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Greatbatch, Inc. Reports 2013 Third 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
Sept. 27,   Sept. 28, Sept. 27,   Sept. 28, Sept. 27,   Sept. 28, Sept. 27,   Sept. 28,
(dollars in thousands) 2013 2012 2013 2012 2013 2012 2013 2012
Sales $ 129,338   $ 121,093   $ 38,392   $ 40,247   $ -   $ -   $ 167,730   $ 161,340  
 
Operating income (loss) as reported $ 19,074 $ 2,744 $ 2,216 $ 5,350 $ (4,288 ) $ (5,967 ) $ 17,002 $ 2,127
Adjustments:
Medical device DVT expenses (RD&E) 1,510 1,224 - - - - 1,510 1,224
Consolidation and optimization costs 2,131 12,944 1,235 - 199 1,834 3,565 14,778
Acquisition and integration expenses (income) (541 ) 101 19 127 - 4 (522 ) 232
Asset dispositions, severance and other   419     (129 )   38     432     -     -     457     303  
Adjusted operating income (loss) $ 22,593   $ 16,884   $ 3,508   $ 5,909   $ (4,089 ) $ (4,129 ) $ 22,012   $ 18,664  
Adjusted operating margin   17.5 %   13.9 %   9.1 %   14.7 %   N/A     N/A     13.1 %   11.6 %
 
Medical device related adjusted expenses (excluding DVT) $ 6,302   $ 7,496   $ -   $ -   $ -   $ -   $ 6,302   $ 7,496  
Adjusted operating income (loss) excluding medical device related adjusted expenses $ 28,895   $ 24,380   $ 3,508   $ 5,909   $ (4,089 ) $ (4,129 ) $ 28,314   $ 26,160  
Adjusted operating margin excluding medical device related adjusted expenses   22.3 %   20.1 %   9.1 %   14.7 %   N/A     N/A     16.9 %   16.2 %
 
 
Nine Months Ended
Implantable Medical Electrochem   Unallocated   Total
Sept. 27, Sept. 28, Sept. 27, Sept. 28, Sept. 27, Sept. 28, Sept. 27, Sept. 28,
(dollars in thousands) 2013 2012 2013 2012 2013 2012 2013 2012
Sales $ 369,356   $ 364,276   $ 117,970   $ 122,715   $ -   $ -   $ 487,326   $ 486,991  
 
Operating income (loss) as reported $ 50,057 $ 24,252 $ 12,860 $ 16,020

$

(14,441

)

$

(15,856

)

$

48,476

$ 24,416
Adjustments:
Inventory step-up amortization (COS) - - - 532 - - - 532
Medical device DVT expenses (RD&E) 4,479 3,839 - - - - 4,479 3,839
Consolidation and optimization costs 7,956 16,407 1,361 - 1,018 4,394 10,335 20,801
Acquisition and integration expenses (income) (430 ) 245 89 1,037 1 5

(340

)

1,287

Asset dispositions, severance and other   472     378     93     843     -     672     565     1,893  
Adjusted operating income (loss) $ 62,534   $ 45,121   $ 14,403   $ 18,432  

$

(13,422

)

$

(10,785

)

$

63,515

  $ 52,768  
Adjusted operating margin   16.9 %   12.4 %   12.2 %  

15.0

%

 

 

N/A

    N/A    

13.0

%

 

10.8

%

 
Medical device related adjusted expenses (excluding DVT) $ 18,792   $ 22,140   $ -   $ -   $ -   $ -   $ 18,792   $ 22,140  
Adjusted operating income (loss) excluding medical device related adjusted expenses $ 81,326   $ 67,261   $ 14,403   $ 18,432  

$

(13,422

)

$

(10,785

)

$

82,307

  $ 74,908  
Adjusted operating margin excluding medical device related adjusted expenses   22.0 %   18.5 %   12.2 %  

15.0

%

 

N/A

    N/A    

16.9

%

 

15.4

%

 

Table B: Net Income (Loss) and Diluted EPS Reconciliation

 
  Three Months Ended   Nine Months Ended
September 27,   September 28, September 27,   September 28,
2013 2012 2013 2012
(in thousands except per share amounts)

Net Income

  Impact Per Diluted Share Net Income   Impact Per Diluted Share Net Income   Impact Per Diluted Share Net Income   Impact Per Diluted Share
Net income (loss) as reported $ 11,071 $ 0.44 $ (7,561 ) $ (0.32 ) $ 26,486 $ 1.06 $ 757 $ 0.03
Adjustments:
Inventory step-up amortization (COS) - - - - - - 346 0.01
Medical device DVT expenses (RD&E) 981 0.04 796 0.03 2,911 0.12 2,495 0.10
Consolidation and optimization costs (a) 2,453 0.10 11,119 0.46 7,749 0.31 15,034 0.63
Acquisition and integration expenses (income) (a) (339 ) (0.01 ) 151 0.01 (221 ) (0.01 ) 837 0.03
Asset dispositions, severance and other (a) 298 0.01 197 0.01 389 0.02 1,230 0.05
Loss (gain) on cost and equity method investments, net (a)(b) 10 - (228 ) (0.01 ) 408 0.02 (228 ) (0.01 )
CSN conversion option discount and deferred fee accelerated amortization (a)(c) 101 - 1,498 0.06 3,007 0.12 4,413 0.18
2012 R&D Tax Credit (d) (100 ) - - - (1,600 ) (0.06 ) - -
Swiss tax impact   -     -     5,008     0.21     -     -     5,008     0.21  
Adjusted net income and diluted EPS (e) $ 14,475   $ 0.57   $ 10,980   $ 0.46   $ 39,129   $ 1.56   $ 29,892   $ 1.25  
Adjusted diluted weighted average shares (f) 25,188 24,011 25,017 23,924
(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 amounts are $16 thousand and $628 thousand for the 2013 quarter and year-to-date periods, respectively, and $350 thousand for the 2012 quarter and year-to-date periods.
(c) Pre-tax amounts are $156 thousand and $4.6 million for the 2013 quarter and year-to-date periods and $2.3 million and $6.8 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 impact of the R&D tax credit relating to 2012 was recognized in 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.
(f) Weighted average diluted shares for the third quarter of 2012 includes 365 thousand shares of dilution related to outstanding stock incentive awards that were not dilutive for GAAP EPS purposes.
 

Table C: Adjusted EBITDA Reconciliation

 
  Three Months Ended   Nine Months Ended
September 27,   September 28, September 27,   September 28,
(dollars in thousands) 2013 2012 2013 2012
Sales $ 167,730   $ 161,340   $ 487,326   $ 486,991  
 
Adjusted operating income* $ 22,012 $ 18,664 $ 63,515 $ 52,768
 
Add: Depreciation and amortization 8,805 11,966 26,658 34,070
Less adjustments included in depreciation and amortization:
Inventory step-up amortization - - - (532 )
Consolidation and optimization accelerated depreciation   -     (2,677 )   -     (4,469 )
Adjusted EBITDA $ 30,817   $ 27,953   $ 90,173   $ 81,837  
Adjusted EBITDA as a % of sales   18.4 %   17.3 %   18.5 %   16.8 %
 
* 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   Nine Months Ended
September 27,   September 28, September 27,   September 28,
2013 2012 2013 2012
 
Sales $ 167,730 $ 161,340 $

487,326

 

$

486,991

 

Cost of sales   111,853     110,386     325,398     337,216  
Gross profit 55,877 50,954 161,928 149,775
Operating expenses:
Selling, general and administrative expenses 21,569 20,274 63,909 60,053
Research, development and engineering costs, net 13,806 13,240 38,983 41,325
Other operating expenses, net   3,500     15,313     10,560     23,981  
Total operating expenses 38,875 48,827 113,452 125,359
Operating income 17,002 2,127 48,476 24,416
Interest expense 1,515 4,401 9,948 13,175
Other (income) expense, net   (57 )   (102 )   907     424  
Income (loss) before provision for income taxes 15,544 (2,172 ) 37,621 10,817
Provision for income taxes   4,473     5,389     11,135     10,060  
Net income (loss) $ 11,071   $ (7,561 ) $ 26,486   $ 757  
 
Earnings (loss) per share:
Basic $ 0.46 $ (0.32 ) $ 1.11 $ 0.03
Diluted $ 0.44 $ (0.32 ) $ 1.06 $ 0.03
 
Weighted average shares outstanding:
Basic 24,047 23,646 23,904 23,559
Diluted 25,188 23,646 25,017 23,924
 

CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands)
 
  As of
ASSETS September 27,   December 28,
2013 2012
Current assets:
Cash and cash equivalents $ 4,973 $ 20,284
Accounts receivable, net 130,966 120,923
Inventories 122,823 106,612
Refundable income taxes 566 -
Deferred income taxes 8,077 7,678
Prepaid expenses and other current assets   8,028     12,636  
Total current assets 275,433 268,133
Property, plant and equipment, net 147,431 150,893
Amortizing intangible assets, net 77,518 87,345
Indefinite-lived intangible assets 20,402 20,828
Goodwill 346,614 349,035
Deferred income taxes 2,762 2,534
Other assets   14,551     11,107  
Total assets $ 884,711   $ 889,875  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 36,478 $ 45,274
Income taxes payable 11,177 94
Deferred income taxes 881 874
Accrued expenses   43,207     45,515  
Total current liabilities 91,743 91,757
Long-term debt 210,000 225,414
Deferred income taxes 51,732 82,462
Other long-term liabilities   6,779     9,382  
Total liabilities 360,254 409,015
Stockholders’ equity:
Preferred stock - -
Common stock 24 24
Additional paid-in capital 336,491 320,618
Treasury stock (593 ) (452 )
Retained earnings 174,209 147,723
Accumulated other comprehensive income   14,326     12,947  
Total stockholders’ equity   524,457     480,860  
Total liabilities and stockholders’ equity $ 884,711   $ 889,875  




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