Integer
Annual Report 2007

Plain-text annual report

Greatbatch >> Beyond 2007 Annual Report ® The year that went beyond >> Dear Shareholders, 2007 was undoubtedly one of the most significant years in Greatbatch’s history. Last year I told you we’re ready—and we were. We expanded our ability to make investments with a convertible debt offering and enhanced credit facility. Through that we acquired seven companies (including two in early 2008), closed two strategic equity investments, continued consolidation of our manufacturing footprint, and commenced construction on a new commercial business facility and an expanded research and development center. We accomplished all of this while steadily growing sales in our core medical and commercial businesses. Greatbatch achieved record sales of $319 million for the year, an 18% increase from 2006. Implantable medical component sales reached $270 million, an increase of 19%. Approximately half of this growth was organic. Commercial sales were $49 million, up 12% from 2006— including $3 million in sales from our acquisitions. Over the past year, we focused our strategic initiatives on creating a diversified product and technology platform to support additional growth. We remain steadfast in our mission of being a leader in the comprehensive design and manufacturing of technology-based custom products for the commercial and implantable medical markets. We plan to continue growing through innovation and strategic acquisitions that broaden our market base and capabilities to serve our customers. In 2006, we operated solely in the cardiac rhythm management (CRM) and commercial power industries. As we moved into 2007, we accelerated the diversification and globalization of Greatbatch beyond our traditional markets. In early 2007, we put in place over $400 million of financing to support our business expansion plans. This facilitated our acquisition of five companies in 2007 and two in early 2008, each complementing our existing business model and adding to our capabilities. These investments helped move us into new vertical markets, while expanding our presence geographically. We purchased BIOMEC in April 2007. In addition to their specialties in infection and clotting control, BIOMEC provides enhanced design capability and extends our customer reach from device concept through commercial manufacturing. With BIOMEC, we also obtained a minority ownership in Intelect Medical, which has provided us with important clinical relationships that improve our presence in the neuromodulation market. In June 2007, we acquired Enpath Medical, which provided us with a platform to enter the vascular market and broadened our neuromodulation market presence. With the Quan Emerteq acquisition in November 2007, we added substantial critical mass to this platform and expanded our technology offerings in CRM. Quan Emerteq also enables us to immediately participate in the growing peripheral, coronary, and neurovascular markets. The combined capabilities of Quan Emerteq and Enpath are the basis for our therapy delivery product line. Greatbatch entered the orthopedics market in early 2008 by acquiring Precimed, followed by the DuPuy Orthopedics’ manufacturing facility in Chaumont, France. These purchases provided us with a major European manufacturing presence and multiple product offerings, including orthopedic implants, surgical instruments, tools, and trays. In our commercial subsidiary, we expanded our capabilities to include battery-powered wireless sensing solutions through the addition of IntelliSensing. This acquisition complements our current oil and gas industry product offerings and enables us to better serve our customers through a more comprehensive solution. The addition of EAC further expands our commercial business capabilities into rechargeable battery pack design and manufacturing solutions for customers in the external medical, communication, automatic data collection, and environmental and safety markets. A strategic goal for the combined acquisitions was to diversify our business. In 2007, approximately 80% of our revenue originated from the CRM market. Now, in 2008, we anticipate reducing this concentration to 50%. This is a significant step that will provide benefits to our company and shareholders well into the future. In addition to diversifying our markets, we also expanded geographically. Through our acquisitions, we added seventeen new locations throughout the world. Our newly developed presence in nine U.S. cities, China, Switzerland, France, Japan, and the United Kingdom better equips us to serve existing customers while pursuing untapped markets. traditional markets, we are ready to develop new customer relationships and provide current customers a more comprehensive and technologically advanced product portfolio. Our Executive Leadership Team is positioned to drive success into the future. Comprised of long-tenured Greatbatch executives, subject matter experts, and several new leaders from our acquisitions, we have an impressive balance of skills and experience. The Executive Leadership Team is working closely with the Board of Directors to execute our strategic plan and deliver shareholder return. With the recent addition of several new executives and board members, we have the combination of experience and talent that expands our ability to grow more effectively and efficiently. January 2008 marked the retirement of Ed Voboril as Chairman of the Board of Directors, thus completing our leadership succession plan. During his sixteen years of service at Greatbatch, Ed guided the organization to record-setting performance levels. It has been a distinct pleasure working with Ed—his knowledge, experience, and dedication will be missed. As you continue to read this annual report, you’ll see why 2007 truly was the year Greatbatch went beyond. With an eye on the future, I can only anticipate even greater success in 2008. Thank you to our customers, investors, suppliers, partners, associates, and friends for your contributions to Greatbatch’s success in 2007. Sincerely, I consider the impact our growth has had on our customers to be a significant accomplishment. With new vertical markets and expanded offerings in our Thomas J. Hook President & Chief Executive Officer Greatbatch, Inc. GO BEYOND >> (in thousands, except per share data) Fiscal Year OPERATIONS Sales Operating income Net income 2003 2004 2005 2006 2007 $ 216,365 $ 200,119 $ 241,097 $ 271,142 $ 318,746 $ $38,200 $ $26,940 $ 16,886 $ 22,376 $ 20,020 $ 23,288 $ 14,218 $ 10,107 $ 16,126 $ 15,050 Diluted net earnings per common share $ 1.05 $ 0.66 $ 0.46 $ 0.73 $ 0.67 Diluted weighted average shares outstanding 24,026 21,540 21,810 26,334 22,422 S A L E S ( I N T H O U S A N D S ) 2003 2004 2005 2006 2007 Fiscal Year 2003 2004 2005 2006 2007 CASH FLOW AND BALANCE SHEET (in thousands) Cash flow from operations $ 55,372 $ 43,460 $ 43,335 $ 39,205 $ 42,965 Working capital Total assets Total debt Total liabilities $ 170,455 $ 132,360 $ 151,958 $ 199,051 $ 116,816 $ 438,243 $ 476,166 $ 512,911 $ 547,827 $ 663,851 $ 171,778 $ 171,652 $ 170,464 $ 170,000 $ 241,198 $ 202,903 $ 222,028 $ 244,306 $ 248,134 $ 341,180 Total stockholders’ equity $ 235,340 $ 254,138 $ 268,605 $ 299,693 $ 322,671 OTHER Number of employees Number of registered shareholders 1,431 269 1,225 249 1,338 214 1,835 236 2,445 245 >> BEYOND LEADERSHIP Behind every great business are the leaders who make it great. At Greatbatch, all members of our Executive Leadership Team are an integral part of our success. With strengths in varying aspects of the business, each leader brings a unique and important perspective to the table. The main purpose of our management structure remains to integrate all divisions of Greatbatch in order to carry out a unified corporate vision. TIMOTHY MCEVOY Vice President, General Counsel & Secretary THOMAS HOOK President & CEO SUSAN BRATTON Senior Vice President, Commercial THOMAS MAZZA Senior Vice President & Chief Financial Officer SUSAN CAMPBELL Senior Vice President, Global Manufacturing & Supply Chain PATRICK BERDOZ Senior Vice President, Orthopedics RICH FARRELL Vice President, Business Development BARBARA DAVIS Vice President, Human Resources JOHN AYLIFFE Vice President, Europe MAURICIO ARELLANO Senior Vice President, CRM & Neuromodulation JOHN FARRELL Vice President, Therapy Delivery >> BEYOND THE TRADITIONAL In 2006, we operated solely around our CRM and commercial businesses. What a difference a year can make. Since then, we’ve successfully completed seven acquisitions, moving us from a one-market, three-customer medical components company to one with widely expanded markets and product offerings and a diverse customer base around the world. 2007 ACQUISITIONS BIOMEC >> Provides us with enhanced device design service capability and extends our customer reach from concept through commercial manufacturing. ENPATH MEDICAL >> Broadens our reach into the vascular market and provides a platform to build on in the neuromodulation market. INTELLISENSING >> Complements our commercial business with the design and manufacture of battery-powered wireless sensing solutions. QUAN EMERTEQ >> Adds to our critical mass in the vascular and neuromodulation markets and further strengthens our position with CRM customers. EAC >> Empowers us to design and manufacture secondary battery pack solutions for customers in the external medical device, communication, automatic data collection, and environmental and safety markets. 2008 ACQUISITIONS PRECIMED >> Allows us to enter the orthopedics market. Precimed has a major European manufacturing presence, with vast product offerings in trays, instruments, and implants. CHAUMONT, FRANCE, FACILITY >> Extends our product offerings to include a full range of orthopedic implants and includes a new four-year supply agreement with one of the largest orthopedic companies in the world. >> BEYOND BORDERS O R V I N , S W I T Z E R L A N D European Headquarters, Manufacturing C O R G É M O N T, S W I T Z E R L A N D Manufacturing S A I G N E L É G I E R , S W I T Z E R L A N D Manufacturing C H A U M O N T, F R A N C E . Manufacturing.. H U D D E R S F I E L D , U N I T E D K I N G D O M . Sales Office.. S U T T O N , M A Sales Office C A N T O N , M A Manufacturing T E T E R B O R O , N J Manufacturing C L A R E N C E , N Y Headquarters, Research & Development, Manufacturing A L D E N , N Y Manufacturing O R C H A R D PA R K , N Y Manufacturing E X T O N , PA Administration C L E V E L A N D , O H Engineering GREATBATCH ENPATH MEDICAL QUAN EMERTEQ BIOMEC PRECIMED INTELLISENSING EAC T I J U A N A , M E X I C O Manufacturing M I N N E A P O L I S , M N Manufacturing B L A I N E , M N Manufacturing P LY M O U T H , M N Manufacturing I N D I A N A P O L I S , I N Manufacturing C O L U M B I A C I T Y, I N Manufacturing T O K Y O , J A PA N Sales Office S H A N G H A I , C H I N A Sales Office S U Z H O U , C H I N A Manufacturing CARDIAC RHYTHM MANAGEMENT & NEUROMODULATION >> “Three years in the making, our eM-Able MRI-compatible technology will soon allow patients with active implantable devices to go through an MRI with peace of mind. This is just one example of how our products enhance safety and enable the advancement of patient care. That’s something our researchers, employees, and investors can feel good about. It’s definitely something I feel good about.” WHO WE ARE As the core business of Greatbatch, CRM & Neuromodulation has furthered its stronghold on the market with the introduction of breakthrough products, like QMR, and the addition of value-added services through strategic acquisitions. In 2007, we added capabilities in infection and clotting prevention to our portfolio, while enhancing design capability that extends our customer reach from device concept through commercial manufacturing—all while providing an increased presence in the neuromodulation market. Our commitment to our OEM partners goes beyond providing innovative products. As a result of our lean manufacturing expertise, in 2007, we were able to respond to a 58% increase in capacitor demand, while consistently delivering products of the highest quality and reliability. WHERE WE ARE • Alden, NY • Clarence, NY • Minneapolis, MN • Cleveland, OH • Tijuana, Mexico HIGHLIGHTS OF 2007 • Achieved an 8% increase in sales despite a flat market • Introduced QMR and QHR as our flagship batteries, enabling key functionality while maintaining device size and longevity • Successfully integrated BIOMEC into our existing business model • Completed facility consolidations to improve upon manufacturing efficiency GOAL FOR 2008 Our focus will be profitable growth based upon creativity, commitment, and discipline—the creativity to anticipate market and technology trends in order to capitalize on new growth platforms, the commitment to bring innovative products to market that will drive differentiation for our OEM partners, and the discipline to stay true to our core values. MAURICIO ARELLANO Senior Vice President, CRM & Neuromodulation THERAPY DELIVERY >> JOHN FARRELL Vice President, Therapy Delivery “I’m proud to be part of a company that is truly making a difference in the healthcare industry. Every part of every day, we’re working toward technologies that will help reduce hospital stays, save lives, and create less invasive procedures. And we bring these technologies to our customers with world-class quality. That’s why I’m proud to be part of the Greatbatch team.” WHO WE ARE The marriage of two market-ready resources—Quan Emerteq and Enpath Medical—create the basis for our therapy delivery product line. With the addition of this new business, we have furthered our expansion outside of our traditional markets and now develop products like stimulation leads for the CRM and neuromodulation markets, as well as introducers, catheters, and other products and therapy delivery systems for vascular markets. We are also working to make our devices MRI safe and invisible to the body as we integrate the Greatbatch technology into our new therapy delivery product offering. WHERE WE ARE • Plymouth, MN • Blaine, MN HIGHLIGHTS OF 2007 • The creation of our therapy delivery business through the acquisitions of Enpath Medical and Quan Emerteq • Diversifying our product offerings while expanding our relationship with our Blue Chip customer base GOAL FOR 2008 We will leverage organizational technologies and research to continue advancing the quality of care in the markets we serve. We will continue to expand our advanced catheter portfolio to aid in tortuous vascular access. We will also drive to advance the market with MRI conditional stimulation leads—coatings that make devices invisible to the body while reducing the size of catheters and lead wires. Finally, we will leverage the businesses provided by Quan and Enpath to optimize performance while working to achieve double-digit revenue growth for the therapy delivery business. ORTHOPEDICS >> “It’s amazing, really, to think we’ve developed something that can improve someone’s quality of life so substantially. With our technology, we’re turning hip replacements into minimally invasive outpatient procedures. Where it used to be weeks before you could even drive a car, it’s now only days before you can jump back on a bicycle. It’s a truly revolutionary procedure. You know you’re in a good place when you can reduce recovery time and decrease healthcare costs.” WHO WE ARE Greatbatch entered the orthopedics market in early 2008 by acquiring Precimed and the Chaumont, France, facility of DuPuy Orthopedics. These acquisitions brought Patrick and John to our team, both of whom have extensive knowledge and global expertise in orthopedics. The addition of these two companies positions us as a critical supplier to the growing orthopedic OEM market and equips us with a major European manufacturing presence. We’ve also added multiple product offerings to our portfolio, including trays, instruments, and implants, which places us in new vertical markets and diversifies our industry and customer base. WHERE WE ARE • Switzerland (three locations, including our European headquarters) • Chaumont, France • Indianapolis, IN • Exton, PA • United Kingdom • Japan • China • Columbus City, IN HIGHLIGHTS OF 2007 • Reaching an agreement to acquire Precimed, which included the purchase of the French facility of DuPuy Orthopedics—creating an orthopedics business within Greatbatch • Global expansion of operations and customer base, including major OEM suppliers GOAL FOR 2008 To continue developing our technology to help reduce invasiveness and recovery time for surgeries other than hip replacements. We are working toward applying our technology to help spine, knee, and trauma patients, while capitalizing on synergies between Greatbatch and Precimed. PATRICK BERDOZ Senior Vice President, Orthopedics JOHN AYLIFFE Vice President, Europe COMMERCIAL >> “When I watch the news at night, I know that our products help save the lives of our soldiers. It’s a good feeling knowing that if their plane goes down, their radio is going to work and they will be found. Sure, when people’s lives depend on the reliability of your products, it’s a heavy load to carry, but I wouldn’t have it any other way.” SUSAN BRATTON Senior Vice President, Commercial WHO WE ARE As the commercial business of Greatbatch, Electrochem has developed a niche in the marketplace as a leading industry provider of value-added solutions for the critical-application- monitoring market, with a focus in the research, development, design, and manufacture of lithium battery packs and cells for extreme conditions and environments. Through two recent acquisitions— IntelliSensing LLC and Engineered Assemblies Corporation (EAC)—Electrochem’s capabilities are moving beyond just commercial power. With EAC, Electrochem added a rechargeable solution to its product portfolio, allowing for expansion into new markets, such as external medical devices. IntelliSensing designs and manufactures battery-powered wireless sensing solutions and complements markets currently served by Electrochem. IntelliSensing’s wireless sensors require lithium batteries to operate and oftentimes are applied in the same extreme conditions that Electrochem batteries are built for. The addition of IntelliSensing’s products to the Electrochem line offers customers a more comprehensive solution and gives us a closer reach to the end customer. WHERE WE ARE In 2007, we began construction on a new 80,000-square-foot facility in Raynham, MA, that will improve our efficiency and significantly increase our manufacturing capacity. Our locations include: • Canton, MA • Raynham, MA • Teterboro, NJ • Sutton, MA • Orchard Park, NY • Suzhou, China HIGHLIGHTS OF 2007 • A 12% increase in sales • Acquiring EAC and IntelliSensing—facilitating movement into new vertical markets GOAL FOR 2008 To bring rechargeable battery and wireless sensing capabilities to market, as well as develop completely new technologies to improve the oil and gas, military, oceanography, and external medical markets. Also, we aim to complete construction of our Raynham, MA, facility and begin integrating operations. A STRONG FRONT >> From human resources to global manufacturing, the other five members of our management team act in roles that support the entire Greatbatch organization, while making sure all actions within the company encourage growth and optimize manufacturing efficiency. THOMAS MAZZA SUSAN CAMPBELL RICH FARRELL TIMOTHY MCEVOY BARBARA DAVIS Senior Vice President & Chief Financial Officer Senior Vice President, Global Manufacturing & Supply Chain Vice President, Business Development Vice President, General Counsel & Secretary Vice President, Human Resources Tom is charged with making sure Susan leads manufacturing Rich oversees sales, marketing, Tim is responsible for handling Barbara is responsible for ensuring our balance sheet is healthy and and supply chain across the and business development all legal matters for Greatbatch. that Greatbatch has the very best all of our businesses are properly organization. She will be across Greatbatch. Rich came to He advises the businesses on a full talent to meet its strategic goals reporting and forecasting responsible for optimizing our Greatbatch with Quan Emerteq, range of legal issues and is charged and objectives. This includes operating results. In addition, operational capabilities and which he co-founded in 1998. with protecting the intellectual maintaining Greatbatch as an Tom is responsible for ensuring making the most of potential With more than 20 years of property and reputation of the employer of choice with a very our technology infrastructure synergies with our newly experience in the medical device company, as well as ensuring that robust talent base. She handles is supporting the growth of the acquired facilities. Susan has industry, he brings a strong our businesses are operating at an all succession initiatives and company and operating with leadership experience in a variety working relationship with many acceptable risk level. Tim has over state-of-the-art associate-focused maximum efficiency. Prior to of world-class manufacturing of our customers and has a 20 years of legal experience, programs. Barbara has 20 years joining Greatbatch, he served in a techniques, including lean history of driving organizational the majority of which was spent of human resources leadership variety of financial roles and has manufacturing and Six Sigma. growth. As part of the Executive at an S&P 500 company. experience from a diverse group significant experience in running Susan previously led the Leadership Team, Rich will ensure of companies. large multi-national companies. Medical Power Group for we protect our core business, Greatbatch, providing her with obtain critical mass, and pursue invaluable insight. strategic opportunities inside and outside the company. TRANSFER AGENT AND REGISTRAR INVESTOR INFORMATION BNY Mellon Shareowner Services 480 Washington Boulevard Jersey City, New Jersey 07310-1900 Telephone: 800-288-9541 Website: www.bnymellon.com/shareowner/isd TDD: 800-231-5469 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP, Buffalo, NY Shareholders, securities analysts, and investors seeking more information about the company can access information via the Internet at www.greatbatch.com or from the Investor Relations Department, 10000 Wehrle Drive, Clarence, New York 14031. STOCK EXCHANGE LISTING New York Stock Exchange (Symbol: GB) FISCAL QTR. 2006 HIGH 2006 LOW 2007 HIGH 2007 LOW FIRST SECOND THIRD FOURTH $28.02 $24.92 $25.24 $27.78 $20.49 $19.10 $20.36 $21.40 $30.05 $33.17 $34.96 $27.50 $25.04 $25.31 $26.00 $18.52 BOARD MEMBERS FROM LEFT TO RIGHT Peter H. Soderberg President & Chief Executive Officer, Hillenbrand Industries, Inc., and Hill-Rom Company, Inc. William B. Summers, Jr. Retired Chairman & CEO, McDonald Investments, Inc. Dr. Helena S. Wisniewski Vice President, Research & Enterprise Development at the Stevens Institute of Technology Kevin C. Melia Non-Executive Chairman IONA Technologies PLC Bill R. Sanford (Chairman) Founder & Chairman of SYMARK LLC Thomas J. Hook President & Chief Executive Officer, Greatbatch, Inc. Thomas S. Summer Chief Financial Officer Advance Publications, Inc. Pamela G. Bailey President & Chief Executive Officer, Personal Care Products Council John P. Wareham Non-Executive Chairman, STERIS Corporation Dr. Joseph A. Miller, Jr. Executive Vice President & Chief Technology Officer, Corning, Inc. CORPORATE LEADERSHIP Thomas Hook, President & Chief Executive Officer Thomas Mazza, Senior Vice President & Chief Financial Officer Mauricio Arellano, Senior Vice President, CRM & Neuromodulation Patrick Berdoz, Senior Vice President, Orthopedics Susan Bratton, Senior Vice President, Commercial CHAIRMAN OF THE BOARD Bill R. Sanford AUDIT COMMITTEE Thomas S. Summer (Chair) | Kevin C. Melia | William B. Summers, Jr. | John P. Wareham COMPENSATION AND ORGANIZATION COMMITTEE Susan Campbell, Senior Vice President, Global Manufacturing & Supply Chain William B. Summers, Jr. (Chair) | Peter H. Soderberg | Thomas S. Summer John Ayliffe, Vice President, Europe Barbara Davis, Vice President, Human Resources John Farrell, Vice President, Therapy Delivery Rich Farrell, Vice President, Business Development Timothy McEvoy, Vice President, General Counsel & Secretary CORPORATE GOVERNANCE AND NOMINATING COMMITTEE Pamela G. Bailey (Chair) | Dr. Joseph A. Miller, Jr. | Bill R. Sanford Peter H. Soderberg | Dr. Helena S. Wisniewski SCIENCE AND TECHNOLOGY DEVELOPMENT COMMITTEE Dr. Joseph A. Miller, Jr. (Chair) | Pamela G. Bailey | Thomas J. Hook | Kevin C. Melia John P. Wareham | Dr. Helena S. Wisniewski www.greatbatch.com Greatbatch, Inc. 10000 Wehrle Drive Clarence, NY 14031 (716) 759-5600 ® 

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