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Greatbatch, Inc. Reports 2012 Second Quarter Results

Forward-Looking Statements

Some of the statements in this press release, including the information provided under the caption “Financial Guidance,” are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and involve a number of risks and uncertainties. These statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of these terms or other comparable terminology. These statements are based on the Company’s current expectations. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those stated or implied by such forward-looking statements include, among others, the following matters affecting the Company: our dependence upon a limited number of customers; customer ordering patterns; product obsolescence; our inability to market current or future products; pricing/vertical integration pressure from customers; our ability to timely and successfully implement our cost reduction and plant consolidation initiatives; our reliance on third party suppliers for raw materials, products and subcomponents; our inability to maintain high quality standards for our products; challenges to our intellectual property rights; product liability claims; our inability to successfully consummate and integrate acquisitions and to realize synergies; our unsuccessful expansion into new markets; our ability to realize a return on our substantial RD&E investments, including system and device products; our inability to obtain licenses to key technology; regulatory changes or consolidation in the healthcare industry; global economic factors including currency exchange rates and interest rates; the resolution of various legal actions and other risks and uncertainties described in the Company’s Annual Report on Form 10-K and in other periodic filings with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.

 

Table A: Operating Income Reconciliation:

 
A reconciliation of GAAP operating income to adjusted amounts is as follows (in thousands):
       
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
  2012   2011   2012   2011
Operating income as reported $ 11,091 $ 18,303 $ 22,289 $ 36,269
Adjustments:
Inventory step-up amortization (COS) - - 532 -
Medical device DVT expenses (RD&E) 1,575 634 2,615 1,224
Consolidation and optimization costs 4,455 22 6,023 261
Integration expenses 112 - 1,055 -
Asset dispositions and other   1,356     (542 )   1,590     (614 )
Adjusted operating income $ 18,589   $ 18,417   $ 34,104   $ 37,140  
Adjusted operating margin   11.2 %   12.6 %   10.5 %   12.6 %
 
 

Table B: Net Income and Diluted EPS Reconciliation

 
A reconciliation of GAAP net income and diluted EPS to adjusted amounts is as follows (in thousands, except per share amounts):
       
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
  2012   2011   2012   2011
Income before taxes as reported $ 6,870 $ 12,764 $ 12,989 $ 30,591
Adjustments:
Inventory step-up amortization (COS) - - 532 -
Medical device DVT expenses (RD&E) 1,575 634 2,615 1,224
Consolidation and optimization costs 4,455 22 6,023 261
Integration expenses 112 - 1,055 -
Asset dispositions and other 1,356 (542 ) 1,590 (614 )
(Gain) loss on cost method investments, net - 317 - (4,232 )
CSN conversion option discount amortization   2,263   2,101     4,484   4,163  
Adjusted income before taxes 16,631 15,296 29,288 31,393
Adjusted provision for income taxes   6,435   5,100     10,376   10,378  
Adjusted net income $ 10,196 $ 10,196   $ 18,912 $ 21,015  
Adjusted diluted EPS $ 0.43 $ 0.43   $ 0.79 $ 0.88  
Number of shares 23,876 23,838 23,816 23,767
 

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands except per share data)
       
Three Months Ended Six Months Ended
June 29, July 1, June 29, July 1,
  2012   2011  

2012

    2011
 
Sales $ 166,548 $ 146,524 $ 325,651 $ 295,358
Cost of sales   114,615     99,920     226,830     201,584  
Gross profit 51,933 46,604 98,821 93,774
Operating expenses:
Selling, general and administrative expenses 20,745 17,571 39,779 36,220
Research, development and engineering costs, net 14,174 11,250 28,085 21,638
Other operating (income) expense, net   5,923     (520 )   8,668     (353 )
Total operating expenses 40,842 28,301 76,532 57,505
Operating income 11,091 18,303 22,289 36,269
Interest expense 4,416 4,403 8,775 8,677
Interest income (1 ) - (1 ) (8 )
(Gain) loss on cost method investments, net - 317 - (4,232 )
Other (income) expense, net   (194 )   819     526     1,241  
Income before provision for income taxes 6,870 12,764 12,989 30,591
Provision for income taxes   3,019     4,214     4,671     10,097  
Net income $ 3,851   $ 8,550   $ 8,318   $ 20,494  
 
Earnings per share:
Basic $ 0.16 $ 0.37 $ 0.35 $ 0.88
Diluted $ 0.16 $ 0.36 $ 0.35 $ 0.86
 
Weighted average shares outstanding:
Basic 23,611 23,227 23,515 23,214
Diluted 23,876 23,838 23,816 23,767
 

 
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands)
   
As of
ASSETS June 29, December 30,
  2012   2011
Current assets:
Cash and cash equivalents $ 11,133 $ 36,508
Accounts receivable, net 114,135 101,946
Inventories 113,657 109,913
Refundable income taxes - 1,292
Deferred income taxes 7,641 7,828
Prepaid expenses and other current assets   7,227   7,469  
Total current assets 253,793 264,956
Property, plant and equipment, net 156,380 145,806
Amortizing intangible assets, net 95,362 100,258
Indefinite-lived intangible assets 20,828 20,288
Goodwill 347,290 338,653
Deferred income taxes 2,073 2,450
Other assets   10,064   8,936  
Total assets $ 885,790 $ 881,347  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 44,515 $ 40,665
Deferred income taxes 835 845
Accrued expenses   36,855   52,539  
Total current liabilities 82,205 94,049
Long-term debt 233,374 235,950
Deferred income taxes 75,786 75,203
Other long-term liabilities   10,382   8,862  
Total liabilities 401,747 414,064
Stockholders’ equity:
Preferred stock - -
Common stock 24 23
Additional paid-in capital 315,252 307,196
Treasury stock - (1,387 )
Retained earnings 160,840 152,522
Accumulated other comprehensive income   7,927   8,929  
Total stockholders’ equity   484,043   467,283  
Total liabilities and stockholders’ equity $ 885,790 $ 881,347  




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