More annual reports from Integer:
2023 ReportPeers and competitors of Integer:
Zimmer Biomet1 0 0 2 t r o p e r l a u n n a T H E P O W E R T O D O G R E A T T H I N G S TM T H E P O W E R T O D O G R E A T T H I N G S TM ® W I L S O N G R E A T B A T C H T E C H N O L O G I E S , I N C . Wilson Greatbatch Technologies, Inc. / 10,000 Wehrle Drive / Clarence, New York 14031 / 716-759-6901 / www.greatbatch.com ® Printed in U.S.A. A B O U T W I L S O N G R E A T B A T C H T E C H N O L O G I E S Wilson Greatbatch Technologies, Inc. (WGT) is a leading developer and manufacturer of power sources, wet tantalum capacitors and precision engineered components used in implantable medical T H E devices and other demanding applications. For over 30 years, WGT’s products have provided THE POWER TO DO GREAT THINGSTM for the medical device industry. As medical technology has advanced, WGT has led the way in the development of smaller and more powerful batteries, capacitors and precision engineered components for implantable medical devices. WGT’s innovation P O W E R and expertise enable its customers to advance their systems’ technology: making implantable devices smaller and longer lasting with enhanced functionality. WGT also leverages its expertise in designing and developing innovative power sources for demanding applications such as aerospace, oil and gas exploration, and oceanographic applications around the world. T O D O G R E A T T H I N G S TM T A B L E O F C O N T E N T S Financial Highlights ............................................................................................................................1 Letter to Shareholders .........................................................................................................................3 Medical Technology ............................................................................................................................9 Commercial Technology ....................................................................................................................13 Selected Consolidated Financial Data................................................................................................15 Management’s Discussion & Analysis ...............................................................................................16 Consolidated Financial Statements ....................................................................................................24 Report of Independent Auditors.........................................................................................................26 Notes to Consolidated Financial Statements ......................................................................................26 Shareholder Information....................................................................................................................39 Board of Directors and Management .................................................................................................40 The Power To Do Great ThingsTM is a trademark of Wilson Greatbatch Technologies, Inc. OPERATIONS: Implantable Power Sources 10,000 Wehrle Drive Clarence, NY 14031 Capacitor Operations 4455 Genesee Street Cheektowaga, NY 14225 Engineered Components 4096 Barton Road Clarence, NY 14031 Greatbatch-Hittman, Inc. 9190 Red Branch Road Columbia, MD 21045 Greatbatch-Sierra, Inc. 5200 Sigstrom Drive Carson City, NV 89706 Electrochem 10,000 Wehrle Drive Clarence, NY 14031 100 Energy Drive Canton, MA 02021 F I N A N C I A L H I G H L I G H T S Earnings (loss) per share from continuing operations - diluted $ 0.58 $ 0.07 $ (0.14) $ 0.06 (in thousands, except per share data and ratio analysis section) Fiscal Year OPERATIONS Revenues Gross profit Research, development and engineering (RD&E) costs, net Earnings before interest, taxes, depreciation and amortization (EBITDA) Income (loss) from continuing operations(b) Net income (loss) Net earnings (loss) per share - basic Net earnings (loss) per share - diluted Weighted average shares outstanding - basic Weighted average shares outstanding - diluted CASH FLOW AND BALANCE SHEET Depreciation and amortization Cash flow from operations Inventories Total assets Total debt Total liabilities Total stockholders’ equity RATIO ANALYSIS AND OTHER Debt, net of cash, to total capitalization Current ratio Interest coverage ratio Inventory turns Number of employees Number of registered shareholders 2001 2000 1999 1998 1997(a) $ 135,575 $ 97,790 $ 79,235 $ 77,361 $ 57,661 60,859 12,575 36,034 11,591 8,597 42,344 9,941 26,291 1,020 (548) 38,178 9,339 40,907 12,190 22,152 20,543 (1,709) (2,272) 690 690 0.44 0.43 19,563 19,945 (0.04) (0.18) (0.04) (0.18) 14,167 14,434 12,491 12,491 0.07 0.06 10,461 10,677 30,498 9,019 12,346 (1,574) (1,574) NA NA NA NA NA $ 13,929 $ 12,102 $ 11,363 $ 9,190 $ 6,814 21,455 29,026 283,520 74,000 94,676 188,844 12% 2.85 10.04 3.5 1,152 233 18,160 13,643 181,647 33,602 45,813 135,834 20% 2.01 2.03 4.1 834 87 8,992 13,583 189,779 132,402 143,372 46,407 72% 2.12 1.65 3.1 734 NA 9,053 (4,219) 13,291 194,390 130,733 148,795 45,595 72% 1.66 1.94 3.1 579 NA 9,872 111,709 70,863 83,470 28,239 69% 1.74 1.50 3.0 586 NA (a) The 1997 information includes Wilson Greatbatch Ltd. (“Predecessor”) for the period from January 1, 1997 to July 10, 1997 and Wilson Greatbatch Technologies, Inc. for the period from July 11, 1997 to January 2, 1998 as if the July 1997 leveraged buyout had occurred on January 1, 1997. These amounts were derived by combining financial data from the audited historical financial statements of both Wilson Greatbatch Ltd. and Wilson Greatbatch Technologies, Inc. for fiscal 1997. Such amounts exclude the write-off of purchased, in-process research, development and engineering cost of $23.8 million and transaction expenses of $11.1 million. It includes additional interest of $3.9 million and additional intangible amortization of $1.8 million. (b) Represents income (loss) before extraordinary loss and cumulative effect of accounting change. OUR MISSION...To be the world’s leading independent manufacturer manufacturing innovative products that contribute to the benefit of of innovative power sources, precision components, and provider of society. Over the long term, we will promote the security of our share- specialty devices for medical science and similar technically demanding holders’ investment, the security of supply to our customers and the security applications. of opportunity for our employees. We will emphasize safety, quality and OUR VISION...To enhance the value of the Company for its customers, customer satisfaction in order to promote personal and business growth in the WGT employee team members and its shareholders by developing and an environment that encourages openness, trust and teamwork. 1 w i l s o n g r e a t b a t c h t e c h n o l o g i e s , i n c . ■ 1 0 0 2 t r o p e r l a u n n a e n a b l i n g t e c h n o l o g i e s t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s e n •a¯´bl´i n g Edward F. Voboril Chairman, President and CEO TO OUR SHAREHOLDERS, FINANCIAL HIGHLIGHTS OUR CUSTOMERS AND OUR EMPLOYEES... I am proud to report that our company has had a year of accomplishment from every point of view. Organic The year 2001 was an outstanding year for our company revenue growth, cash generation, a successful acquisition, by any measure. ■ Record revenues of $135.6 million (The prior year’s record was beaten by the end of the third quarter of 2001.) ■ Record income from continuing operations of development of our intellectual property portfolio, and progress on important new technologies are some of the key areas where our people did an outstanding job and recorded significant successes during 2001. $11.6 million. Revenues reached a record $135.6 million, a 39% ■ Record net income of $8.6 million. ■ Record diluted earnings per share from continuing increase over the prior year, and came across all of the Company’s product lines. In addition, we added a new operations of $0.58. business, Greatbatch-Sierra, in June of 2001. Income ■ Record EBITDA of $36.0 million. ■ Successful secondary offering. Institution of Six Sigma Quality Program. ■ Successful acquisition of Greatbatch-Sierra. ■ Established new Emerging Technologies business unit. ■ Development of exciting new technologies for our new product pipeline. ■ Major Research & Development facility expansion underway. ■ Twenty-five new patents granted. from continuing operations of $11.6 million represented another record, and was $10.6 million over the $1.0 million of 2000. This substantial improvement was due both to sales growth and margin expansion in 2001. Net profit in 2001 produced yet another record of $8.6 million, or $0.43 per diluted share, compared with a net loss of $0.5 million or $0.04 cents per diluted share for 2000. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 37% in 2001 to a record $36.0 million. This increase reflects our continued strong cash flow from our focus on operations and ■ Named by RED HERRING MAGAZINE in 2001 as one of the top 25 technology IPOs of 2000. working capital management. 3 l e t t e r t o s h a r e h o l d e r s ■ ■ 4 s r e d l o h e r a h s o t r e t t e l Due in part to our secondary offering and primary share thrive by resting on its laurels. We know that our placement in July of 2001, our strengthened balance sheet strategic imperative is to reinvent ourselves as advances gives us the means to reinforce our strategic profile in medical technologies provide new approaches to through acquisitions or other investments that will extend therapy for millions of people worldwide. So, our third our existing business, broaden our customer base, and growth area will come from participation in emerging expand our product lines into adjacent and higher value- medical device markets like hearing assist, artificial heart added markets. The result is that we head into 2002 and and left ventricular assist devices which will address beyond with a platform for growth that has been greatly these new therapeutic approaches. strengthened by our successes. BUSINESS OVERVIEW Looking ahead, our opportunities have never been greater. Our core medical market, cardiac rhythm management Over the next few years, substantial growth will come (CRM), is poised for new growth at a time when we are from three areas. First, recently completed clinical confident that we can continue to bring new products and trials have conclusively demonstrated the benefits of implantable electronic devices for patients with congestive heart failure, a degenerative disease that is the number one cause of hospitalizations in the United States. Our implantable power components (batteries and capacitors) will ride this wave over the next three to five years. Second, there is an accelerating trend on the part of regulatory agencies to require that implantable medical electronics be protected from interference from devices like cell phones and two-way pagers. Greatbatch-Sierra, the business we acquired in June 2001, will exploit this opportunity through its proprietary filtering technology. But looking a bit further into the future, we know that a technology company like Wilson Greatbatch cannot (in millions) $150 125 100 75 50 25 0 (in millions) $70 60 50 40 30 20 10 0 r e v e n u e s 135.6 77.4 79.2 97.8 57.7 1997(a) 1998 1999 2000 2001 g r o s s p r o f i t 60.9 40.9 38.2 42.3 30.5 1997(a) 1998 1999 2000 2001 (a) See note (a) to Financial Highlights on page 1. e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ enabling technologies to market and raise the industry recover and the effects of the longer-term oil and gas benchmark for product performance and quality. reserve depletion cycle become apparent. Longer term, we have opportunities in new, but closely WGT QUALITY allied, implantable medical devices with applications, for For more than 31 years, we have nurtured a culture that is example, in neurophysiology, drug infusion, and otology. focused on quality. This year, by implementing the tools These markets and technologies will be developed as we and disciplines of "Six SigmaTM," a scientific methodology go forward into the future. At the same time, petroleum of measuring, analyzing, improving, and controlling and natural gas exploration and production from which every process, we will take quality to a new level at WGT. we derive approximately 20% of our revenues, is expected Training is essential to the successful implementation of to maintain its growth once the world economy begins to a Six Sigma Quality Program. Every employee at WGT (in millions) $40 30 20 10 0 20.5 22.2 12.3 has been trained in continuous improvement quality tools. E B I T D A 36.0 Additionally, we are making the investment in training approximately 150 "Green Belts" and "Black Belts" that 26.3 will lead projects, mentor, and broaden the involvement in this initiative throughout the organization. Our initial focus will be on projects that reduce variability and 1997(a) 1998 1999 2000 2001 improve efficiency in our internal organization. We will EBITDA - earnings before interest, taxes, depreciation and amortization. (a) See note (a) to Financial Highlights on page 1. then move the focus to "Designing for Six Sigma" to ensure that, from the start, our customers get what they d e b t & e q u i t y want, when they want it. Our leaders at every level of WGT 74.0 188.8 recognize the importance of Six Sigma quality to our future. The Six Sigma initiative will drive rigorous process discipline and a relentless focus on customer satisfaction. (in millions) $275 250 225 200 175 150 125 100 75 50 25 0 130.7 132.4 33.6 135.8 70.9 28.2 45.6 46.4 1997 1998 1999 2000 2001 OUR PRODUCTS/MARKETS Medical power, our largest traditional business, includes batteries and power capacitors for implantable medical devices. Our original end-use market, bradycardia pacing, Six SigmaTM is a trademark of Motorola, Inc. 5 l e t t e r t o s h a r e h o l d e r s ■ 6 s r e d l o h e r a h s o t r e t t e l where we have sold lithium iodine batteries for over 25 technologies that will enable our customers to develop years, is considered a mature market and will provide ever more powerful solutions to these medical challenges single digit growth rates. However, the power source in smaller packages. market for implantable cardioverter defibrillators (ICDs), As a result of this year’s successful acquisition of where we sell our high-value-added silver vanadium Greatbatch-Sierra, our Medical Components group will oxide (SVO) technology cells, has been growing at a 15% benefit from the rapidly growing market for electromag- to 20% pace since 1985. Our growth in the ICD market- netic interference (EMI) protection of implantable medical place is expected to be driven by demographics and the devices. Accelerated acceptance of ICDs will provide an broadening of patient groups who will be eligible to added layer of growth for both our Greatbatch-Hittman receive ICDs for new treatment of an expanding list of and Greatbatch-Sierra divisions. Electromagnetic inter- indications. The MADIT II study, concluded in 2001, ference filtering is an emerging technology driven by a showed that two very large, new populations could benefit market shift that is expected to require protection for all from ICDs today, but do not yet receive them. The first, implantable electronics in order to make them immune to patients suffering from the most severe forms of congestive interference from cell phones, two-way pagers and the heart failure (CHF), will have the largest impact on our like. This perspective brought us to our strategic decision battery revenues when they begin to receive implants over to acquire Greatbatch-Sierra in June of 2001. Greatbatch- the next few years. Another opportunity is the potentially Sierra brought significant intellectual property in filtering large number of asymptomatic patients who could benefit feedthroughs for ICDs, as well as enabling technology from an ICD to protect them in the event of myocardial currently under development at Greatbatch-Hittman, that infarction or sudden cardiac death, but who have not received devices to date. Our implantable battery, (in millions) $15 R D & E e x p e n s e s capacitor, and filtered feedthrough products should benefit 12.2 12.6 from the combined growth of these indications, realizing compound annual revenue growths at double-digit levels. Beyond today’s products, we will protect and expand our opportunities by introducing improved ICD battery 10 5 0 9.0 9.3 9.9 1997(a) 1998 1999 2000 2001 (a) See note (a) to Financial Highlights on page 1. e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ will integrate the filtered capacitor with the feedthrough and engineering. Many of the business opportunities we resulting in a single assembly with lower cost and better envision will depend upon the successful development of performance than the current hybrid. Building on a base of the new products and processes being pursued by our business as a supplier of critical components and Research & Development group. In 2001, we broke ground assemblies to the CRM market, Engineered Components on a state-of-the-art $4.5 million Research & Development will continue to develop new products and add value addition to house our growing R&D Group effort. through a higher level of assemblies. Our Electrochem Occupancy is scheduled for May 2002. The collective business provides enabling technologies to demanding imagination and creativity of the members of our techni- markets where the price of failure far exceeds the price of cal staff produced a record of 25 granted patents in 2001. the battery, like petroleum exploration and space flight. We ended 2001 with enormous confidence in the future EMERGING TECHNOLOGIES of our Company. Confidence in our destiny to continue While significant new directions are being shaped by the and lead change, seize opportunities and grow our activities of our established business units, we have Company, confidence in our quality and technologies to recognized the need to find additional opportunities that enable solutions and solve problems and confidence in spring from our existing markets and established our people who are benefiting from the development of technical competencies. This recognition has led us to the leaders at every level of our organization. Our challenge creation of a new business unit within WGT, designated will be to continue to focus on our customers and key Emerging Technologies. Emerging Technologies currently opportunities while leveraging our technology and includes implantable drug pumps and rechargeable quality leadership to continue our successes. The coming lithium-ion battery technology for implantable devices, year and beyond offers a time of great challenge and such as in hearing-assist, artif icial heart, and left excitement for everyone at WGT. It is a privilege for me ventricular assist devices. to lead your Company at this important time. I look RESEARCH & DEVELOPMENT forward to sharing our exciting future with you. We now employ about 200 scientists, engineers and Sincerely, technicians who are dedicated to the full time advancement of our enabling technologies. On average, we spend over 10% of sales revenue yearly on research, development Edward F. Voboril Chairman, President and CEO March 11, 2002 7 l e t t e r t o s h a r e h o l d e r s ■ y g o l o n h c e t l a c i d e m e n a b l i n g t e c h n o l o g i e s t o p r o v i d e a b e t t e r q u a l i t y o f l i f e e n •a¯´bl´i n g Wilson Greatbatch Technologies, Inc. (WGT) has developed enabling technologies which are The world smallest pacemaker, a pediatric model powered by a WGT battery. applications...pacemakers and defibrillators. The pacemaker market continues to represent presently used to power over 90% of the world’s pacemakers steady growth, in part based upon the predictable needs of and defibrillators – it is that fundamental statement that an aging population. More potential growth exists on the best embodies our commitment to providing the enabling defibrillator side, however, as advances continue to be technologies that, in turn, enhance and provide life for made in that technology. Even more exciting is Wilson millions worldwide. For a large part of our corporate Greatbatch’s development of new battery products for history, it was the WGT power cell that almost exclusively new cardiac rhythm management devices. defined our contribution to the implantable cardiac rhythm Our customers, the device manufacturers, continue to add management (CRM) device industry. And while battery features such as remote telemetry capability to their sales still represent 35% of our total revenue, our presence products that demand more sophisticated power sources. within CRM devices has grown tremendously. Batteries, We are driven to provide enabling technical solutions to capacitors, electromagnetic interference (EMI) filtered meet or exceed our customers’ requirements in smaller, feed-throughs, leads, distal eluting tips, biocompatible uniquely shaped packages containing increasingly higher coatings, terminal blocks and molded headers are all energy densities. Our company meets these significant examples of WGT products that are enabling significant challenges with industry leading innovative technical device size reduction while enhancing device performance. approaches involving new chemistries, folded cathode IMPLANTABLE POWER SOURCES configurations, novel form factors (allowing custom The traditional high-tech power cell segment of the shapes to more efficiently fit into devices) and new and Implantable Power Sources (IPS) business remains a robust sophisticated cathode/barrier fabrication techniques. growth engine that posted record 2001 revenues of $46.9 IMPLANTABLE CAPACITORS million representing a 13% increase over 2000 sales. Closely related in function to our batteries, as energy These sales were driven by two main medical product storage devices, are our new implantable wet tantalum 9 m e d i c a l t e c h n o l o g y ■ 10 y g o l o n h c e t l a c i d e m Novel form batteries, capacitors and EMI filtered feedthroughs. capacitors. The implantable capacitor business has now evolved from a pilot/prototype operation to a full commercial entity. This product also bene- fits from a synergy with our the implantable valve, which precisely delivers fluid in pain management cases (helping patients with chronic back pain, cancer and spinal injury.) These are truly enabling traditional business, leveraging new battery technologies technologies in every sense – not only making the device and designs, to create capacitors in unique, customer manufacture possible, but enabling people to live fuller, proprietary shapes that most efficiently fill the limited richer and potentially longer lives. Our ongoing commit- spaces inside a CRM device. ment to the components business will mean continually MEDICAL COMPONENTS Significant news in the components segment of our business this year was the acquisition of what is now known as Greatbatch-Sierra. This valuable addition to our company provides still another portal of enabling technologies to offer comprehensive, integrated, solution- driven resources to our device customers. Our Medical Components Group represented by Greatbatch-Sierra, Greatbatch-Hittman and Engineered Components amounted to 30% of total revenue in 2001. It is important to note, however, that future performance will not only come from what we regard as traditional component sales, but also from involvement in exciting new projects. Some of these products include the Left Ventricular upgrading capital equipment and processes to enhance production. At the same time we will be shifting to more sub-assembly work, where we have the opportunity to add (in millions) $110 100 90 80 70 60 50 40 30 20 10 0 m e d i c a l r e v e n u e s 46.9 20.3 40.5 41.3 12.6 29.9 40.5 50.3 2.3 26.4 0.1 14.0 40.2 5.7 1997(a) 1998 1999 2000 2001 Assist Device (LVAD), the insulin delivery pump, and Power Sources ■ Capacitors ■ Components (a) See note (a) to Financial Highlights on page 1. e n •a¯´bl´i n g t o p r o v i d e a b e t t e r q u a l i t y o f l i f e ■ ■ significant additional value for customers. Planned manufacturing enhance- ments will include increas- ing clean-room capability, This one piece molded pacemaker header illustrates an Engineered Components’ sub-assembly. a 10-20% increase in longevity over existing systems. New Research & Development labs are presently being built hybrid molding and glass-to-metal seal fabrication and will be occupied in Spring 2002, but perhaps the (focused on increasing our capabilities and throughput). most telling indicators of our R&D strength are the 25 RESEARCH & DEVELOPMENT patents granted to WGT in 2001 and the 85 patents in the Driving much of the technological growth we’re seeing last 5 years. All of our aforementioned capabilities, in so many areas is, of course, our Research & unified with cutting edge "best practices" Six Sigma Development program. Current projects in R&D include quality management and a continually enhanced exciting work with lithium-ion rechargeable batteries for Information Technologies (IT) effort assure that Wilson LVAD and artif icial heart use (WGT batteries are Greatbatch Technologies, Inc. and its people will powering the headline-making Abiomed artificial heart, continue our tradition of providing the cutting edge, as well as the Jarvik LVAD). New batteries for defibrilla- industry leading enabling technologies needed by our tors and congestive heart failure (CHF) devices are also customers and, in turn, their patients. under active investigation having the potential to provide m e d i c a l s e g m e n t i n c o m e f r o m o p e r a t i o n s 39.0 28.9 29.0 30.0 23.2 n e w p a t e n t s g r a n t e d 25 23 13 13 30 20 10 11 0 1997(a) 1998 1999 2000 2001 1997 1998 1999 2000 2001 (in millions) $40 30 20 10 0 (a) See note (a) to Financial Highlights on page 1. 11 m e d i c a l t e c h n o l o g y ■ y g o l o n h c e t l a i c r e m m o c e n a b l i n g t e c h n o l o g i e s t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s e n •a¯´bl´i n g 2001 was an important year for Electrochem, WGT’s Commercial Battery business unit. Revenues for 2001 Electrochem’s batteries are as diverse in configuration as they are in their application. customers. This is particularly important to our customers for whom our batteries serve as critical components in large exceeded $27.9 million. The acquisition of Battery and complex processes and operations. The two Engineering, Inc. (now Electrochem-Canton) in August facilities assure a continuous supply of batteries and 2000, was perfectly timed to take advantage of the that, in turn, offers a huge advantage over almost all of significant increase in battery demand from our oilfield our competitors. services customers. The continuing integration of the Our new Super-D cell, another outstanding example of Canton product line and related production capability our enabling technology, also played an important part in into Electrochem has progressed well in 2001. Some our 2001 story as it passed critical tests in the important products have been consolidated with the existing Marine Seismic market and rewarded our efforts with Electrochem product line and new products are in significant new orders. A new supply agreement with our development that will provide enabling solutions to our largest customer for pipeline inspection gauge batteries customers and are expected to open market segments not continues our leadership in this important and growing traditionally served by Electrochem. The strategic segment. Additionally, Electrochem is presently engaged initiative to increase Electrochem’s share of the value- in the intensive process of becoming our largest added pack business was implemented this year by Commercial customer’s first certified supplier. This again qualifying Electrochem-built battery packs for a number is evidence of the confidence shown in Electrochem when of key customers in the oilfield services industry. the requirement demands remote power supplies for Electrochem’s position and value in the marketplace was critical applications and/or demanding environments. further enhanced with the addition of Electrochem- Additionally, new supply agreements with two key Canton, since the two independent operating facilities customers resulted in a significant increase in business inherently address security of supply concerns of in the second half of 2001. 13 c o m m e r c i a l t e c h n o l o g y ■ 14 y g o l o n h c e t l a i c r e m m o c Battery packs offer dependable power in challenging environments. On the Electrochem manufac- turing side of the story, significant process and systems improvements, as well as new Six Sigma quality initiatives have improved productivity Electrochem not only provides sales and service support through our world-wide net- work of qualified distributors, but additionally provides customers with specif ic and at the same time reduced waste. Enhancements to applications engineering, technical support, on-site existing manufacturing technologies have significantly safety training, dock-to-stock programs and custom increased throughput and shortened delivery times. engineered and manufactured products. Concurrently, on-time shipments are a top priority, again Throughout our markets, Electrochem’s brand name is demonstrating our commitment to customer satisfaction. synonymous with enabling technologies, customized The high level of attention paid to continuous improve- solutions, and the highest quality, highest reliability ment is evident not only in our product but becomes more power sources available. With the addition of and more important in our service to the market. Electrochem-Canton, we expect to leverage that Competition is keen and we work hard to position our reputation into new and exciting applications that will services ahead of that competition through the quality of enhance revenues, and allow us to diversify into new our product as well as our service capabilities. segments of existing markets. (in millions) $30 25 20 15 10 5 0 c o m m e r c i a l r e v e n u e s 27.9 12.9 11.8 10.0 14.0 c o m m e r c i a l s e g m e n t i n c o m e f r o m o p e r a t i o n s 8.8 4.2 4.3 3.5 2.7 (in millions) $9 8 7 6 5 4 3 2 1 0 1997(a) 1998 1999 2000 2001 1997(a) 1998 1999 2000 2001 (a) See note (a) to Financial Highlights on page 1. (a) See note (a) to Financial Highlights on page 1. e n •a¯´bl´i n g t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s ■ S E L E C T E D C O N S O L I D A T E D F I N A N C I A L D A T A Wilson Greatbatch Technologies, Inc. Wilson Greatbatch Ltd.(1) July 11, 1997 to January 1, 1997 December 28, 2001(4) December 29, 2000(3) December 31, 1999 January 1, 1999(2) January 2, 1998 to July 10, 1997 $ 135,575 $ 97,790 $ 79,235 $ 77,361 $ 27,193 $ 30,468 (In thousands, except per share data) Years / periods ended Revenues Cost of goods sold Gross profit Selling, general and administrative Research, development and engineering, net Intangible amortization Transaction related expenses Write-off of purchased in-process research, development and engineering Interest expense, net Other Income (loss) before income taxes, extraordinary loss and cumulative effect of accounting change 18,530 Income tax expense (benefit)(5) Extraordinary loss on retirement of debt Cumulative effect of accounting change 6,939 (2,994) — 74,716 60,859 18,174 12,575 7,726 — — 22,384 3,588 266 $ 0.44 $ 0.43 19,563 19,945 Net earnings (loss) per share(6) Basic Diluted Weighted average shares outstanding(6) Basic Diluted Financial position at year end: Total assets Long-term obligations Total liabilities Total stockholders’ equity 55,446 42,344 11,473 9,941 6,530 — — 14,400 12,958 (189) 1,631 611 (1,568) — 41,057 38,178 9,880 9,339 6,510 — — 12,449 13,420 1,343 36,454 40,907 11,484 12,190 5,197 — — 12,036 10,572 364 12,241 14,952 5,412 4,619 1,810 — 14,922 15,546 6,729 4,400 — 11,097 23,779 — (20,668) (6,680) 4,128 74 (2,314) 1,100 (24,870) (605) — (563) 410 — — (9,468) — — $ (0.04) $ (0.18) $ 0.07 $ (1.74) $ (874) $ (0.04) $ (0.18) $ 0.06 $ (1.74) $ (874) 14,167 14,434 12,491 12,491 10,461 10,677 8,855 8,855 252 (117) (6,815) 1,053 — — 9 9 NA NA NA NA $ 283,520 $ 181,647 $ 189,779 $ 194,390 $ 111,709 61,397 94,676 188,844 30,951 45,813 135,834 127,623 143,372 46,407 129,563 148,795 45,595 72,714 83,470 28,239 Net income (loss) $ 8,597 $ (548) $ (2,272) $ 690 $ (15,402) $ (7,868) (1) The financial data for periods prior to July 11, 1997 relate to Wilson Greatbatch Ltd., our predecessor. (2) In August 1998, we acquired the assets and liabilities of Greatbatch-Hittman. These figures include the results of operations of Greatbatch-Hittman from August 8, 1998 to January 1, 1999. (3) In August 2000, we acquired the capital stock of Battery Engineering, Inc. (BEI). These figures include the results of operations of BEI from August 4, 2000 to December 29, 2000. (4) In June 2001, we acquired substantially all of the assets and liabilities of Greatbatch-Sierra. These figures include the results of operations of Greatbatch-Sierra from June 18, 2001 to December 28, 2001. (5) Wilson Greatbatch Ltd., our predecessor, incurred minimal state taxes as a former subchapter S corporation. The federal and state taxes for the period from January 1, 1997 to July 10, 1997 are directly attributable to our acquisition of our predecessor in July 1997. (6) We calculate basic earnings per share by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. We calculate diluted earnings (loss) per share by adjusting for common stock equivalents, which consist of stock options. During the period from July 11, 1997 to January 2, 1998 and the year ended December 31, 1999, 0 and 0.2 million shares of common stock, respectively, were not included in the computation of diluted earnings per share because to do so would be antidilutive for those periods. Diluted earnings per share for all other periods include the potentially dilutive effect of stock options. 15 f i n a n c i a l d a t a ■ 16 s i s y l a n a & n o i s s u c s i d s ’ t n e m e g a n a m RESULTS OF OPERATIONS AND FINANCIAL CONDITION Our implantable power source revenues are derived from We are a leading developer and manufacturer of power sales of batteries for pacemakers, implantable cardioverter sources, feedthroughs and wet tantalum capacitors used defibrillators (ICDs) and other implantable medical in implantable medical devices. We also develop and devices. We also record royalties as implantable power manufacture other precision-engineered components used source revenues for licenses we have granted to others for in implantable medical devices. We leverage our core the manufacture of batteries using designs and processes competencies in technology and manufacturing to develop patented by us. Our capacitor revenues are derived from and produce power sources for commercial applications sales of our wet tantalum capacitors, which we developed that demand high performance and reliability. These for use in ICDs. Our component revenues are derived applications include aerospace, oil and gas exploration from sales of feedthroughs, electrodes, electromagnetic and oceanographic equipment. interference (EMI) filters and other precision components In June 2001, we acquired substantially all of the assets of the Sierra-KD Components division of Maxwell Technologies, Inc. (Greatbatch-Sierra), a developer and manufacturer of electromagnetic interference filters and capacitors primarily for implantable medical devices, for $49.0 million in cash and certain assumed liabilities. The acquisition was accounted for as a purchase. The excess principally used in pacemakers and ICDs. We also sell our components for use in other implantable medical devices. Our commercial power sources revenues are derived primarily from sales of batteries for use in oil and gas exploration. We also supply batteries to NASA for its space shuttle program and other similarly demanding commercial applications. of the acquisition cost over the fair value of the net assets A substantial part of our business is conducted with a acquired was recorded as goodwill. limited number of customers. Our two largest customers In July 2001, we completed a stock offering of 7.8 million shares of common stock, comprised of 5.8 million shares sold by existing shareholders and 2.0 million newly issued shares. The Company received $43.6 million in net proceeds to be used for general corporate purposes, including acquisitions and debt reduction. We derive revenues from the sale of medical and commercial products. Our medical revenues consist of sales of implantable power sources, capacitors and components. Our commercial revenues consist of sales of commercial power sources. accounted for approximately 66% of revenues in 2001. We have entered into long-term supply agreements with most of our large customers. For each of our products, we recognize revenue when the products are shipped and title passes. We do not give warranties to our customers for our products and to date, returns have been immaterial. Cost of goods sold includes materials, labor and other manufacturing costs associated with the products we sell. Selling, general, and administrative expenses include salaries, facility costs, professional service fees, and patent- related and other legal expenses. Research, development, and engineering costs include expenses associated with e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ the design, development, testing, deployment and a $10.6 million, or 36%, increase from $29.9 million for enhancement of our products. We record cost reimburse- 2000. This increase was primarily due to the acquisition ments received for research, development and engineering of Greatbatch-Sierra in June 2001, whose primary conducted on behalf of customers as an offset to research, product line of EMI filters for implantable devices development and engineering expenses. complements our other component lines well. Our fiscal year ends on the closest Friday to December 31. Commercial: Commercial power sources revenues Accordingly, our fiscal year will periodically contain more increased 99% to $27.9 million compared to $14.0 million or less than 365 days. For example, fiscal 1999 ended on for 2000. The higher revenues were primarily related to the December 31, 1999, fiscal 2000 ended December 29, 2000 inclusion of revenues for a full year from our Battery and fiscal 2001 ended on December 28, 2001. Our fiscal Engineering, Inc. (BEI) acquisition that was completed in quarters are three-month periods that end on the Friday August 2000. This acquisition, combined with our pre- closest to the end of the applicable calendar quarter. existing commercial business, allowed us to participate The commentary that follows should be read in strongly in the increased demand for products used in oil conjunction with our consolidated financial statements and gas exploration activity, which was up sharply in 2001. and related notes. Gross profit for 2001 was $60.9 million, an $18.5 Fiscal 2001 compared with Fiscal 2000 Total revenues for 2001 were $135.6 million, a $37.8 million, or 39%, increase from $97.8 million for 2000. Medical: Total medical revenues for 2001 were $107.7 million, a $23.9 million, or 28%, increase from $83.8 million for 2000. Implantable power source revenues for 2001 were $46.9 million, a $5.6 million, or 13%, increase from $41.3 million for 2000. This increase was primarily due to higher demand for our ICD batteries from our customers, both foreign and domestic. This increase was partially offset due to the expiration of implantable power source patents in 2001 on which we had been receiving royalty fees. Capacitor revenues for 2001 were $20.3 million, a $7.7 million or 61% increase from $12.6 million for 2000. This increase was primarily due to market acceptance and demand for the ICDs using our capacitor, which was first introduced in the fourth quarter of 1999. Medical component revenues for 2001 were $40.5 million, million, or 44%, increase from $42.3 million for 2000. As a percentage of total revenues, gross profit for 2001 improved to 45% from 43% for 2000. This increase was primarily due to increased efficiencies and cost leveraging based on the higher production volumes in 2001 over 2000. In addition, the absence in 2001 of significant start- up costs that accompanied the ramp-up of capacitors to production volumes in 2000 further aided the comparison. Selling, general and administrative expenses for 2001 were $18.2 million, a $6.7 million, or 58%, increase from $11.5 million in 2000. The increase in selling, general and administrative expenses was due to the inclusion of such expenses from Greatbatch-Sierra since its acquisition in June 2001, a full year of expenses from BEI in 2001 versus only five months in 2000, a full year of "public company" expenses (annual stock listing and registrar fees, investor relation expenses, etc), and increased training costs in support of our adoption of a Six Sigma 17 m a n a g e m e n t ’ s d i s c u s s i o n & a n a l y s i s ■ 18 s i s y l a n a & n o i s s u c s i d s ’ t n e m e g a n a m quality initiative. As a percentage of total revenues, were used to prepay $84.0 million of our senior debt in selling, general and administrative expenses were 13% October 2000. The remaining debt was refinanced during and 12% in 2001 and 2000, respectively. the first quarter of 2001 at more favorable terms. An Research, development and engineering costs for additional $47.0 million was borrowed in June 2001 to 2001 were $12.6 million, a $2.6 million, or 26%, increase finance our acquisition of Greatbatch-Sierra. Net interest from $9.9 million in 2000. Payments received from expense included interest income of $0.4 million in 2001, customers for the development of proprietary products an increase of $0.1 million, or 33% from interest income are recorded as an offset to research, development and of $0.3 million in 2000. This increase reflected incremen- engineering costs. Such payments totaled $2.5 tal income earned on the investment of proceeds from our million and $3.2 million in 2001 and 2000, respectively. secondary stock offering in July 2001. The increase in net costs reflects our acquisitions of Other expense of $0.3 million in 2001 compares with other Greatbatch-Sierra and BEI as discussed above, as well as income of $0.2 million in 2000. Losses on disposition of our ongoing commitment to invest in the development of assets and additions to our allowance for doubtful new products and enhancing the performance of our accounts comprise the majority of the balance in 2001. existing products. As a percentage of total revenues, These recurring items were offset in 2000, when we sold, research, development and engineering costs (before for a gain, interest rate cap agreements which were no development payments received from customers) were longer needed due to the prepayment of our senior debt. 11% in 2001, as compared to 13% in 2000. This Our effective tax rate decreased slightly to 37.4% for decrease was primarily due to the rapid growth in 2001 from 37.5% for 2000. Our rate includes the effect of capacitor and commercial revenues in 2001, and not to all state taxes and available credits. any decrease in our research and development initiatives. As discussed above, the senior debt and subordinated Intangible amortization was $7.7 million for 2001, an debt that remained outstanding at year end 2000 was increase of $1.2 million, or 18% from $6.5 million in refinanced in the first quarter 2001. This transaction 2000. This increase primarily reflects the amortization of resulted in an extraordinary charge, net of tax, of $3.0 intangible assets that were recorded as part of our million. The charge related to the call premium and write- acquisition of Greatbatch-Sierra. off of fees and other expenses incurred to establish the Net interest expense for 2001 was $3.6 million, a decrease original debt financing. The extraordinary charge, net of of $9.4 million, or 72%, from $13.0 million for 2000. tax, recorded in 2000 as a result of that year’s prepayment Gross interest expense in 2001 was $4.0 million, a of debt with proceeds from our initial public offering decrease of $9.2 million, or 70%, from $13.2 million in totaled $1.6 million. 2000. Proceeds from our fall 2000 initial public offering Our net income for 2001 amounted to $8.6 million, up from a net loss of $(0.5) million in 2000. This improvement e n •a¯´bl´i n g t o p r o v i d e a b e t t e r q u a l i t y o f l i f e ■ was primarily due to the decrease in interest expense and of components in 2000 when compared with 1999. the increase in gross profit. The net earnings per share Commercial: Commercial power sources revenues was $0.43 for 2001, assuming dilution, as compared with increased 40% to $14.0 million compared to $10.0 million a loss per share of $(0.04) for 2000. for 1999. The higher revenues were primarily related to Fiscal 2000 compared with Fiscal 1999 the inclusion of revenues from the BEI acquisition that Total revenues for 2000 were $97.8 million, an $18.6 was completed in August 2000. million, or 23%, increase from $79.2 million for 1999. The Gross profit for 2000 was $42.3 million, a $4.2 million, growth in revenues was primarily due to sales of our line of or 11%, increase from $38.2 million for 1999. As a wet tantalum capacitors, which were launched commer- percentage of total revenues, gross profit for 2000 cially in the fourth quarter of 1999, and the inclusion of declined to 43% from 48% for 1999. This decrease revenues from BEI since its acquisition in August 2000. was primarily due to a lower percentage of total revenues Medical: Total medical revenues for 2000 were $83.8 from established product lines such as implantable power million, a $14.6 million, or 21%, increase from $69.2 sources, with no accompanying start-up costs, versus a million for 1999. Implantable power source revenues for higher percentage of total revenues from newer products, 2000 were $41.3 million, a $0.8 million, or 2%, increase with accompanying high start-up costs, such as capacitors. from $40.5 million for 1999. This increase was primarily In addition, sales of lower margin products, such as due to higher pacemaker battery sales as a result of an medical components and commercial power sources, have increase in pacemaker device sales by our customers, increased at a faster rate than have sales of historically both foreign and domestic. This increase was partially higher margin implantable power sources. offset due to an industry-wide design change in ICDs that Selling, general and administrative expenses for 2000 resulted in ICDs using one battery instead of two. This were $11.5 million, a $1.6 million, or 16%, increase from conversion began in mid-1999 and was substantially $9.9 million in 1999. The increase in selling general and complete by the third quarter of 2000. Capacitor revenues administrative expenses was primarily due to the inclusion for 2000 were $12.6 million, a $10.3 million increase of such expenses from BEI since its acquisition in from $2.3 million for 1999. This increase was primarily August 2000, wage increases in 2000 as compared to due to initial commercial sales of our new wet tantalum wage decreases in 1999 and the accrual of incentive capacitors beginning in the fourth quarter of 1999. compensation in 2000 whereas there were no such accruals Medical components revenues for 2000 were $29.9 in 1999. As a percentage of total revenues, selling, general million, a $3.5 million, or 13%, increase from $26.4 and administrative expenses were 12% and 13% in million for 1999. This increase was primarily due to the 2000 and 1999, respectively. The increase in total sale of a greater number of implantable medical devices revenues mitigated the increase in selling, general and by our customers, as well as our sales of a broader range administrative expenses as a percentage of revenues. 19 m a n a g e m e n t ’ s d i s c u s s i o n & a n a l y s i s ■ 20 s i s y l a n a & n o i s s u c s i d s ’ t n e m e g a n a m Research, development and engineering expenses for In addition to the $84.0 million prepayment of our senior 2000 were $9.9 million, a $0.6 million, or 6%, increase debt with the net proceeds of our initial public offering, from $9.3 million for 1999. Payments received from we redeemed a portion of our subordinated debt. These customers for the development of proprietary battery two transactions resulted in an extraordinary charge, net models are recorded as an offset to research, development of tax, of $1.6 million in 2000. The charge relates to the and engineering expenses. Such payments totaled $3.2 write-off of fees and other expenses incurred to establish million and $2.5 million in 2000 and 1999, respectively. the original debt financing. As a percentage of total revenues, research, development Our net loss for 2000 narrowed to $(0.5) million from a and engineering expenses before such payments for 2000 net loss of $(2.3) million in 1999. The reduction in net declined to 13% from 15% for 1999. This decrease loss was primarily due to an increase in gross profit. The was primarily due to the rapid growth in capacitor sales net loss per share was $(0.04) for 2000, assuming and the growth in revenues of products that historically dilution, and $(0.18) for 1999. have not required significant research, development and engineering expenses, such as medical components and commercial power sources. Intangible amortization was $6.5 million for 2000 and 1999. Net interest expense for 2000 was $13.0 million, a decrease of $0.5 million, or 3%, from $13.4 million for 1999. This decrease was due to the use of net proceeds from our initial public offering to prepay $84.0 million of our senior debt. Net interest expense includes interest income of $0.3 million and $0.2 million in 2000 and 1999, respectively. Miscellaneous income of $0.2 million in 2000 compares with miscellaneous expense of $1.3 mil- lion in 1999. In 2000, we sold interest rate cap agree- ments, which were no longer needed due to the prepay- ment of our senior debt, for a gain of $0.2 million. In 1999, we wrote down by $0.9 million the carrying value of our investment in an unaffiliated company. Our effective tax rate increased to 37.5% for 2000 from 26.1% for 1999. This increase was primarily due to the decrease in state tax credits available to us for 2000 as compared with 1999. LIQUIDITY AND CAPITAL RESOURCES The ref inancing of our then remaining senior and subordinated debt in 2001 at more favorable terms, and the receipt of $43.6 million in net proceeds from our secondary offering of stock in July 2001 have furthered strengthened our f inancial position. Total assets at December 28, 2001 grew to $283.5 million, reflecting the common stock proceeds and our acquisition of the net assets of Greatbatch-Sierra. Liquidity As of December 28, 2001, we had $43.3 million in cash and cash equivalents. This amount primarily reflected the proceeds from our secondary offering of common stock in July 2001, and remains available for general corporate purposes, which may include debt reduction or acquisitions. Cashflow from operations was adequate to cover all required debt servicing, capital expenditures and normal operational costs. In addition, we have a $20.0 million line of credit facility, all of which was available at year-end. e n •a¯´bl´i n g t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s ■ Cash provided by operating activities in 2001 was $21.5 regularly scheduled payments of $94.8 million on our million compared to $18.2 million and $9.0 million in senior debt, including our revolving line of credit. We 2000 and 1999, respectively. The increase in cash provided redeemed $5.0 million of our 13% subordinated notes and by operating activities in 2001 when compared to both purchased $2.0 million of common stock from the holder prior years was primarily due to an increase in operating of the redeemed notes. In 2000, we also sold $3.0 million income, which largely reflected improved gross profit and of our stock to the previous owner of BEI and used these decreased interest expense. This improvement was some- proceeds to pay off the $2.7 million in debt we assumed in what tempered by increases in accounts receivable and the BEI acquisition. Cash used in financing activities in inventories, driven by an increased volume of business. 1999 was primarily the result of ongoing operational debt Cash provided by operating activities improved in 2000 and equity transactions, and an earnout payment related from 1999 levels primarily due to an increase in operating to our acquisition of Greatbatch-Hittman. income, the receipt of refunds from state tax credits and We believe that cash generated from operations, combined previously-paid income taxes and a reduction in net oper- with our available cash and cash equivalents, will be ating assets. sufficient to meet our working capital needs and planned Cash used in investing activities was $59.4 million, $3.4 capital expenditures for the near term. Capital expenditures million and $8.8 million for 2001, 2000 and 1999, for 2002 are expected to increase from historical levels, respectively. Our acquisition of Greatbatch-Sierra was the as we invest in increased production capacity and product most significant item in 2001, accounting for $46.9 mil- development opportunities. These investments include lion of the $59.4 million. Capital expenditures were $9.7 completion of an expansion to our research and million, $4.5 million and $8.5 million for 2001, 2000 and development facilities, which began in 2001. Should 1999, respectively. Cash provided by financing activities was $81.2 million in 2001, compared with cash used in financing activities of $18.6 million and $0.4 million in 2000 and 1999, respectively. In January 2001, we consummated a $40.0 million term loan to pay off the remaining senior and subordinated debt outstanding at that time, including a other suitable investment opportunities arise during fiscal 2002, including acquisitions, we believe that our earnings, cash flows and balance sheet will permit us to obtain additional debt or equity capital, if necessary. There can be no assurance, however, that additional financing will be available to us or, if available, that it can be obtained on a timely basis or on terms acceptable to us. call premium. An additional $47.0 million was borrowed Capital Structure in June 2001 to finance the acquisition of Greatbatch- Our capital structure consists of interest-bearing debt and Sierra. In July 2001, we received $43.6 million in net equity. Interest-bearing debt as a percentage of our total proceeds from an offering of our common stock. In 2000, capitalization increased to 28% at December 28, 2001 we used the proceeds from our initial public offering and compared with 20% at December 29, 2000, primarily due cash generated by operating activities to prepay or make to the additional debt incurred to finance the acquisition 21 m a n a g e m e n t ’ s d i s c u s s i o n & a n a l y s i s ■ 22 s i s y l a n a & n o i s s u c s i d s ’ t n e m e g a n a m of Greatbatch-Sierra. The December 28, 2001 percentage to Earnings Before Interest, Taxes, Depreciation and of debt net of cash as a percentage of total capitalization Amortization (EBITDA), as it is defined in the credit was 12%. Our long-term debt at December 28, 2001 agreement, and ratios of leverage, interest and fixed consisted of a term loan. There was also a $20.0 million charges as they relate to EBITDA. Both the term loan and revolving line of credit available, none of which was the revolving line of credit bear interest at a rate that varies outstanding at year-end. with our level of leverage. At December 28, 2001 leverage In January 2001, we consummated a $60.0 million credit levels, the applicable interest rates for both the term loan facility that consisted of a $40.0 million term loan and a and revolving line of credit were prime less 0.75%, or the $20.0 million revolving line of credit. Both the term loan London Interbank Offered Rate, or LIBOR, plus 1.25%, and the revolving line of credit had a term of five years at our option. At March 1, 2002, the weighted average and would have matured on January 1, 2006. We used the interest rate for the term loan was 4.1%, and there were proceeds from this term loan to pay off the remaining no amounts outstanding under the revolving line of credit. senior debt and the senior subordinated notes that were We do not believe that inflation has had a significant outstanding as of December 29, 2000, plus accrued effect on our operations. interest and a call premium. At that date, there was $18.3 million net amount outstanding under our 13% senior subordinated notes, $6.2 million outstanding under our Term A loan facility and $9.0 million outstanding under our Term B loan facility. There were no amounts outstanding under our revolving line of credit. At December 29, 2000, the weighted average interest rate for our Term A loans was 10.3% and the weighted averaged interest rate for our Term B loans was 10.5%. Under the credit facility consummated in June 2001, both the term loan and any borrowings under the line of credit bear interest at fluctuating market rates. An analysis of the impact on the Company’s interest rate sensitive finan- cial instruments of a hypothetical 10% change in short-term interest rates shows an impact on expected 2002 earnings of less than $0.3 million of higher or lower earnings, depending on whether short-term rates rise or fall by the 10%. The discussion and the estimated amounts referred In June 2001, in conjunction with the acquisition of to above include forward-looking statements of market Greatbatch-Sierra, we amended our credit facility with a risk, which involve certain assumptions as to market consortium of banks by increasing the total size of the interest rates. Actual future market conditions may differ facility to $100.0 million. The amended facility consisted materially from such assumptions. Accordingly, the of an $80.0 million term loan and a $20.0 million forward-looking statements should not be considered revolving line of credit. Both the term loan and the projections of future events by our Company. revolving line of credit have a term of five years, maturing in July 2006. This credit agreement is secured by our accounts receivable and inventories and requires us to comply with various quarterly financial covenants related In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and CAUTIONARY FACTORS REGARDING FORWARD LOOKING STATEMENTS reporting for business combinations and supersedes APB Some of the statements contained in this Annual Report are not statements of historical or current fact. As such, they are "forward-looking state- No. 16, "Business Combinations." Effective July 1, 2001, ments" within the meaning of Section 27A of the Securities Act of 1933, all business combinations in the scope of this new as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify forward-looking statements by terminology Statement are to be accounted for using one method, the such as "anticipate," "believe," "estimate," "expect," "intend," "may," purchase method. SFAS No. 142 addresses financial "could," "possible," "potential," "continue," "plan," "project," "should," "will," "forecast" and similar words or expressions. The Company’s for- accounting and reporting for acquired goodwill and other ward-looking statements include, but are not limited to, discussions intangible assets and supersedes APB No. 17, "Intangible Assets." It changes the accounting for goodwill and other intangible assets with an indefinite life from an amortiza- tion method to an impairment-only approach. We adopted regarding its growth plans, future financial results, product development efforts and plans and future uses of and requirements for financial resources. You should carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be SFAS No. 142 effective December 29, 2001, which was guaranteed and actual results may vary materially. It is not possible to the first day of fiscal 2002, and will cease the amortization foresee or identify all factors affecting the Company’s forward-looking statements and investors therefore should not consider any list of such of goodwill and any other intangible assets with an factors to be an exhaustive statement of all risks, uncertainties or indefinite life which were recorded in past business combinations. Total amortization expense of all intangible potentially inaccurate assumptions. Although it is not possible to create a comprehensive list of all factors that may cause actual results to differ from the results expressed or implied by assets was $7.7 million ($0.39 before tax, per diluted the Company’s forward-looking statements, certain of these factors share) for the year ended December 28, 2001 and $6.5 include those noted under the caption "Risk Factors" in the Company’s registration statement on Form S-1 filed June 20, 2001 (No. 333-63386) million ($0.45 before tax, per diluted share) for the year in connection with the Company’s public offering of common stock and in ended December 29, 2000. Of these amounts, $3.5 million the Company’s Annual Report on Form 10-K for the year ended December 28, 2001, as well as the following: dependence upon a limited number of and $3.0 million in 2001 and 2000, respectively, repre- customers, product obsolescence, inability to market current or future sented amortization of goodwill and other intangible assets with indefinite lives that would not have been amortized if SFAS No. 142 had been in effect for those years. SFAS No. 142 also requires the Company, in the products, pricing pressures from customers, reliance on third parties for raw materials, key products and subcomponents for our products, harm to our reputation for quality, fluctuating operating results, failure to protect our intellectual property rights, intellectual property claims, product liability claims, inability to integrate acquisitions, unsuccessful expansion into new markets, inability to obtain licenses to key technology, year of adoption and for each year thereafter, to analyze regulatory changes or consolidation in the healthcare industry, costly all intangible assets for possible impairment, and to write environmental regulations, volatility in the oil and gas industry, and various other matters many of which are beyond our control. Given these such assets down to fair market value. The Company risks and uncertainties, investors should not place undue reliance on our continues to evaluate the impact of SFAS No. 142 on its forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward- financial position and results of operations; however, based looking statements to reflect any change in our expectations with regard on the transitional goodwill impairment test, no impair- ment of goodwill and other intangible assets is anticipated. thereto or any change in events, conditions or circumstances on which any forward-looking statement is based. 23 m a n a g e m e n t ’ s d i s c u s s i o n & a n a l y s i s ■ 24 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S (In thousands, except per share amounts) Years ended December 28, 2001, December 29, 2000 and December 31, 1999 Revenues Cost of goods sold Gross profit Selling, general and administrative expenses Research, development and engineering costs, net Intangible amortization Interest expense, net Other expense (income) Income (loss) before income taxes, extraordinary loss and cumulative effect of accounting change Income tax expense (benefit) Income (loss) before extraordinary loss and cumulative effect of accounting change Extraordinary loss on retirement of debt, net of tax Cumulative effect of accounting change, net of tax Net income (loss) Basic Earnings (Loss) Per Share: Income (loss) from continuing operations Extraordinary loss on retirement of debt Cumulative effect of accounting change Net earnings (loss) Diluted Earnings (Loss) Per Share: Income (loss) from continuing operations Extraordinary loss on retirement of debt Cumulative effect of accounting change Net earnings (loss) Weighted Average Shares Outstanding Basic Diluted See notes to consolidated financial statements. 2001 $135,575 74,716 60,859 18,174 12,575 7,726 22,384 3,588 266 18,530 6,939 11,591 (2,994) - $ 8,597 $ 0.59 (0.15) - $ 0.44 $ 0.58 (0.15) - $ 0.43 19,563 19,945 C O N S O L I D A T E D B A L A N C E S H E E T S 2000 $ 97,790 55,446 42,344 11,473 9,941 6,530 14,400 12,958 (189) 1,631 611 1,020 (1,568) - 1999 $ 79,235 41,057 38,178 9,880 9,339 6,510 12,449 13,420 1,343 (2,314) (605) (1,709) - (563) $ (548) $ (2,272) $ 0.07 (0.11) - $ (0.04) $ $ (0.14) - (0.04) (0.18) $ $ (0.14) 0.07 (0.11) - - $ (0.04) $ (0.04) (0.18) 14,167 14,434 12,491 12,491 (Dollars in thousands) Assets Current Assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $447 and $319, respectively Inventories Prepaid expenses and other assets Deferred tax asset Total current assets Property, plant and equipment, net Intangible assets, net Deferred tax asset Other assets Total Assets Liabilities and Stockholders' Equity Current Liabilities: Accounts payable Accrued liabilities Current maturities of long-term obligations Total current liabilities Long-term obligations Total liabilities Commitments and Contingencies (Note 13) Stockholders' Equity: Common stock Capital in excess of par value Retained deficit Subtotal Less treasury stock, at cost Total stockholders’ equity Total Liabilities and Stockholders' Equity See notes to consolidated financial statements. December 28, 2001 $ 43,272 17,373 29,026 2,316 2,888 94,875 44,149 137,135 5,417 1,944 $ 283,520 $ 6,553 13,721 13,005 33,279 61,397 94,676 21 200,880 (8,935) 191,966 (3,122) 188,844 $ 283,520 December 29, 2000 $ 16 12,977 13,643 1,442 1,863 29,941 36,625 104,395 8,800 1,886 $ 181,647 $ 2,365 9,480 3,017 14,862 30,951 45,813 19 157,526 (17,532) 140,013 (4,179) 135,834 $ 181,647 ■ C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S (Dollars in thousands) Years ended December 28, 2001, December 29, 2000 and December 31, 1999 Operating Activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: Depreciation and amortization Extraordinary loss on retirement of debt Amortization of deferred financing costs Deferred income taxes Loss on disposal of assets Valuation loss on investment held at cost Cumulative effect of accounting change Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Accrued liabilities Income taxes 2001 $ 8,597 13,929 3,019 312 2,358 132 - - 2000 1999 $ (548) $ (2,272) 12,102 2,407 907 (369) 68 - - 11,363 - 972 1,309 146 859 939 947 (292) (663) 251 (2,741) (1,826) 8,992 (4,396) (1,018) 914 (10,030) 2,144 (128) 1,536 145 (928) 3,025 4,760 677 Net cash provided by operating activities 21,455 18,160 Investing Activities: Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Increase in intangible assets Decrease in other long term assets Net cash effect of acquisitions Net cash used in investing activities Financing Activities: Borrowings (repayments) under line of credit, net Proceeds from long-term debt Scheduled payments of long-term debt Prepayments of long-term debt Acquisition earnout payment Purchase of treasury stock Expenses related to public offering of stock Issuance of common stock Net cash provided by (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See notes to consolidated financial statements. (9,715) 5 (2,809) - (46,913) (59,432) 4 (4,528) (8,452) 5 (417) (570) 170 - 1,583 (3,358) (8,847) - - 87,000 (6,013) (42,265) (93,735) (4,300) - - (4,456) 4,300 - - (2,950) (2,764) (2,565) (109) (2,153) - 88,560 1,101 (18,649) (422) (3,847) (277) 4,140 3,863 3,863 $ $ 16 - - (1,156) 43,667 81,233 43,256 16 $ 43,272 C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S’ E Q U I T Y (Dollars in thousands) Balance, January 2, 1999 Common stock issued Common stock acquired for treasury Shares contributed to Employee Stock ownership Plan Exercise of stock options Net loss Balance, December 31, 1999 Common stock issued Common stock acquired for treasury Shares contributed to Employee Stock Ownership Plan Shares issued to acquire Battery Engineering, Inc. Purchase and cancel fractional shares Settlement of common stock subscriptions Exercise of stock options Net loss Balance, December 29, 2000 Common stock issued Shares contributed to Employee Stock Ownership Plan Purchase and cancel fractional shares Exercise of stock options Net income 66,537 - 139,470 20,668 - 12,288,128 5,950,000 - 57,038 339,856 (70) 336,800 47 - - - - - - 12 6 - - 1 - - - - 18,971,799 2,000,000 19 2 - - (84) - - - - 11,340 Balance, December 28, 2001 20,983,055 $ 21 See notes to consolidated financial statements. - - - - - - - - - - - - - - - - - Common Stock Shares Amount Subscribed Common Stock Shares Amount Capital In Excess of Par Value Retained Earnings (Deficit) Treasury Stock Shares Amount 12,061,453 $ 12 336,800 $1,684 - - - - - $ 60,295 $(14,712) 998 - 2,092 103 - - - - - (2,272) Subscribed Common Stock Receivable $1,684 - - - - 7,285 $ - - 109 - - - - - - - - - 336,800 1,684 63,488 86,401 - (16,984) - - 7,285 - 265,746 109 1,684 - - - 4,250 - - - 856 - (11,970) (180) - - - (336,800) - - (1,684) 5,097 (1) 1,684 - - 1 - - - - - (548) - - - - - - - - - - - - 157,526 42,427 (17,532) 261,061 4,179 - - - - 845 - - (2) - - - 8,597 - - 84 (66,059) - - - (1,057) - - - - $200,880 $ (8,935) 195,002 $ 3,122 - - - (1,684) - - - - - - - - 25 c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 26 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Wilson Greatbatch Technologies, Inc. Clarence, New York We have audited the accompanying consolidated balance sheets of Wilson Greatbatch Technologies, Inc. and subsidiary (the "Company") as of December 28, 2001 and December 29, 2000, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 28, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. 1. DESCRIPTION OF BUSINESS The Entity - The consolidated financial statements include the accounts of Wilson Greatbatch Technologies, Inc., a holding company, and its wholly-owned subsidiary Wilson Greatbatch Ltd. (collectively, the "Company"). The Company is comprised of its operating companies, Wilson Greatbatch Ltd. and its wholly-owned subsidiaries, Greatbatch-Hittman, Inc. ("Hittman"), Greatbatch-Sierra, Inc. ("Sierra") and Battery Engineering, Inc. ("BEI"). All significant intercompany balances and transactions have been eliminated. Nature of Operations – The Company operates in two reportable segments–medical and commercial power We conducted our audits in accordance with auditing sources. The medical segment designs and manufactures standards generally accepted in the United States of power sources, capacitors and components used in America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signif icant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wilson Greatbatch Technologies, Inc. and subsidiary as of December 28, 2001 and December 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2001 in implantable medical devices. The commercial power sources segment designs and manufactures non-medical power sources for use in aerospace, oil and gas exploration and oceanographic equipment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents – Cash and cash equivalents consist of cash and highly liquid, short-term investments with maturities at the time of purchase of three months or less. The cash balance at December 28, 2001 primarily reflects the proceeds from the Company’s secondary public offering (see Note 12). Inventories - Inventories include raw materials, work-in- process and finished goods and are stated at the lower of cost (as determined by the first-in, first-out method) conformity with accounting principles generally accepted or market. in the United States of America. Property, Plant and Equipment - Property, plant and As discussed in Note 2 to the consolidated financial equipment is carried at cost. Depreciation is computed statements, in 1999, the Company changed its method of primarily by the straight-line method over the estimated accounting for costs of start-up activities. Buffalo, New York January 25, 2002 useful lives of the assets, which are as follows: buildings and building improvements 7-40 years; machinery and equipment 3-10 years; office equipment 3-10 years; and leasehold improvements over the remaining lives of the improvements or the lease term, if less. e n •a¯´bl´i n g t o p r o v i d e a b e t t e r q u a l i t y o f l i f e ■ The cost of repairs and maintenance is charged to Concentration of Credit Risk - Financial instruments expense as incurred. Renewals and betterments are which potentially subject the Company to concentration capitalized. Upon retirement or sale of an asset, its cost of credit risk consist principally of trade receivables. and related accumulated depreciation or amortization A significant portion of the Company’s sales are to are removed from the accounts and any gain or loss is customers in the medical industry, and, as such, the recorded in income or expense. The Company continually Company is directly affected by the condition of that reviews plant and equipment to determine that the carrying industry. However, the credit risk associated with trade values have not been impaired. receivables is minimal due to the Company’s stable Intangible Assets - Intangible assets include goodwill and other identifiable intangible assets, which were derived in connection with the Company’s acquisitions. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill has been amortized on a straight-line basis over 20 to 40 customer base and ongoing control procedures, which monitor the creditworthiness of customers. The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is years. Other identifiable intangible assets are being minimal. amortized on a straight-line basis over their estimated Derivative Financial Instruments - The Company has useful lives as follows: trademark and names, 40 years; only limited involvement with derivative f inancial patented technology, 12 years; assembled workforce, 10- instruments and does not enter into financial instruments 12 years; and other intangibles, 3-10 years. Deferred for trading purposes. Interest rate cap agreements have financing costs are amortized using the effective yield been used to reduce the potential impact of increases in method over the life of the underlying debt. The interest rates on floating-rate long-term debt. Premiums Company continually reviews these intangible assets for paid for purchased interest rate cap agreements are potential impairment by assessing significant decreases amortized over the terms of the caps and recognized as in the market value, a significant change in the extent or interest expense. Unamortized premiums are included in manner in which an asset is used or a significant adverse other assets in the consolidated balance sheets. Amounts change in the business climate. The Company measures receivable under interest rate cap agreements are accrued expected future cash flows and compares them to the as a reduction of interest expense. At December 28, 2001, carrying amount of the asset to determine whether any and December 29, 2000, the Company was not party to impairment loss is to be recognized. any interest rate cap agreements. Fair Value of Financial Instruments - The fair value of Stock Option Plan - The Company accounts for stock- financial instruments is determined by reference to based compensation in accordance with Statement of various market data and other valuation techniques, as Financial Accounting Standards No. 123, “Accounting for appropriate. Unless otherwise disclosed, the fair value of Stock-Based Compensation” (SFAS No. 123). As permitted cash and cash equivalents approximates their recorded in that Standard, the Company has chosen to account for values due to the nature of the instruments. The floating stock-based compensation using the intrinsic value rate debt carrying value approximates the fair value method prescribed in Accounting Principles Board based on the floating interest rate resetting on a regular No. 25, “Accounting for Stock Issued to Employees,” and basis. The fixed rate long-term debt carrying value related interpretations. Prior to its Initial Public Offering approximates fair value. 27 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 28 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n in September 2000, there was no readily available market Earnings (Loss) Per Share – Basic earnings per share is for the Company’s stock. In the absence of a "regular, calculated by dividing net income (loss) by the average active public market," the Board of Directors had number of shares outstanding during the period. Diluted determined the fair market value of the common stock via earnings per share is calculated by adjusting for common independent valuations. stock equivalents, which consist of stock options. There Income Taxes – The Company provides for income taxes using the liability method whereby deferred tax liabilities and assets are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using the anticipated tax rate when taxes are expected to be paid or reversed. Financial Statement Year End – The Company’s year end is the closest Friday to December 31. Fiscal 2001, 2000 and 1999 included 52 weeks. Revenue Recognition - Revenues are recognized when the products are shipped and title passes to customers. Research, Development and Engineering Costs – Research, development and engineering costs are expensed as incurred. The Company recognizes cost reimbursements from customers for whom the Company designs products upon achieving milestones related to designing batteries and capacitors for their products. The cost reimbursements charged to customers represent actual costs incurred by the Company in the design and testing of prototypes built to customer specifications. This cost reimbursement includes no mark-up and is recorded as an offset to research, development and engineering costs. Net research, development and engineering costs for 2001, 2000 and 1999 are as follows: (dollars in thousands) 2001 2000 1999 Research, development and engineering costs $15,051 $13,101 $11,885 Less cost reimbursements (2,476) (3,160) (2,546) Research, development and engineering costs, net $12,575 $ 9,941 $ 9,339 Interest Expense, Net – Interest expense includes interest income of $423,000, $254,000 and $242,000 for 2001, 2000 and 1999, respectively. were approximately 0.2 million stock options that were not included in the computation of diluted earnings per share for 1999 because to do so would have been antidi- lutive. Diluted earnings per share for 2001 and 2000 include the potentially dilutive effect of stock options. All shares held in the Employee Stock Ownership Plan ("ESOP") are considered outstanding for both basic and diluted earnings (loss) per share calculations. Comprehensive Income – Comprehensive income includes all changes in stockholders’ equity during a peri- od except those resulting from investments by owners and distribution to owners. For all periods presented, the Company’s only component of comprehensive income is its net income (loss) for those periods. Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Change - In 1999, the Company adopted Statement of Position 98-5, “Reporting the Costs of Start-Up Activities.” This statement required that start-up costs, including organization costs, capitalized by the Company prior to January 2, 1999, be written off and any future start-up costs be expensed as incurred. The total amount of deferred start-up costs reported as a cumulative effect of change in accounting principle was $939,000, net of tax benefits of $376,000. e n •a¯´bl´i n g t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s ■ Supplemental Cash Flow Information: trademark and names was approximately $2.1 million, (dollars in thousands) 2001 2000 1999 Cash paid during the year for: Interest Income taxes Noncash investing and financing activities: $ 3,717 $12,833 $13,790 2,214 122 186 Common stock issued for acquisition $ - $ 5,098 $ - Common stock contributed to ESOP 1,902 1,036 2,092 Settlement of subscribed common stock receivable - 1,684 - $0.6 million and $0.8 million, respectively. At December 28, 2001, goodwill, assembled workforce and trademark and names approximated $76.9 million, $4.6 million and $28.9 million, respectively. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs to be included in results from operations may be necessary. SFAS No. 142 also requires the Company to complete a transitional goodwill Recent Accounting Pronouncements – In July 2001, the impairment test six months from the date of adoption and Financial Accounting Standards Board (FASB) issued any goodwill impairment loss will be recognized as a Statement of Financial Accounting Standards No. 141, cumulative effect of a change in accounting principle. “Business Combinations” (SFAS No. 141), and Statement The Company continues to evaluate the impact of of Financial Accounting Standards No. 142, “Goodwill SFAS No. 142 on its consolidated financial statements; and Other Intangible Assets” (SFAS No. 142). The FASB however, based on the transitional goodwill impairment also issued Statement of Financial Accounting Standards test, no impairment of goodwill and other intangible No. 143, “Accounting for Obligations Associated with assets is anticipated. the Retirement of Long-Lived Assets” (SFAS No. 143), and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144), in August and October 2001, respectively. SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived SFAS No. 141 requires the purchase method of assets. SFAS No. 143 is effective in fiscal years beginning accounting for business combination initiated after June after June 15, 2002, with early adoption permitted. The 30, 2001 and eliminates the pooling-of-interest method. Company expects that the provisions of SFAS No. 143 The Company adopted SFAS No. 141 on July 1, 2001. will not have a material impact on its consolidated Under provisions of SFAS No. 141, the Company will be financial statements upon adoption. The Company plans required to reclassify its assembled workforce and to adopt SFAS No. 143 effective December 30, 2002, the trademark and names to goodwill effective December 29, beginning of fiscal year 2003. 2001, the beginning of fiscal year 2002. SFAS No. 144 establishes a single accounting model for Effective December 29, 2001, the beginning of fiscal the impairment or disposal of long-lived assets, including year 2002, the Company adopted SFAS No. 142. Under discontinued operations. SFAS No. 144 superseded the new rules, the Company is no longer required to Statement of Financial Accounting Standards No. 121, amortize goodwill and other intangible assets with “Accounting for the Impairment of Long-Lived Assets indefinite lives, but will be subject to periodic testing for and for Long-Lived Assets to Be Disposed Of ” (SFAS impairment. As a result, amortization related to goodwill, No. 121), and APB Opinion No. 30, “Reporting the assembled workforce and trademark and names ceases as Results of Operations - Reporting the Effects of Disposal of December 28, 2001. Amortization expense in 2001 of a Segment of a Business, and Extraordinary, Unusual attributable to goodwill, assembled workforce and and Infrequently Occurring Events and Transactions.” 29 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 30 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n The provisions of SFAS No. 144 are effective in fiscal Sierra had taken place at the beginning of fiscal year years beginning after December 15, 2001, with early 2000 were $142.3 million, $11.1 million, $8.1 million and adoption permitted, and in general are to be applied $0.41 per share for fiscal year 2001, and $108.4 million, prospectively. Effective December 29, 2001, the begin- ($3.0) million, ($4.5) million, and ($0.31) per share for ning of fiscal year 2002, the Company adopted SFAS No. fiscal 2000, respectively. Such pro forma results are not 144 and does not expect that the adoption will have a necessarily indicative of what the actual consolidated material impact on its consolidated financial statements. results of operations might have been if the acquisition 3. ACQUISITIONS On June 18, 2001, the Company completed the acquisition of substantially all of the assets of the Sierra-KD Components division of Maxwell Technologies, Inc. ("Sierra"), a developer and manufacturer of electromag- netic interference filters and capacitors for implantable had been effective at the beginning of fiscal year 2000. On August 4, 2000, the Company acquired all of the capi- tal stock of BEI, a small specialty battery manufacturer, in exchange for 339,856 shares ($5,098,000) of Company common stock and the assumption of approximately $2.7 million of indebtedness. medical devices for $49.0 million in cash and certain The acquisition was recorded under the purchase method assumed liabilities. The acquisition was recorded under the purchase method of accounting and accordingly, the results of the operations of Sierra have been included in the consolidated financial statements from the date of acquisition. The assets acquired and liabilities assumed were recorded at fair val- ues. The excess of the purchase price over the fair value of net assets acquired was recorded as goodwill. Liabilities assumed in this acquisition were $2.1 million. of accounting and accordingly, the results of the operations of BEI have been included in the consolidated financial statements from the date of acquisition. The purchase price has been allocated to assets acquired and liabilities assumed based on the fair value at the date of acquisition. Liabilities assumed in this acquisition were $3.9 million. The excess of the acquisition cost over fair value of the net assets acquired was approximately $0.8 million, which was allocated to goodwill. The excess of the purchase price over fair value of the net 4. INVENTORIES Inventories consisted of the following: assets acquired was approximately $39.5 million, of which $15.7 million was allocated to identifiable intangi- ble assets and $23.8 million was allocated to goodwill. Direct costs of $0.3 million related to the acquisition were also allocated to goodwill. (dollars in thousands) Raw material Work-in-process Unaudited, pro forma consolidated revenues, income Finished goods (loss) before extraordinary loss, net income, and diluted Total earnings (loss) per share, assuming the acquisition of December 28, December 29, 2001 2000 $13,894 $ 7,302 9,955 4,941 5,177 1,400 $29,026 $13,643 e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ 5. PROPERTY, PLANT AND EQUIPMENT, NET 7. ACCRUED LIABILITIES Property, plant and equipment consisted of the following: Accrued liabilities consisted of the following: (dollars in thousands) December 28, December 29, (dollars in thousands) 2001 2000 December 28, December 29, 2001 2000 Land and land improvements $ 3,749 $ 3,316 Salaries and benefits $ 5,165 $ 4,901 Buildings and building improvements Leasehold improvements 8,632 3,742 6,799 2,837 Machinery and equipment 37,000 32,610 Furniture and fixtures Computers and information technology 1,991 4,630 1,742 2,569 Other 4,041 678 63,785 50,551 Less accumulated depreciation (19,636) (13,926) Total $ 44,149 $ 36,625 Depreciation expense for 2001, 2000 and 1999 was approximately $5,917,000, $4,943,000, and $4,240,000, respectively. 6. INTANGIBLE ASSETS, NET Intangible assets consisted of the following: Profit sharing 4,010 2,456 Other Total 4,546 2,123 $13,721 $ 9,480 8. LONG-TERM OBLIGATIONS Long-term obligations consisted of the following: December 28, December 29, 2001 2000 (dollars in thousands) Long-term Debt: Term Loan, $80.0 million, due July 2006. Quarterly principal installments due of $3.0 million from January 2002 through July 2002, $3.5 million from October 2002 through July 2003, $4.0 million from October 2003 through July 2004, $4.5 million from October 2004 through July 2005, and $5.0 million from October 2005 through July 2006. Interest payments are due monthly. $ 74,000 $ - (dollars in thousands) December 28, December 29, 2001 2000 Term A Facility, $50.0 million. This credit facility was refinanced in its Goodwill, net of accumulated amortization of $5,942 and $3,803 $ 76,883 $ 54,948 Trademark and names, net of accumulated entirety on January 12, 2001. See below. - 6,247 Term B Facility, $60.0 million. This credit facility was refinanced in its entirety amortization of $3,235 and $2,426 28,923 27,234 on January 12, 2001. See below. - 9,018 Patented technology, net of accumulated amortization of $5,363 and $3,952 16,512 9,478 License agreement, net of accumulated amortization of $4,447 and $3,459 - 988 Assembled workforce, net of accumulated amortization of $2,737 and $2,103 4,643 5,277 Senior Subordinated Notes, $25.0 million. These notes were refinanced in their entirety on January 12, 2001. See below. - Total long-term debt 74,000 18,337 33,602 Other long-term obligations 402 366 Total long-term obligations 74,402 33,968 Noncompete/employment agreement, net of accumulated amortization of $3,267 and $2,333 2,333 3,267 Less current maturities of long-term obligations (13,005) (3,017) Long-term obligations $ 61,397 $ 30,951 Unpatented proprietary technology, net of accumulated amortization of $2,417 and $1,611 5,526 1,589 Patent licenses, net of accumulated amortization of $572 and $313 391 367 Deferred financing costs, net of accumulated amortization of $312 and $4,405 1,924 1,247 Total $137,135 $104,395 31 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 32 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n On January 12, 2001, the Company consummated a new, outstanding under the Company’s 13% senior subordinated $60.0 million credit facility, which consisted of a $40.0 notes, $6.2 million outstanding under the Term A loan million term loan and a $20.0 million revolving line of facility and $9.0 million outstanding under the Term B credit. In June 2001, in conjunction with the acquisition loan facility. of Sierra, the Company amended this $60.0 million credit facility with a consortium of banks by increasing the total size of the facility to $100.0 million. The amended facility consists of an $80.0 million term loan and a $20.0 million revolving line of credit. Both the term loan and the revolving line of credit have a term of five years, maturing in July 2006. The new credit agreement is secured by the Company’s accounts receivable and inven- tories and requires the Company to comply with various quarterly financial covenants related to net earnings or loss before interest expense, income taxes, depreciation and amortization ("EBITDA"), as it is defined in the credit agreement, and ratios of leverage, interest and In October 2000, using the net proceeds from its Initial Public Offering, the Company prepaid $34.4 million of its Term A Facility and $49.6 million of its Term B Facility. Also in October 2000, the Company repurchased $5.0 million of its Senior Subordinated Notes and purchased for its Treasury 127,532 shares of common stock from the noteholder. As a result of the prepayment and repurchase transactions, an extraordinary loss for the extinguishment of debt was recorded in the fourth quarter of 2000 in the amount of $1.6 million, net of tax. Maturities of long-term obligations subsequent to December 28, 2001: fixed charges as they relate to EBITDA. Both the term (dollars in thousands) loan and the revolving line of credit bear interest at a rate that varies with the Company’s degree of leverage. At December 28, 2001 leverage levels, the applicable inter- est rates for both the term loan and revolving line of cred- it are prime less 0.75% or the London Interbank Offered 2002 2003 2004 2005 2006 Rate, or LIBOR, plus 1.25%, at the Company’s option. At Thereafter $ 13,005 15,000 17,000 19,000 10,000 397 December 28, 2001 there was no amount outstanding Total of long-term maturities $ 74,402 under the revolving line of credit. 9. INCENTIVE COMPENSATION AND EMPLOYEE The proceeds from the January 2001 term loan were used BENEFIT PLANS to pay off the remaining senior debt (Term A and Term B) Incentive Compensation Plans - The Company sponsors and the senior subordinated notes that were outstanding various incentive compensation programs, which provide as of December 29, 2000. As a result of this debt for the payment of cash or stock options to key employees restructuring, there was an extraordinary loss of $3.0 based upon achievement of specific earnings goals million, net of taxes. The loss was associated with the before incentive compensation expense. restructuring of our long-term debt and the related write- off of deferred financing fees and loan discounts associated with the previous long-term debt. Also included in the loss was the payment of $1.7 million, before taxes, as a call premium to the holders of our senior subordinated notes. At that date, there was $18.3 million net amount Employee Stock Ownership Plan - The Company sponsors a non-leveraged Employee Stock Ownership Plan (‘‘ESOP’’) and related trust as a long-term benefit for substantially all of its employees as defined in the plan documents. Under the terms of the ESOP plan documents, there are two components to ESOP contributions. The e n •a¯´bl´i n g t o p r o v i d e a b e t t e r q u a l i t y o f l i f e ■ first component is a defined contribution pension plan granted at exercise prices equal to the fair market value whose annual contribution equals five percent of each of the Company’s common stock at the date of the grant. employee’s compensation. Contributions to the ESOP are in the form of Company stock. The second component is a discretionary profit sharing contribution as determined by the Board of Directors. This profit sharing contribution is to be contributed to the ESOP in the form of Company stock. The ESOP is subject to contribution limitations and vesting requirements as defined in the plan. The Company’s 1998 Stock Option Plan (‘‘1998 Plan’’) authorizes the issuance of nonqualified and incentive stock options to purchase up to 1,220,000 shares of common stock of the Company, subject to the terms of the plan. The stock options vest over a three to five year period and may vary depending upon the achievement of earnings targets. The stock options expire 10 years from Compensation cost under the two components of the the date of the grant. Stock options are granted at ESOP recognized by the Company was approximately exercise prices equal to the fair value of the Company’s $3.0 million in 2001, $1.9 million in 2000 and $1.1 million common stock at the date of the grant. in 1999. As of December 28, 2001, the Company had contributed 304,547 shares under the ESOP and approximately 83,000 committed-to-be released shares under the ESOP, which equals the number of shares to settle the liability based on the closing market price of the shares at December 31, 2001. On November 16, 2001, the Company adopted and approved the Non-Employee Director Stock Incentive Plan (the “Director Plan”). The Director Plan authorizes the issuance of nonqualified stock options to purchase up to 100,000 shares of common stock of the Company from its treasury, subject to the terms of the plan. The stock options Savings Plan - The Company sponsors a defined contri- vest over a three-year period. The stock options expire 10 bution 401(k) plan, which covers substantially all of its years from the date of grant. Stock options are granted at employees. The plan provides for the deferral of employee exercise prices equal to the fair value of the Company’s compensation under Section 401(k) and a Company match. common stock at the date of the grant. Net pension costs related to this defined contribution pension plan were approximately $622,000, $468,000 and $429,000 in 2001, 2000 and 1999, respectively. As of December 28, 2001, options for 1,093,668 shares were available for future grants under the plans. The weighted average remaining contractual life is Total costs to the Company for all of the above plans seven years. were approximately $5,470,000, $3,367,000 and $1,946,000 in 2001, 2000 and 1999, respectively. The fair value of stock options granted subsequent to the Company’s Initial Public Offering on September 29, 2000 10. STOCK OPTION PLANS was the closing stock price on the date of grant. The The Company has stock option plans that provide for the issuance of nonqualified and incentive stock options to employees of the Company. The Company’s 1997 Stock Option Plan (‘‘1997 Plan’’) authorizes the issuance of options to purchase up to 480,000 shares of common stock of the Company. The stock options generally vest over a five year period and may vary depending upon the achievement of earnings targets. The stock options expire 10 years from the date of the grant. Stock options are Compensation Committee of the Board of Directors had determined the fair value of the stock options granted prior to September 29, 2000. In the absence of a ‘‘regular, active public market,” and based in part on independent valuations of the Company’s stock as of December 31, 1999 and 1998 and consideration of comparable companies, the fair value of the common stock underlying stock options granted in 1999 was estimated to be $15.00 per share. 33 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 34 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n A summary of the transactions under the 1997 Plan and The Company has determined the pro forma information 1998 Plan for 1999, 2000 and 2001 follows: as if the Company had accounted for stock options grant- Option Activity Weighted- Average Exercise Price Balance at January 2, 1999 455,907 $ 5.00 Options granted Options exercised Options forfeited Balance at December 31, 1999 Options granted Options exercised Options forfeited Balance at December 29, 2000 Options granted Options exercised Options forfeited 138,457 (20,668) (63,439) 510,257 83,472 (47) (2,997) 590,685 101,934 (11,340) (14,960) Balance at December 28, 2001 666,319 Options exercisable at: December 31, 1999 December 29, 2000 December 28, 2001 133,325 245,759 442,526 15.00 5.00 5.75 7.60 15.49 15.00 15.00 8.70 26.06 6.06 9.58 11.38 $7.05 $7.66 $8.38 ed under the fair value method of SFAS No. 123. The binomial option pricing model was used with the following weighted average assumptions: risk free interest rates of 5.00%, 6.37% and 6.55% in 2001, 2000 and 1999, respectively; no dividend yield; expected common stock market price volatility factor of 55% in 2001, 48% in 2000, and effectively zero in 1999; and a weighted average expected life of the options of 7 years. As prescribed by SFAS No. 123, pro forma net income (loss), basic and diluted earnings (loss) per share would have been $7,880,000, $0.40, $0.40; $(1,365,000), $(0.10), $(0.10); and $(2,975,000), $(0.24), $(0.24) for 2001, 2000 and 1999, respectively. These pro forma calculations assume the common stock is freely tradable for all years presented and, as such, the impact is not necessarily indicative of the effects on reported net income of future years. 11. INCOME TAXES The components of income tax expense (benefit) attrib- utable to continuing operations for 2001, 2000 and 1999, consisted of the following: Of the options outstanding as of December 28, 2001, (dollars in thousands) 2001 2000 1999 358,218 options were at an exercise price of $5.00, Federal: 202,996 options were at a range of exercise prices of $15.00 to $16.00, 39,659 options were at a range of exercise prices of $20.00 to $26.00 and 65,446 options were at a Current Deferred range of exercise prices of $27.50 to $32.48. The exercise State: prices of outstanding options approximated their weighted average exercise prices. Current Deferred No compensation cost has been recognized in the $ 3,839 $ - $ (702) 2,365 411 685 6,204 411 (17) 742 41 (1,588) (7) 159 1,000 735 200 (588) consolidated financial statements because the option Income tax expense (benefit) $ 6,939 $ 611 $(605) exercise price was equal to the estimated fair market value of the underlying stock on the date of grant. The weighted average grant date fair value of options granted was $16.02 in 2001, $9.06 for 2000 and $5.45 for 1999. e n •a¯´bl´i n g t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s ■ The net deferred tax asset includes the following: in-process research, development and engineering costs. (dollars in thousands) December 28, December 29, 2001 2000 Deferred tax asset - current $ 2,888 $ 1,863 Deferred tax asset - non current 5,417 8,800 The provision for income taxes differs in each of the years from the federal statutory rate due to the following: 2001 2000 1999 Net deferred tax asset $ 8,305 $10,663 Statutory rate 35.0 % 35.0 % 35.0 % The tax effect of major temporary differences that give rise to the Company’s net deferred tax asset are as follows: (dollars in thousands) December 28, December 29, 2001 2000 State taxes 2.9 (1.7) (30.2) Federal and state tax credits - - 20.4 Other (0.5) 4.2 0.9 Effective tax rate 37.4 % 37.5 % 26.1 % Amortization of intangible assets $4,501 $ 6,714 12. CAPITAL STOCK Allowance for obsolete inventory and Uniform Capitalization 1,546 683 The authorized capital stock of the Company consists of 100,000,000 shares of common stock, $.001 par value per Accrued liabilities and deferred compensation 1,661 1,335 share and 100,000,000 shares of preferred stock, $.001 Depreciation (2,169) (2,115) Restructuring reserves 91 113 Tax credits 2,614 1,287 par value per share. There are no preferred shares issued or outstanding. Under the terms of the New Credit Facility, the Company may pay dividends in an amount up to 50% of net income. Holders of common stock have one Net operating loss carryforwards 61 2,646 vote per share. Net deferred tax asset $8,305 $10,663 In July 2001, the Company completed an additional stock In assessing the reliability of deferred tax assets, offering of 7.8 million shares comprised of 5.8 million management considers, within each taxing jurisdiction, shares sold by existing shareholders and 2.0 million whether it is more likely than not that some portion or all newly issued shares. The Company received $43.6 of the deferred tax assets will not be realized. million in net proceeds to be used for general corporate Management considers the scheduled reversal of deferred purposes including acquisitions and debt reduction. tax liabilities, projected future taxable income, and tax On September 29, 2000, the Company conducted its planning strategies in making this assessment. Based Initial Public Offering. Together with the underwriter’s upon the Initial Public Offering and simultaneous over-allotment, the Company issued 5,750,000 shares in reduction of indebtedness and interest expense, as well as October 2000 and realized proceeds of approximately projections for future taxable income over the years in $84.0 million, net of issuance costs. which the deferred assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at December 28, 2001. Accordingly, no valuation allowance has been recorded. Subscribed common stock receivable consisted of promissory notes, bearing interest at 6.4% (the ‘‘Applicable Federal Rate’’ at the time the notes were issued) extended by the Company to management stock- holders to facilitate the purchase of 336,800 shares of The deferred tax asset ascribed to the amortization common stock. In connection with the Initial Public of intangible assets of $4,501,000 at December 28, 2001 Offering, the management stockholders tendered to the and $6,714,000 at December 29, 2000 is primarily Company the requisite number of common stock shares attributable to the 1997 expensing of purchased 35 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 36 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n at $16.00 per share to satisfy, in full, the outstanding 14. BUSINESS SEGMENT INFORMATION promissory notes. The Company operates its business in two reportable 13. COMMITMENTS AND CONTINGENCIES segments: medical and commercial power sources. The The Company is a party to various legal actions arising in the normal course of business. The Company does not believe that any such pending activities should have a material adverse effect on its results of operations or financial position. The Company is a party to various license agreements through 2018 to manufacture and sell components for use in medical implants and various commercial applications. Operating Leases - The Company is a party to various operating lease agreements for office and manufacturing space. The Company incurred operating lease expense of $909,000, $834,000 and $807,000 for 2001, 2000 and 1999, respectively. Included in each year is $211,000 paid to a related party under a non-cancelable operating lease which expires in 2006. The Company is a party to an operating lease to a related party under a non-cancelable operating lease which expires in 2006. The Company believes the rental amount to be reflective of arms-length, market-based rates for similar structures. If all lease extension options are exercised as expected by Company management, minimum future annual operating lease payments over the next five years for the Company are $575,000 in 2002; $355,000 in 2003; $285,000 in 2004; $289,000 in 2005; and $259,000 in 2006. medical segment designs and manufactures power sources, capacitors and components used in implantable medical devices, which are instruments that are surgically inserted into the body to provide diagnosis or therapy. The commercial power sources segment designs and manu- factures non-medical power sources for use in aerospace, oil and gas exploration and oceanographic equipment. The Company’s medical segment includes three product lines that have been aggregated because they share similar economic characteristics and similarities in the areas of products, production processes, types of customers, methods of distribution and regulatory environment. The three product lines are implantable power sources, capacitors and medical components. The reportable segments are separately managed, and their performance is evaluated based on income from operations. Management defines segment income from operations as gross prof it less costs and expenses attributable to segment specific selling, general and administrative and research, development and engineering. Non-segment specific selling, general and administrative expenses, research, development and engineering expenses, interest expense, intangible amortization and non- recurring items are not allocated to reportable segments. Revenues from transactions between the two segments are not significant. The accounting policies of the seg- ments are the same as those described in Note 2. e n •a¯´bl´i n g t o d i s c o v e r n e w w a y s t o b r i n g v a l u e t o o u r s h a r e h o l d e r s ■ An analysis and reconciliation of the Company’s business Net revenues by geographic area are presented by segment information to the respective information in the attributing revenues from external customers based on consolidated financial statements is as follows: where the products are sold. (dollars in thousands) 2001 2000 1999 (dollars in thousands) 2001 2000 1999 Revenues: Medical $ 107,654 $ 83,789 $69,224 United States $ 92,391 $68,179 $58,644 Revenues by geographic area: Commercial power sources 27,921 14,001 10,011 Foreign countries 43,184 29,611 20,591 Total revenues $ 135,575 $ 97,790 $79,235 Consolidated revenues $135,575 $97,790 $79,235 Segment income from operations: Medical $ 39,008 $ 30,005 $29,006 Commercial power sources 8,796 3,494 2,711 Total segment income from operations 47,804 33,499 31,717 Unallocated (29,274) (31,868) (34,031) Long-lived assets: United States December 28, December 29, 2001 2000 $188,645 $151,706 Income (loss) before income taxes $ 18,530 $ 1,631 $(2,314) Foreign countries - - Depreciation and amortization: Medical $ 5,243 $ 4,826 $ 3,699 Commercial power sources 536 377 301 Total depreciation included in segment income from operations 5,779 5,203 4,000 Consolidated long-lived assets $188,645 $151,706 Two customers accounted for approximately 66%, 65% and 64% of sales for 2001, 2000 and 1999, respectively. Two customers accounted for approximately 52% and 52% of the outstanding accounts receivable as of Unallocated depreciation and amortization 8,150 6,899 7,363 December 28, 2001 and December 29, 2000, respectively. Total depreciation and amortization $ 13,929 $ 12,102 $11,363 Expenditures for tangible long-lived assets, excluding acquisitions: Medical $ 7,074 $ 4,061 $ 6,700 Commercial power sources 504 82 72 Total reportable segments 7,578 4,143 6,772 Unallocated long-lived tangible assets 2,137 385 1,680 Total expenditures $ 9,715 $ 4,528 $ 8,452 December 28, December 29, 2001 2000 Identifiable assets, net: Medical $ 63,510 $ 44,320 Commercial power sources Total reportable segments Unallocated assets Total assets 16,177 79,687 203,833 9,673 53,993 127,654 $283,520 $181,647 37 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s ■ 38 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c o t s e t o n 15. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED (In thousands, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 2001 Revenues $34,692 $38,325 $32,987 $29,571 Gross profit 15,591 16,648 14,609 14,011 Income before extraordinary loss 2,711 3,312 2,649 2,919 Net income (loss) 2,711 3,312 2,649 (75)(a) Earnings per share before extraordinary loss - basic Earnings per share before extraordinary loss - diluted Earnings per share - basic Earnings per share - diluted 2000 Revenues 0.13 0.17 0.14 0.16 0.13 0.13 0.13 0.16 0.17 0.16 0.14 0.14 0.14 0.15 0.00 0.00 $27,950 $23,256 $23,408 $23,176 Gross profit 12,419 9,726 9,959 10,240 Income (loss) before extraordinary loss 2,656 (860) (383) (393) Net income (loss) 1,088(c) (860) (383) (393) Earnings (loss) per share before extraordinary loss - basic 0.14 (0.07) (0.03) (0.03) Earnings (loss) per share before extraordinary loss - diluted Earnings (loss) per share - basic(b) 0.14 0.06 (0.07) (0.03) (0.03) (0.07) (0.03) (0.03) Earnings (loss) per share - diluted(b) 0.06 (0.07) (0.03) (0.03) (a) Amount includes an extraordinary loss for the extinguishment of debt in the amount of $2,994,000, net of tax. (b) Per share data has been restated for all periods to reflect a one for three reverse stock split effective May 18, 2000 and a three for five reverse stock split effective August 15, 2000. (c) Amount includes an extraordinary loss for the extinguishment of debt in the amount of $1,568,000, net of tax. e n •a¯´bl´i n g t o p r o v i d e a b e t t e r q u a l i t y o f l i f e ■ TRANSFER AGENT: GLOBAL HEADQUARTERS: 9645 Wehrle Drive Clarence, NY 14031 716-759-6901 INVESTOR RELATIONS: Shareholders and financial analysts may direct any correspondence for WGT to 10,000 Wehrle Drive, Clarence, NY 14031 Fax: 716-759-5672 Phone or email: Ernest J. Norman, Esq. Director of Investor Relations and Corporate Communications Assistant Secretary 716-759-5689 enorman@greatbatch.com WEBSITE: Information about Wilson Greatbatch Technologies can be found on our web page at www.greatbatch.com FORM 10-K A copy of WGT’s Form 10-K as filed with the Securities and Exchange Commission can be obtained by calling the Assistant Secretary’s Office at 716-759-5689, or it can be obtained through our website at www.greatbatch.com Please direct questions about address changes, stock transfers, lost or stolen certificates, and any other account questions to: Mellon Investor Services 44 Wall Street, 6th Floor New York, NY 10005 917-320-6240 STOCK LISTING: New York Stock Exchange (Stock Symbol: GB) Price Range of WGT Stock 2001 Fiscal Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. High Low Close $ 28.00 $ 33.38 $ 29.30 $ 38.85 $ 18.50 $ 17.26 $ 23.00 $ 25.50 $ 18.99 $ 29.00 $ 29.30 $ 36.51 2000 Fiscal Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. High Low Close - - - - - - $ 22.88 $ 29.88 $ 22.88 $ 21.75 $ 22.88 $ 28.25 INDEPENDENT AUDITORS: Deloitte & Touche LLP Buffalo, NY CORPORATE COUNSEL: Hodgson Russ LLP One M&T Plaza, Suite 2000 Buffalo, NY ANNUAL MEETING: The Annual Meeting will be held on Friday, May 17, 2002 at Samuel’s Grande Manor 8750 Main Street Williamsville, NY 14221 39 s h a r e h o l d e r i n f o r m a t i o n ■ 40 t n e m e g a n a m d n a s r o t c e r i d f o d r a o b BOARD OF DIRECTORS: Robert E. Rich, Jr., Director(a) President Rich Products Corporation MANAGEMENT: Edward F. Voboril Chairman of the Board, President and Chief Executive Officer Susan M. Bratton Bill R. Sanford, Director(a) Vice President, Corporate Quality Chairman SYMARK LLC V.W. Brinkerhoff, III Vice President William B. Summers, Jr., Director(a)(b) General Manager, Implantable Capacitors Chairman McDonald Investments, Inc. Peter H. Soderberg, Director President Welch Allyn, Inc. Edward F. Voboril, Chairman of the Board President & CEO Wilson Greatbatch Technologies, Inc. Henry Wendt, Director(b) Chairman Computerized Medical Systems, Inc. (a) Member of the Audit Committee (b) Member of the Compensation Committee Larry T. DeAngelo Senior Vice President, Administration and Secretary Steven J. Ebel General Manager, Electrochem Frank J. Forkl, Jr., CPA Controller Curtis F. Holmes, PhD Group Vice President, Components Group Ricky S. Kline General Manager, Engineered Components Gary G. Moore General Manager, Greatbatch-Sierra, Inc. Ernest J. Norman, Esq. Assistant Secretary William M. Paulot General Manager, Emerging Technologies Robert C. Rusin General Manager, Implantable Power Sources Peter E. Samek Vice President, Corporate Development Esther S. Takeuchi, PhD Vice President, Research and Development David E. Waters Vice President, Marketing e n •a¯´bl´i n g t o a p p l y t e c h n o l o g y t o g r e a t e r c h a l l e n g e s ■
Continue reading text version or see original annual report in PDF format above