1
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
■