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Greatbatch, Inc. Reports 2013 Second Quarter Results

Stocks in this article: GB

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 forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or variations or the negative of these terms or other comparable terminology. These forward-looking statements are based on the Company’s current expectations. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those stated or implied by such forward-looking statements include, among others, the following matters affecting the Company: our dependence upon a limited number of customers; customer ordering patterns; product obsolescence; our inability to market current or future products; pricing/vertical integration pressure from customers; our ability to timely and successfully implement our cost reduction and plant consolidation initiatives (including the consolidation of our Swiss orthopaedic operations); our reliance on third party suppliers for raw materials, products and subcomponents; our inability to maintain high quality standards for our products; challenges to our intellectual property rights; product liability claims; our inability to successfully consummate and integrate acquisitions and to realize synergies; our unsuccessful expansion into new markets; our ability to realize a return on our substantial RD&E investments, including system and device products; changes in and challenges related to compliance with governmental laws and regulations, including regulations of the U.S. Food and Drug Administration and foreign government agencies regulating medical device approvals; our inability to obtain licenses to key technology; regulatory changes or consolidation in the healthcare industry; global economic factors including currency exchange rates and interest rates; the resolution of various legal actions and other risks and uncertainties described in the Company’s Annual Report on Form 10-K and in other periodic filings with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking statements 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:

 
                   
Three Months Ended
Implantable Medical Electrochem Unallocated Total
June 28, June 29, June 28, June 29, June 28, June 29, June 28, June 29,
(dollars in thousands) 2013 2012 2013 2012 2013 2012 2013 2012
Sales $ 128,604 $ 125,366 $ 42,727 $ 41,182 $ - $ - $ 171,331 $ 166,548
 
Operating income (loss) as reported $ 16,640 $ 11,396 $ 5,828 $ 6,199 $ (5,333) $ (6,504) $ 17,135 $ 11,091
Adjustments:
Medical device DVT expenses (RD&E) 1,235 1,575 - - - - 1,235 1,575
Consolidation and optimization costs 3,065 2,713 126 - 517 1,742 3,708 4,455
Acquisition and integration expenses 41 39 30 72 - 1 71 112
Asset dispositions, severance and other   (7)   531   50   156   -   669   43   1,356
Adjusted operating income (loss) $ 20,974 $ 16,254 $ 6,034 $ 6,427 $ (4,816) $ (4,092) $ 22,192 $ 18,589
Adjusted operating margin   16.3%   13.0%   14.1%   15.6%   N/A   N/A   13.0%   11.2%
 
Medical device related adjusted expenses (excluding DVT) $ 6,615 $ 7,143 $ - $ - $ - $ - $ 6,615 $ 7,143
Adjusted operating income excluding medical device related adjusted expenses $ 27,589 $ 23,397 $ 6,034 $ 6,427 $ (4,816) $ (4,092) $ 28,807 $ 25,732
Adjusted operating margin excluding medical device related adjusted expenses   21.5%   18.7%   14.1%   15.6%   N/A   N/A   16.8%   15.5%
 
 
                   
Six Months Ended
Implantable Medical Electrochem Unallocated Total
June 28, June 29, June 28, June 29, June 28, June 29, June 28, June 29,
(dollars in thousands) 2013 2012 2013 2012 2013 2012 2013 2012
Sales $ 240,018 $ 243,183 $ 79,578 $ 82,468 $ - $ - $ 319,596 $ 325,651
 
Operating income (loss) as reported $ 30,983 $ 21,508 $ 10,644 $ 10,670 $ (10,153) $ (9,889) $ 31,474 $ 22,289
Adjustments:
Inventory step-up amortization (COS) - - - 532 - - - 532
Medical device DVT expenses (RD&E) 2,969 2,615 - - - - 2,969 2,615
Consolidation and optimization costs 5,825 3,463 126 - 819 2,560 6,770 6,023
Acquisition and integration expenses 111 144 70 910 1 1 182 1,055
Asset dispositions, severance and other   53   507   55   411   -   672   108   1,590
Adjusted operating income (loss) $ 39,941 $ 28,237 $ 10,895 $ 12,523 $ (9,333) $ (6,656) $ 41,503 $ 34,104
Adjusted operating margin   16.6%   11.6%   13.7%   15.2%   N/A   N/A   13.0%   10.5%
 
Medical device related adjusted expenses (excluding DVT) $ 12,490 $ 14,644 $ - $ - $ - $ - $ 12,490 $ 14,644
Adjusted operating income excluding medical device related adjusted expenses $ 52,431 $ 42,881 $ 10,895 $ 12,523 $ (9,333) $ (6,656) $ 53,993 $ 48,748
Adjusted operating margin excluding medical device related adjusted expenses   21.8%   17.6%   13.7%   15.2%   N/A   N/A   16.9%   15.0%
 

       

Table B: Net Income and Diluted EPS Reconciliation

 
Three Months Ended Six Months Ended
June 28,   June 29, June 28,   June 29,
2013 2012 2013 2012
  Impact   Impact   Impact   Impact
Per Per Per Per

 

Net Diluted Net Diluted Net Diluted Net Diluted

(in thousands except per share amounts)

Income   Share Income   Share Income   Share Income   Share
Net income as reported $ 9,752 $ 0.39 $ 3,851 $ 0.16 $ 15,415 $ 0.62 $ 8,318 $ 0.35
Adjustments:
Inventory step-up amortization (COS) - - - - - - 346 0.01
Medical device DVT expenses (RD&E) 803 0.03 1,024 0.04 1,930 0.08 1,699 0.07
Consolidation and optimization costs (a) 2,956 0.12 2,896 0.12 5,296 0.21 3,915 0.16
Acquisition and integration expenses (a) 46 - 73 - 118 - 686 0.03
Asset dispositions, severance and other (a) 26 - 881 0.04 91 - 1,033 0.04
Loss on cost and equity method investments, net (b) 352 0.01 - - 398 0.02 - -
CSN conversion option discount amortization (c) - - 1,471 0.06 2,906 0.12 2,915 0.12
2012 R&D Tax Credit (d)   -   -   -   -   (1,500)   (0.06)   -   -
Adjusted net income and diluted EPS (e) $ 13,935 $ 0.56 $ 10,196 $ 0.43 $ 24,654 $ 0.99 $ 18,912 $ 0.79
Adjusted diluted weighted average shares 24,922 23,876 24,818 23,816
 
(a)   Net of tax amounts computed using a 35% U.S. statutory tax rate for the 2013 and 2012 periods and a 0% and 22.5% Switzerland tax rate for the 2013 and 2012 periods, respectively.
(b) Pre-tax amount is $542 thousand and $612 thousand for the quarter and year-to-date periods, respectively.
(c) Pre-tax amount is $4.5 million for the 2013 year-to-date period and $2.3 million and $4.5 million for the 2012 quarter and year-to-date periods, respectively.
(d) Relates to the 2012 portion of the R&D tax credit which was reinstated in the first quarter of 2013 retroactive back to the beginning of 2012. As required, the full year impact of the R&D tax credit relating to 2012 was recognized in the first quarter of 2013.
(e) The per share data in this table has been rounded to the nearest $0.01 and therefore may not sum to the total.
       

Table C: Adjusted EBITDA Reconciliation

 
Three Months Ended Six Months Ended
June 28,     June 29, June 28,     June 29,
(dollars in thousands) 2013 2012 2013 2012
Sales $ 171,331 $ 166,548 $ 319,596 $ 325,651
 
Adjusted operating income* $ 22,192 $ 18,589 $ 41,503 $ 34,104
 
Add: Depreciation and amortization 9,089 10,985 17,853 22,104
Less adjustments included in depreciation and amortization:
Inventory step-up amortization - - - (532)
ERP system accelerated depreciation   -   (1,056)   -   (1,792)
Adjusted EBITDA $ 31,281 $ 28,518 $ 59,356 $ 53,884
Adjusted EBITDA as a % of sales   18.3%   17.1%   18.6%   16.5%
 
* Refer to table A for a reconciliation of GAAP to adjusted amounts.
 

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
(in thousands except per share data)
                   
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
  2013   2012   2013   2012
Sales $ 171,331 $ 166,548 $ 319,596 $ 325,651
Cost of sales   114,029   114,615   213,545   226,830
Gross profit 57,302 51,933 106,051 98,821
Operating expenses:
Selling, general and administrative expenses 22,248 20,745 42,340 39,779
Research, development and engineering costs, net 14,097 14,174 25,177 28,085
Other operating expenses, net   3,822   5,923   7,060   8,668
Total operating expenses 40,167 40,842 74,577 76,532
Operating income 17,135 11,091 31,474 22,289
Interest expense 1,445 4,415 8,433 8,774
Other (income) expense, net   679   (194)   964   526
Income before provision for income taxes 15,011 6,870 22,077 12,989
Provision for income taxes   5,259   3,019   6,662   4,671
Net income $ 9,752 $ 3,851 $ 15,415 $ 8,318
 
Earnings per share:
Basic $ 0.41 $ 0.16 $ 0.65 $ 0.35
Diluted $ 0.39 $ 0.16 $ 0.62 $ 0.35
 
Weighted average shares outstanding:
Basic 23,914 23,611 23,832 23,515
Diluted 24,922 23,876 24,818 23,816
 

 
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands)
                       
As of
ASSETS June 28, December 28,
2013 2012
Current assets:
Cash and cash equivalents $ 10,184 $ 20,284
Accounts receivable, net 138,597 120,923
Inventories 122,162 106,612
Deferred income taxes 7,906 7,678
Prepaid expenses and other current assets         9,572   12,636
Total current assets 288,421 268,133
Property, plant and equipment, net 149,214 150,893
Amortizing intangible assets, net 79,973 87,345
Indefinite-lived intangible assets 20,828 20,828
Goodwill 344,909 349,035
Deferred income taxes 2,676 2,534
Other assets         11,261   11,107
Total assets $       897,282 $ 889,875
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 42,675 $ 45,274
Income taxes payable 18,915 94
Deferred income taxes 845 874
Accrued expenses         36,250   45,515
Total current liabilities 98,685 91,757
Long-term debt 237,000 225,414
Deferred income taxes 51,990 82,462
Other long-term liabilities         6,500   9,382
Total liabilities 394,175 409,015
Stockholders’ equity:
Preferred stock - -
Common stock 24 24
Additional paid-in capital 329,388 320,618
Treasury stock (593) (452)
Retained earnings 163,138 147,723
Accumulated other comprehensive income         11,150   12,947
Total stockholders’ equity         503,107   480,860
Total liabilities and stockholders’ equity $       897,282 $ 889,875
 




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