|
|
11.4
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted EPS
|
|
$
|
(0.20
|
)
|
|
$
|
1.40
|
|
|
-114
|
%
|
|
|
Adjusted Diluted EPS*
|
|
$
|
1.77
|
|
|
$
|
1.68
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Refer to Tables A and B at the end of this release for a
reconciliation of adjusted amounts to GAAP.
|
|
|
CEO Comments
“Our fourth quarter performance is a step in the right direction,”
stated Thomas J. Hook, President & CEO, Greatbatch, Inc. “Eliminating
the operating losses from our Swiss operation will improve the overall
earnings of Greatbatch going forward. While we continually identify and
implement cost improvement initiatives, we have now completed all of our
major plant consolidations, which began in 2007, so our leadership team
can focus on achieving sustainable organic growth to leverage our
available capacity. Fourth quarter revenues were up 12% and adjusted
diluted EPS was up 36% reflecting a strong gross margin performance of
32.6% and a reduction in our RD&E expense, which included the
achievement of milestones on two large customer projects that will
commercialize into revenue over the next 12 to 24 months.”
Hook continued, “During 2012 we were also able to make significant
progress on numerous strategic initiatives which included:
-
Completing the integration of Micro Power and Neuro Nexus;
-
Reorganizing our sales and marketing teams to drive core business
growth;
-
Refocusing our medical device RD&E investment and discontinuing
non-core RD&E projects;
-
Making significant technical progress on our Algostim spinal cord
stimulator which is receiving strong interest from numerous
world-class medical device companies, who appreciate the unique
opportunity to market and distribute this device;
-
Negotiating several long-term agreements with OEM customers and
actively filling our pipeline of component and device opportunities
with those customers; and
-
Completing construction and successfully transferring manufacturing to
our Fort Wayne, Indiana facility.”
“These initiatives are designed to create value for our shareholders
through top-line, bottom-line and pipe-line growth. We look forward to
providing further details on our strategic initiatives at our Investor
Day in New York City on March 18, 2013.”
CFO Comments
“In order to stop the negative impact of our Swiss orthopaedic
operations we targeted and completed a transfer of our production to our
Fort Wayne, IN and Tijuana, Mexico facilities by year-end. In aggregate
we estimate these operational issues had a negative $0.16 per share of
adjusted diluted earnings impact for 2012,” commented Michael Dinkins,
Senior Vice President & CFO. “We partially offset this with a reduction
of our corporate-wide performance-based compensation expense, a
reduction in our RD&E expense in the second half of the year and better
than expected performance of our portable medical product line. For
2013, we expect revenue, after adjusting for the sale of a portion of
our orthopaedic product line, to organically grow 5-8% driven primarily
by our portable medical, vascular and orthopaedic product lines along
with above market growth in cardiac and neuromodulation. We expect our
performance to improve as we progress through 2013, as the first quarter
2013 will be impacted by the startup of our recently transferred
orthopaedic production lines. The second half of the year is expected to
improve as the orthopaedic backlog is relieved and new product
introductions in our portable medical business commercialize. As a
result of our consolidation initiatives and refocused medical device R&D
investment, we expect improved performance in comparison to the prior
year and to achieve adjusted diluted EPS growth of 7-13% for calendar
year 2013.”
Fourth Quarter and Full-Year Results
Fourth quarter 2012 sales increased 12% over the prior year period to
$159.2 million. This increase was driven by our recent acquisitions,
which added $20.3 million to sales, as well as 14% growth in vascular
revenue. Fourth quarter results included the impact of foreign currency
exchange rate fluctuations, which lowered orthopaedic sales by
approximately $0.6 million in comparison to the prior year. On an
organic constant currency basis, sales for the fourth quarter decreased
2% versus the prior year as the benefits described above were partially
offset by lower cardiac and neuromodulation revenue, due to the timing
of customer inventory builds. For the year, sales increased 14% to
$646.2 million and included $84.8 million of revenue from our
acquisitions partially offset by $6.3 million of negative foreign
currency exchange rate fluctuations. On an organic constant currency
basis, revenue for 2012 was consistent with the prior year as above
market growth from our cardiac and vascular product lines was offset by
operational issues experienced within our orthopaedics product line.
Gross profit increased $7.2 million to $51.9 million for the fourth
quarter of 2012, compared to $44.7 million for the comparable 2011
period. This increase resulted from the higher sales volumes discussed
above, as well as a shift in mix to higher margin products. As a result,
gross margin for the fourth quarter of 2012 increased 110 basis points
to 32.6%. For the year, gross profit increased $21.3 million to $201.6
million, which was primarily due to higher sales volumes. Gross margin
for the year of 31.2% was 50 basis points below the prior year, as the
benefit of higher production volumes and mix was offset by production
inefficiencies at our Swiss Orthopaedic facilities.
Selling, general and administrative (“SG&A”) expenses increased $2.4
million to $20.9 million, or 13.2% of sales, for the fourth quarter of
2012 compared to $18.6 million, or 13.1% of sales, for the same period
of 2011. For the year, SG&A costs increased $8.4 million to $81.0
million, or 12.5% of sales, versus $72.5 million, or 12.8% of sales for
2011. The increase in SG&A expenses for the quarter and full-year were
directly attributable to our acquisitions which added $1.7 million and
$9.6 million, respectively, of incremental SG&A costs.
Net research, development and engineering costs (“RD&E”) for the 2012
fourth quarter and full-year of 2012 were $11.2 million and $52.5
million, respectively, compared to $12.8 million and $45.5 million,
respectively, for the comparable 2011 periods. For the fourth quarter
and full-year of 2012, our acquisitions added $0.2 million and $2.6
million, respectively, to RD&E. RD&E amounts for the fourth quarter of
2012 and 2011 include $1.4 million and $2.3 million, respectively, of
design verification testing (“DVT”) costs in connection with our
development of a neuromodulation platform. For the year, DVT expenses
were $5.2 million for 2012 and $5.1 million for 2011. RD&E for the
second half of 2012 was lower than the first half of 2012 by $3.7
million as the Company refocused its medical device R&D investment and
discontinued non-core R&D projects. Additionally, the fourth quarter of
2012 included $1.7 million of additional customer cost reimbursements
due to the timing of when milestones on certain projects were achieved.
For the year, customer cost reimbursements increased $1.4 million in
comparison to 2011. Excluding DVT related expenses, medical device
adjusted expenses were $28.5 million for 2012 compared to $22.1 million
for 2011. Going forward, the Company intends to continue to look for
ways to reduce the RD&E investment impact on its bottom line which will
include identifying strategic partners to share these costs, monetizing
non-core technology assets and refocusing our medical device technology
investment towards Algostim and the portable medical markets.
GAAP operating income for the fourth quarter and full-year 2012 was $1.4
million and $25.8 million, respectively, compared to $12.5 million and
$61.7 million for the respective periods of 2011. This decrease was
primarily due to the charges incurred in connection with the
consolidation of our Swiss orthopaedic operations, as well as other
productivity initiatives which are expected to ultimately drive improved
profitability. Adjusted operating income, which excludes these costs as
well as other charges, was $21.1 million and $73.9 million for the 2012
fourth quarter and full-year, respectively, compared to $15.7 million
and $67.6 million, respectively, for the comparable 2011 periods. Refer
to Table A at the end of this release for a reconciliation of GAAP
operating income to adjusted operating income and the “Use of Non-GAAP
Financial Information” section below.
As shown on Table A, total adjusted expenditures for 2012 related to our
medical device initiatives, which exclude DVT related expenses,
increased by $6.4 million to $28.5 million for 2012 from $22.1 million
in 2011. This information is provided in order to enhance the reader’s
understanding of our core business, which is being impacted by our
medical device initiatives.
The 2012 full-year effective tax rate was 171.3% compared to 31.6% for
the same period of 2011. This increase was primarily attributable to
approximately $6.2 million of tax charges recorded in connection with
our Swiss orthopaedic consolidation. These charges relate to the loss of
our Swiss tax holiday, due to our decision to discontinue manufacturing
in Switzerland and the establishment of a valuation allowance on our
Swiss deferred tax assets, as it is more likely than not that they will
not be fully realized. Additionally, our 2012 effective tax rate
includes losses from our Swiss operations, the benefit of which are
recorded at a lower effective tax rate, thus increasing the overall
effective tax rate of the Company, and does not include the benefit of
the U.S. R&D tax credit, which expired at the end of 2011. The U.S. R&D
tax credit was reinstated in the first quarter of 2013 retroactive to
the beginning of 2012. As required under U.S. GAAP, the benefit of both
the 2012 and 2013 U.S. R&D tax credit will be recognized in 2013.
GAAP diluted EPS for the fourth quarter and full-year 2012 were a loss
of $0.23 and $0.20 per share, respectively, compared to income of $0.24
and $1.40 per share for the respective 2011 periods. Adjusted diluted
EPS for the fourth quarter and full-year 2012 were $0.53 and $1.77 per
share, respectively, compared to $0.39 and $1.68 per share for the
corresponding 2011 periods. Refer to Table B at the end of this release
for a reconciliation of GAAP net income (loss) to adjusted net income
and the “Use of Non-GAAP Financial Information” section below.
Despite the GAAP loss for the 2012 fourth quarter and year, cash flows
from operations for the fourth quarter and full-year of 2012 were
approximately $25 million and $65 million, respectively as a significant
portion of the charges recorded in 2012 were non-cash in nature. During
the fourth quarter and full-year of 2012, the Company repaid $8 million
and $22 million, respectively, of long-term debt.
Product Line Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Company’s sales by major product
lines (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
%
|
|
2012
|
|
%
|
|
2012
|
|
2011
|
|
%
|
Product Line
|
|
4th Qtr.
|
|
4th Qtr.
|
|
Chg.
|
|
3rd Qtr.
|
|
Chg.
|
|
Year
|
|
Year
|
|
Chg.
|
Implantable Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiac/Neuromodulation
|
|
$
|
73,718
|
|
$
|
77,198
|
|
-5
|
%
|
|
$
|
80,246
|
|
-8
|
%
|
|
$
|
309,124
|
|
$
|
303,690
|
|
2
|
%
|
|
Vascular
|
|
|
14,189
|
|
|
12,459
|
|
14
|
%
|
|
|
13,674
|
|
4
|
%
|
|
|
51,980
|
|
|
45,098
|
|
15
|
%
|
|
Orthopaedic
|
|
|
30,982
|
|
|
31,635
|
|
-2
|
%
|
|
|
27,173
|
|
14
|
%
|
|
|
122,061
|
|
|
140,277
|
|
-13
|
%
|
|
|
Total
|
|
|
118,889
|
|
|
121,292
|
|
-2
|
%
|
|
|
121,093
|
|
-2
|
%
|
|
|
483,165
|
|
|
489,065
|
|
-1
|
%
|
Electrochem
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portable Medical
|
|
|
22,313
|
|
|
3,504
|
|
N/A
|
|
|
|
20,219
|
|
10
|
%
|
|
|
81,659
|
|
|
9,609
|
|
N/A
|
|
|
Energy/Environmental
|
|
|
15,605
|
|
|
13,121
|
|
19
|
%
|
|
|
16,192
|
|
-4
|
%
|
|
|
67,046
|
|
|
58,934
|
|
14
|
%
|
|
Other
|
|
|
2,379
|
|
|
3,829
|
|
-38
|
%
|
|
|
3,836
|
|
-38
|
%
|
|
|
14,307
|
|
|
11,214
|
|
28
|
%
|
|
|
Total
|
|
|
40,297
|
|
|
20,454
|
|
97
|
%
|
|
|
40,247
|
|
0
|
%
|
|
|
163,012
|
|
|
79,757
|
|
104
|
%
|
|
|
|
|
$
|
159,186
|
|
$
|
141,746
|
|
12
|
%
|
|
$
|
161,340
|
|
-1
|
%
|
|
$
|
646,177
|
|
$
|
568,822
|
|
14
|
%
|
Implantable Medical
In comparison to the prior year, cardiac and neuromodulation sales for
the fourth quarter of 2012 decreased 5% but increased 2% for the
full-year. During 2012, cardiac and neuromodulation sales benefited from
further adoption of our Q series batteries and customer market share
shifts partially offset by the timing of customer inventory builds and
product launches. Cardiac and neuromodulation revenue growth exceeded
our expectations during 2012 but management remains cautiously
optimistic over the short-term prospects of this product line given the
ongoing challenges surrounding key OEM customers. However, our longer
term outlook remains optimistic as we continue to see an increased pace
of product development opportunities from our cardiac customers.
Management believes that this, combined with our increased focus on
sales and marketing, will allow the Company to grow this product line
faster than the underlying market.
Fourth quarter and full-year 2012 vascular sales increased 14% and 15%,
respectively, over the prior year periods. These increases were
primarily attributable to growth in the underlying market and market
share gains. Additionally, vascular revenue for the year included $6.6
million from sales of medical devices that were developed under the
Greatbatch name compared to $4.5 million for 2011, an increase of 47%.
In comparison to the prior year, orthopaedic sales for the fourth
quarter of 2012 declined 2% (0% constant currency) and 13% (8% constant
currency) for the full-year. Foreign currency exchange rate fluctuations
decreased orthopaedic revenue by approximately $0.6 million in the
fourth quarter of 2012 and $6 million for the year. The remaining
decline in 2012 orthopaedic sales was a result of fewer customer product
launches and development opportunities due to operational issues within
our orthopaedic business, which are aggressively being addressed. In
comparison to the sequential third quarter, orthopaedic revenue
increased 14% primarily due to the seasonal facility shut-downs in our
European operations.
Electrochem
Fourth quarter and full-year 2012 sales for Electrochem increased $19.8
million and $83.3 million, respectively versus the comparable 2011
periods. Fourth quarter and full year 2012 Electrochem sales included
the benefit of $19.5 million and $82.4 million, respectively, of
incremental revenue related to our acquisition. Electrochem’s aggressive
growth plan met expectations and was driven by successful product
launches in the portable medical market. On a pro-forma basis, our
portable medical product line grew 38% from 2011 to 2012. The market
shift in patient care from clinical settings to the home, and an aging
population, is driving the need for lightweight and portable devices for
patients and caregivers. Electrochem’s technology, customer
relationships, and legacy of delivering highly reliable and innovative
solutions has enabled it to win in this evolving market and continues to
position Electrochem to capture market and share growth. Electrochem
continues to secure long-term agreements in this space.
Financial Guidance
As previously disclosed, for 2013, Greatbatch estimates annual revenue
growth rates for its product lines as follows:
Product Line
|
|
Estimated 2013 Annual Growth Rate (%)
|
|
2013 Estimated Revenue
(millions)
|
Cardiac & Neuromodulation
|
|
0% - 2%
|
|
$309 - $315
|
Vascular
|
|
7% - 13%
|
|
$55 - $59
|
Orthopaedic(1)
|
|
(5%) - 0%
|
|
$116 - $122
|
Portable Medical
|
|
15% - 20%
|
|
$94 - $98
|
Energy & Other
|
|
6%
|
|
$86 - $86
|
Total Sales(1)
|
|
2% - 5%
|
|
$660 - $680
|
(1)
|
|
Organic revenue growth for orthopaedic product line is 8% - 14% due
to disposition of $15 million of non-core product lines at the end
of 2012. Total consolidated organic revenue growth is expected to be
5% - 8%.
|
Adjusted Operating Income as a % of Sales
|
|
|
12.0% - 12.5%
|
Adjusted Effective Tax Rate (includes only the 2013 benefit of the
recently reenacted U.S. R&D Tax Credit)
|
|
|
33% to 35%
|
Adjusted Diluted EPS
|
|
$
|
1.90 - $2.00
|
As previously disclosed, adjusted operating income for 2013 is expected
to consist of GAAP operating income minus non-recurring, unusual or
infrequently occurring items such as acquisition, consolidation and
integration charges, certain RD&E expenditures and asset
disposition/write-down charges, totaling approximately $11.5 million to
$14.0 million. This range has been significantly reduced from the 2012
level as we have essentially completed our productivity and
consolidation initiatives. Included in the above range are residual DVT
costs in the range of $4.8 to $5.8 million to complete our Algostim
project.
Conference Call
The Company will host a conference call on Monday, February 25, 2013 at
5:00 p.m. ET 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 7:00 p.m. ET on
February 25, 2013 until March 4, 2013. To access the replay, dial
888-286-8010 (U.S.) and enter the passcode 27704750.
About Greatbatch, Inc.
Greatbatch, Inc. (NYSE: GB) provides top-quality technologies to
industries that depend on reliable, long-lasting performance through its
brands Greatbatch
Medical, Electrochem
and QiG
Group. Greatbatch Medical develops and manufactures critical medical
device technologies for the cardiac, neuromodulation, vascular and
orthopaedic markets. Electrochem designs and manufactures batteries for
high-end niche applications in the portable medical, energy, military,
and other markets. The QiG Group empowers the design and development of
new medical devices for our core markets. Additional information about
the Company is available at www.greatbatch.com.
Use of Non-GAAP Financial Information
In addition to our results reported in accordance with generally
accepted accounting principles (“GAAP”), we provide adjusted operating
income and margin, adjusted net income and adjusted earnings per diluted
share. These adjusted amounts consist of GAAP amounts excluding the
following adjustments to the extent occurring during the period: (i)
acquisition-related charges, (ii) facility consolidation, optimization,
manufacturing transfer and system integration charges, (iii) asset
write-down and disposition charges, (iv) severance charges in connection
with corporate realignments or a reduction in force (v) litigation
charges and gains, (vi) the impact of non-cash charges to interest
expense due to the accounting change for convertible debt, (vii) unusual
or infrequently occurring items, (viii) certain R&D expenditures (such
as medical device DVT expenses in connection with developing our
Neuromodulation platform), (ix) gain/loss on the sale of investments,
(x) the income tax (benefit) related to these adjustments and (xi)
certain tax charges related to the consolidation of our Swiss
Orthopaedic facility. Adjusted earnings per diluted share were
calculated by dividing adjusted net income for diluted earnings per
share by diluted weighted average shares outstanding. We believe that
the presentation of adjusted operating income and margin, adjusted net
income and adjusted diluted earnings per share provides important
supplemental information to management and investors seeking to
understand the financial and business trends relating to our financial
condition and results of operations.
Forward-Looking Statements
Some of the statements in this press release, including the information
provided under the caption “Financial Guidance,” 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,” “variations,” 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: our
dependence upon a limited number of customers; customer ordering
patterns; product obsolescence; our inability to market current or
future products; pricing/vertical integration pressure from customers;
our ability to timely and successfully implement our cost reduction and
plant consolidation initiatives (including the consolidation of our
Swiss orthopaedic operations); our reliance on third party suppliers for
raw materials, products and subcomponents; our inability to maintain
high quality standards for our products; challenges to our intellectual
property rights; product liability claims; our inability to successfully
consummate and integrate acquisitions and to realize synergies; our
unsuccessful expansion into new markets; our ability to realize a return
on our substantial RD&E investments, including system and device
products; changes in and challenges related to compliance with
governmental laws and regulations, including regulations of the U.S.
Food and Drug Administration and foreign government agencies regulating
medical device approvals; our 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; the resolution of various legal actions 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.
Table A: Operating Income (Loss) Reconciliation:
|
|
A reconciliation of GAAP operating income (loss) to adjusted amounts
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
Implantable Medical
|
|
Electrochem
|
|
Unallocated
|
|
Total
|
|
|
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Sales
|
|
$
|
118,889
|
|
|
$
|
121,292
|
|
|
$
|
40,297
|
|
|
$
|
20,454
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
159,186
|
|
|
$
|
141,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as reported
|
|
$
|
4,392
|
|
|
$
|
13,784
|
|
|
$
|
6,344
|
|
|
$
|
2,075
|
|
|
$
|
(9,331
|
)
|
|
$
|
(3,317
|
)
|
|
$
|
1,405
|
|
|
$
|
12,542
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization (COS)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
177
|
|
|
Medical device DVT expenses (RD&E)
|
|
|
1,351
|
|
|
|
2,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,351
|
|
|
|
2,270
|
|
|
Consolidation and optimization costs
|
|
|
17,974
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
274
|
|
|
|
-
|
|
|
|
18,248
|
|
|
|
-
|
|
|
Integration expenses
|
|
|
(77
|
)
|
|
|
-
|
|
|
|
249
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
173
|
|
|
|
-
|
|
|
Asset dispositions, severance and other
|
|
|
(131
|
)
|
|
|
152
|
|
|
|
39
|
|
|
|
607
|
|
|
|
36
|
|
|
|
-
|
|
|
|
(56
|
)
|
|
|
759
|
|
|
|
Adjusted operating income (loss)
|
|
$
|
23,509
|
|
|
$
|
16,206
|
|
|
$
|
6,632
|
|
|
$
|
2,859
|
|
|
$
|
(9,020
|
)
|
|
$
|
(3,317
|
)
|
|
$
|
21,121
|
|
|
$
|
15,748
|
|
|
|
Adjusted operating margin
|
|
|
19.8
|
%
|
|
|
13.4
|
%
|
|
|
16.5
|
%
|
|
|
14.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
13.3
|
%
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical device related adjusted expenses (excluding DVT)
|
|
$
|
6,313
|
|
|
$
|
6,058
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,313
|
|
|
$
|
6,058
|
|
|
|
Adjusted operating income excluding medical device initiatives
|
|
$
|
29,822
|
|
|
$
|
22,264
|
|
|
$
|
6,632
|
|
|
$
|
2,859
|
|
|
$
|
(9,020
|
)
|
|
$
|
(3,317
|
)
|
|
$
|
27,434
|
|
|
$
|
21,806
|
|
|
|
Adjusted operating margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding medical device initiatives
|
|
|
25.1
|
%
|
|
|
18.4
|
%
|
|
|
16.5
|
%
|
|
|
14.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
17.2
|
%
|
|
|
15.4
|
%
|
|
|
|
Year ended
|
|
|
|
Implantable Medical
|
|
Electrochem
|
|
Unallocated
|
|
Total
|
|
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
Dec. 28,
|
|
Dec. 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Total sales
|
|
$
|
483,165
|
|
|
$
|
489,065
|
|
|
$
|
163,012
|
|
|
$
|
79,757
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
646,177
|
|
|
$
|
568,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as reported
|
|
$
|
24,908
|
|
|
$
|
62,461
|
|
|
$
|
21,631
|
|
|
$
|
14,965
|
|
|
$
|
(20,718
|
)
|
|
$
|
(15,727
|
)
|
|
$
|
25,821
|
|
|
$
|
61,699
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization (COS)
|
|
|
-
|
|
|
|
-
|
|
|
|
532
|
|
|
|
177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
532
|
|
|
|
177
|
|
|
Medical device DVT expenses (RD&E)
|
|
|
5,190
|
|
|
|
5,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,190
|
|
|
-
|
5,133
|
|
|
Consolidation and optimization costs
|
|
|
34,378
|
|
|
|
425
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,670
|
|
|
|
-
|
|
|
|
39,048
|
|
|
-
|
425
|
|
|
Integration expenses
|
|
|
167
|
|
|
|
-
|
|
|
|
1,287
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
1,460
|
|
|
-
|
-
|
|
|
Asset dispositions, severance and other
|
|
|
247
|
|
|
|
51
|
|
|
|
883
|
|
|
|
117
|
|
|
|
708
|
|
|
|
-
|
|
|
|
1,838
|
|
|
-
|
168
|
|
|
Adjusted operating income (loss)
|
|
$
|
64,890
|
|
|
$
|
68,070
|
|
|
$
|
24,333
|
|
|
$
|
15,259
|
|
|
$
|
(15,334
|
)
|
|
$
|
(15,727
|
)
|
|
$
|
73,889
|
|
|
$
|
67,602
|
|
|
Adjusted operating margin
|
|
|
13.4
|
%
|
|
|
13.9
|
%
|
|
|
14.9
|
%
|
|
|
19.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
11.4
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical device related adjusted expenses (excluding DVT)
|
|
$
|
28,453
|
|
|
$
|
22,080
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
28,453
|
|
|
$
|
22,080
|
|
|
Adjusted operating income excluding medical device initiatives
|
|
$
|
93,343
|
|
|
$
|
90,150
|
|
|
$
|
24,333
|
|
|
$
|
15,259
|
|
|
$
|
(15,334
|
)
|
|
$
|
(15,727
|
)
|
|
$
|
102,342
|
|
|
$
|
89,682
|
|
|
Adjusted operating margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding medical device initiatives
|
|
|
19.3
|
%
|
|
|
18.4
|
%
|
|
|
14.9
|
%
|
|
|
19.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
15.8
|
%
|
|
|
15.8
|
%
|
Table B: Net Income (Loss) and Diluted EPS Reconciliation
|
|
A reconciliation of GAAP net income (loss) and diluted EPS to
adjusted amounts is as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Year ended
|
|
|
|
|
December 28,
|
|
December 30,
|
|
December 28,
|
|
|
December 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
|
2011
|
Net income (loss) as reported
|
|
$
|
(5,556
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
5,639
|
|
$
|
0.24
|
|
$
|
(4,799
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
33,122
|
|
|
$
|
1.40
|
|
Adjustments:(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory step-up amortization (COS)
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
|
-
|
|
|
346
|
|
|
|
0.01
|
|
|
|
115
|
|
|
|
-
|
|
|
Medical device DVT expenses (RD&E)
|
|
|
879
|
|
|
|
0.04
|
|
|
|
1,476
|
|
|
0.06
|
|
|
3,374
|
|
|
|
0.14
|
|
|
|
3,336
|
|
|
|
0.14
|
|
|
Consolidation and optimization costs
|
|
|
13,900
|
|
|
|
0.58
|
|
|
|
-
|
|
|
-
|
|
|
28,934
|
|
|
|
1.21
|
|
|
|
276
|
|
|
|
0.01
|
|
|
Integration expenses
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
949
|
|
|
|
0.04
|
|
|
|
-
|
|
|
|
-
|
|
|
Asset dispositions, severance and other
|
|
|
(44
|
)
|
|
|
-
|
|
|
|
493
|
|
|
0.02
|
|
|
1,186
|
|
|
|
0.05
|
|
|
|
109
|
|
|
|
-
|
|
|
(Gain) loss on cost and equity method investments, net(b)
|
|
|
297
|
|
|
|
0.01
|
|
|
|
-
|
|
|
-
|
|
|
69
|
|
|
|
-
|
|
|
|
(2,751
|
)
|
|
|
(0.12
|
)
|
|
CSN conversion option discount amortization(c)
|
|
|
1,821
|
|
|
|
0.08
|
|
|
|
1,417
|
|
|
0.06
|
|
|
6,234
|
|
|
|
0.26
|
|
|
|
5,515
|
|
|
|
0.23
|
|
|
Swiss tax impact(d)
|
|
|
1,182
|
|
|
|
0.05
|
|
|
|
-
|
|
|
-
|
|
|
6,190
|
|
|
|
0.26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
Adjusted net income and diluted EPS(e)
|
|
$
|
12,591
|
|
|
$
|
0.53
|
|
|
$
|
9,140
|
|
$
|
0.39
|
|
$
|
42,483
|
|
|
$
|
1.77
|
|
|
$
|
39,722
|
|
|
$
|
1.68
|
|
|
Adjusted diluted weighted average shares (f)
|
|
|
23,956
|
|
|
|
|
|
|
23,607
|
|
|
|
|
|
23,947
|
|
|
|
|
|
|
23,636
|
|
|
|
|
(a)
|
|
Net of tax amounts computed using U.S. and foreign statutory tax
rates of 35% and 22.5%, respectively, for items incurred in those
geographic locations.
|
(b)
|
|
Pre-tax amount is a loss of $456 thousand for the quarter and $106
thousand for the year-to-date periods for 2012 and a gain of $4.2
million for the year-to-date period of 2011.
|
(c)
|
|
Pre-tax amount is $2.8 million and $9.6 million for the 2012 quarter
and year-to-date periods, respectively, and $2.2 million and $8.5
million for the 2011 quarter and year-to-date periods, respectively.
|
(d)
|
|
Relates to the loss of our Swiss tax holiday due to our decision to
transfer manufacturing out of Switzerland, as well as the
establishment of a valuation allowance on our Swiss deferred tax
assets as it is more likely than not that they will not be fully
realized.
|
(e)
|
|
The per share data in this table has been rounded to the nearest
$0.01 and therefore may not sum to the total.
|
(f)
|
|
Weighted average diluted shares for the fourth quarter and
year-to-date periods of 2012 includes 295 thousand and 363 thousand
shares, respectively, of dilution related to outstanding stock
incentive awards that were not dilutive for GAAP diluted EPS
purposes.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
|
(in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Year ended
|
|
|
|
|
December 28,
|
|
December 30,
|
|
December 28,
|
|
December 30,
|
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
159,186
|
|
|
$
|
141,746
|
|
|
$
|
646,177
|
|
|
$
|
568,822
|
|
Cost of sales
|
|
|
107,312
|
|
|
|
97,074
|
|
|
|
444,528
|
|
|
|
388,469
|
|
|
Gross profit
|
|
|
51,874
|
|
|
|
44,672
|
|
|
|
201,649
|
|
|
|
180,353
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
20,939
|
|
|
|
18,568
|
|
|
|
80,992
|
|
|
|
72,548
|
|
|
Research, development and engineering costs, net
|
|
|
11,165
|
|
|
|
12,803
|
|
|
|
52,490
|
|
|
|
45,513
|
|
|
Other operating expenses, net
|
|
|
18,365
|
|
|
|
759
|
|
|
|
42,346
|
|
|
|
593
|
|
|
|
Total operating expenses
|
|
|
50,469
|
|
|
|
32,130
|
|
|
|
175,828
|
|
|
|
118,654
|
|
|
|
Operating income
|
|
|
1,405
|
|
|
|
12,542
|
|
|
|
25,821
|
|
|
|
61,699
|
|
Interest expense
|
|
|
4,879
|
|
|
|
4,126
|
|
|
|
18,055
|
|
|
|
16,928
|
|
Interest income
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(21
|
)
|
(Gain) loss on cost and equity method investments, net
|
|
|
456
|
|
|
|
-
|
|
|
|
106
|
|
|
|
(4,232
|
)
|
Other (income) expense, net
|
|
|
157
|
|
|
|
(134
|
)
|
|
|
931
|
|
|
|
632
|
|
|
Income (loss) before provision for income taxes
|
|
|
(4,087
|
)
|
|
|
8,562
|
|
|
|
6,730
|
|
|
|
48,392
|
|
Provision for income taxes
|
|
|
1,469
|
|
|
|
2,923
|
|
|
|
11,529
|
|
|
|
15,270
|
|
|
|
Net income (loss)
|
|
$
|
(5,556
|
)
|
|
$
|
5,639
|
|
|
$
|
(4,799
|
)
|
|
$
|
33,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
|
$
|
0.24
|
|
|
$
|
(0.20
|
)
|
|
$
|
1.42
|
|
|
Diluted
|
|
$
|
(0.23
|
)
|
|
$
|
0.24
|
|
|
$
|
(0.20
|
)
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
23,661
|
|
|
|
23,309
|
|
|
|
23,584
|
|
|
|
23,258
|
|
|
Diluted
|
|
|
23,661
|
|
|
|
23,607
|
|
|
|
23,584
|
|
|
|
23,636
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
ASSETS
|
|
December 28,
|
|
December 30,
|
|
2012
|
|
2011
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,284
|
|
|
$
|
36,508
|
|
|
Accounts receivable, net
|
|
|
120,923
|
|
|
|
101,946
|
|
|
Inventories
|
|
|
106,612
|
|
|
|
109,913
|
|
|
Refundable income taxes
|
|
|
-
|
|
|
|
1,292
|
|
|
Deferred income taxes
|
|
|
7,678
|
|
|
|
7,828
|
|
|
Prepaid expenses and other current assets
|
|
|
12,636
|
|
|
|
7,469
|
|
|
|
Total current assets
|
|
|
268,133
|
|
|
|
264,956
|
|
Property, plant and equipment, net
|
|
|
150,893
|
|
|
|
145,806
|
|
Amortizing intangible assets, net
|
|
|
87,345
|
|
|
|
100,258
|
|
Indefinite-lived intangible assets
|
|
|
20,828
|
|
|
|
20,288
|
|
Goodwill
|
|
|
349,035
|
|
|
|
338,653
|
|
Deferred income taxes
|
|
|
2,534
|
|
|
|
2,450
|
|
Other assets
|
|
|
11,107
|
|
|
|
8,936
|
|
|
|
Total assets
|
|
$
|
889,875
|
|
|
$
|
881,347
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
45,274
|
|
|
$
|
40,665
|
|
|
Income taxes payable
|
|
|
94
|
|
|
|
-
|
|
|
Deferred income taxes
|
|
|
874
|
|
|
|
845
|
|
|
Accrued expenses
|
|
|
45,515
|
|
|
|
52,539
|
|
|
|
Total current liabilities
|
|
|
91,757
|
|
|
|
94,049
|
|
Long-term debt
|
|
|
225,414
|
|
|
|
235,950
|
|
Deferred income taxes
|
|
|
82,462
|
|
|
|
75,203
|
|
Other long-term liabilities
|
|
|
9,382
|
|
|
|
8,862
|
|
|
|
Total liabilities
|
|
|
409,015
|
|
|
|
414,064
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
Common stock
|
|
|
24
|
|
|
|
23
|
|
|
Additional paid-in capital
|
320,618
|
|
|
|
307,196
|
|
|
Treasury stock
|
|
|
(452
|
)
|
|
|
(1,387
|
)
|
|
Retained earnings
|
|
|
147,723
|
|
|
|
152,522
|
|
|
Accumulated other comprehensive income
|
|
|
12,947
|
|
|
|
8,929
|
|
|
|
Total stockholders’ equity
|
|
|
480,860
|
|
|
|
467,283
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
889,875
|
|
|
$
|
881,347
|
|
Source: Greatbatch, Inc.
Greatbatch, Inc.
Michael Dinkins
Senior Vice President and
Chief Financial Officer
(214) 618-5242
mdinkins@greatbatch.com