ITEM 1. BUSINESS
OVERVIEW
We are a leading developer and manufacturer of batteries, capacitors, feedthroughs, enclosures, and other components used in implantable medical devices ("IMDs") through our Implantable Medical Components ("IMC") business. We offer technologically advanced, highly reliable and long lasting products for IMDs and enable our customers to introduce IMDs that are progressively smaller, longer lasting, more efficient and more functional. We also leverage our core competencies in technology and manufacturing through our Electrochem Power Solutions ("EPS") business to develop and produce batteries and battery packs for commercial applications that demand high performance and reliability, including oil and gas exploration, oceanographic equipment and aerospace. We believe that our proprietary technology, close customer relationships, market leadership and dedication to quality provide us with competitive advantages and create a barrier to entry for potential market entrants.
Our company was incorporated in 1997 and since that time has completed the following acquisitions:
SEGMENT INFORMATION
Segment information including sales from external customers, profit or loss, and assets by segment as well as sales from external customers and long-lived assets by geographic area are incorporated by reference to Note 15 - Business Segment Information of the Notes to Consolidated Financial Statements.
IMPLANTABLE MEDICAL DEVICES
An IMD is an instrument that is surgically inserted into the body to provide diagnosis or therapy. One sector of the IMD market is cardiac rhythm management ("CRM"), which is comprised of devices such as implantable pacemakers, cardioverter defibrillators ("ICDs"), cardiac resynchronization therapy ("CRT") devices, and cardiac resynchronization therapy with backup defibrillation devices ("CRT-D").
The following table sets forth the main categories of battery-powered IMDs and the principal illness or symptom treated by each device:
Device Principal Illness or Symptom - ------- ---------------------------- Pacemakers...........................Abnormally slow heartbeat (Bradycardia) ICDs.................................Rapid and irregular heartbeat (Tachycardia) CRT/CRT-Ds...........................Congestive heart failure Left ventricular assist devices (LVADs)..............................Heart failure Hearing assist devices...............Hearing loss Neurostimulators.....................Tremors or chronic pain Drug pumps...........................Diabetes or chronic pain
The CRM markets are expected to experience double-digit growth for the next three to five years. Increased demand is being driven by the following factors:
Advances in medical technology - new therapies will allow physicians to use IMDs as a substitute for, or in conjunction with, prescription drugs, to treat a wider range of heart diseases, such as atrial fibrillation and congestive heart failure.
New, more sophisticated implantable devices - device manufacturers are developing new CRM devices and adding new features to existing products. The drive is for smaller, uniquely shaped units with increasingly powerful capabilities that will be easier for physicians to implant and will be less intrusive to recipients. Cardiac resynchronization devices are being developed to provide pacing and defibrillation therapy. New generation pacemakers include enhanced diagnostic and treatment capabilities.
New indications for CRM devices - the patient groups that are eligible for CRM devices has increased to include heart attack survivors, patients with congestive heart failure, and asymptomatic patients who are at risk for sudden cardiac arrest. Insurance guidelines may allow device reimbursements for these expanding patient populations.
An aging population - the number of people in the United States that are over age 65 is expected to double in the next 30 years. People over 85 are the fastest growing age group and are most likely to have chronic care needs.
New indications for other devices - there is an increased use of recently developed IMDs, including left ventricular assist devices, hearing assist devices, neurostimulators and drug pumps.
New performance requirements - government regulators are increasingly requiring that IMDs be protected from interference from devices like cell phones and two-way pagers. It is estimated that less than half of all implantable devices are protected.
Global markets - it is anticipated that there will be increased market penetration beyond the United States and other developed countries.
COMMERCIAL BATTERY INDUSTRY
Commercial batteries are used in demanding applications such as oil and gas exploration and production, oceanographic, and aerospace. High performance batteries and battery packs are used in pipeline inspection systems, lightening detectors and seismic applications in the oil and gas markets.
High quality, reliable products that can deliver increased performance are the drivers for demand in the commercial battery industry. It is expected that applications in new technologies used for reworking existing wells will increase. Natural gas exploration is increasing at a rapid pace as natural gas powered power plants increase in number. Pipeline inspection gauge usage is increasing due to new US legislation. Military and aerospace trends show increasing demand for reliable power sources, including rechargeable cells.
PRODUCTS
The following table provides information about our principal products:
RESEARCH, DEVELOPMENT AND ENGINEERING
Our position as a leading developer and manufacturer of components for IMDs is largely the result of our long history of technological innovation. We invest substantial resources in research, development and engineering. Our scientists, engineers and technicians focus on improving existing products, expanding the use of our products and developing new products. In addition to our internal technology and product development efforts, we at times engage outside research institutions for special projects.
PATENTS AND PROPRIETARY TECHNOLOGY
We rely on a combination of patents, licenses, trade secrets and know-how to establish and protect our proprietary rights to our technologies and products. As of December 31, 2003, we have 209 active U.S. patents and 57 active foreign patents. We also have 221 U.S. and 317 foreign pending patent applications at various stages of approval. During the past three years, we have received 95 new U.S. patents, of which 42 were received in 2003. Corresponding foreign patents have been issued or are expected to be issued in the near future. Often, several patents covering various aspects of the design protect a single product. We believe this provides broad protection of the inventions employed.
Our active battery patents relate to process improvements and modifications to the original technology that was developed either by our Company, or others.
The following table provides a breakdown of our patents as of December 31, 2003 by product type:
We license the basic technology used in our wet tantalum capacitors from Evans Capacitor Company. The license extends throughout the lives of the related patents, which expire in 2010, 2013 and 2014. The license can be cancelled if we default under the license agreement and fail to cure the default. A cancellation of the license would seriously impair our ability to produce our entire line of capacitors.
The significant patents that we maintain for the capacitor technology relate to ultrasonically coated substrate for use in a capacitor and method of manufacture; hermetically sealed wet tantalum capacitor; electrolyte for use in a capacitor; and the anode for an electrolytic capacitor which expire between 2017 and 2019.
The significant patents that we maintain for filtered feedthrough technology relate to filtered feedthrough capacitor assemblies such as a feedthrough capacitor assembly with a capture flange, an EMI feedthrough filter capacitor and hermetic terminal assembly combination, and a filter capacitor that allows for helium gas passage.
A significant patent issued to us this past year relates to a lithium electrochemical cell having a cathode of silver vanadium oxide and fluorinated carbon contacted to the opposite sides of a current collector. This electrode construction provides the cell with the high rate capacity of SVO and the high energy density of fluorinated carbon. The result is an implantable cell for an ICD that delivers the highest energy density and greatest longevity in the industry and provides stable charge time throughout its useful life. Our scientists pioneered this unique technology. We have seven issued patents relating to this technology as well as an additional 14 patent applications awaiting approval.
In addition, we are also a party to several license agreements with third parties pursuant to which we have obtained, on varying terms, the exclusive or non-exclusive rights to patents held by them. We have also granted rights in our own patents to others under license agreements.
It is our policy to require our executive and technical employees, consultants and other parties to execute confidentiality agreements. These agreements prohibit disclosure of confidential information to third parties except in specified circumstances. In the case of employees and consultants, the agreements generally provide that all confidential information relating to our business is the exclusive property of our company.
MANUFACTURING AND QUALITY CONTROL
We primarily manufacture small lot sizes, as most customer orders range from a few hundred to thousands of units. As a result, our ability to remain flexible is an important factor in maintaining high levels of productivity. Each of our production teams receives assistance from a manufacturing support team, which typically consists of representatives from our quality control, engineering, manufacturing, materials and procurement departments.
Our quality system is based upon an ISO documentation system and is driven by a master validation plan that requires rigorous testing and validation of all new processes or process changes that directly impact our products. All of our facilities are ISO-9001-2000 registered, which requires compliance with regulations regarding quality systems of product design (where applicable), supplier control, manufacturing processes and management review. This certification can only be achieved after completion of an audit conducted by an independent authority. Our facilities are audited by the National Standards Authority of Ireland, an independent auditing firm and notified body that specializes in evaluating quality standards. To maintain certification, all facilities must be reexamined routinely by our certifying body.
SALES AND MARKETING
Products from our IMC business are sold directly to our customers. In our EPS business, we utilize a combination of direct and indirect sales methods, depending on the particular product. In 2003, approximately 65% of our products were sold in the United States. Information regarding our sales by geographic area is set forth at Note 15 of the Notes to the Consolidated Financial Statements.
The majority of our medical customers contract with us to develop custom components and assemblies to fit their specific product specifications. As a result, we have established close working relationships between our internal program managers and our customers. We market our products and technologies at industry meetings and trade shows domestically and internationally, including NASPE - Heart Rhythm Society's Annual Scientific Sessions, CardioStim, and the American Society for Artificial Internal Organs (ASAIO).
Internal sales managers support all activity, and involve engineers and technology professionals in the sales process to address customer requests appropriately.
We sell our commercial batteries and battery packs either directly to the end user, directly to manufacturers that incorporate our products into other devices for resale, or to distributors who sell our products to manufacturers and end users. Our sales managers are trained to assist our customers in selecting appropriate battery chemistries and configurations. We market our EPS products at various technical trade meetings. We also place print advertisements in relevant trade publications.
Firm backlog orders at December 31, 2003 and 2002, were $40.4 million and $45.7 million, respectively. Most of these orders are expected to be shipped within one year.
CUSTOMERS
Our products are designed to provide reliable, long lasting solutions that meet the evolving requirements and needs of our customers and the end users of their products. Our medical customers include leading IMD manufacturers such as Guidant, St. Jude Medical, Medtronic, Biotronik, Cyberonics and ELA/Sorin. In 2003, Guidant and St. Jude Medical, our two largest customers, collectively accounted for approximately 66% of our total sales. The nature and extent of our selling relationships with each CRM customer are different in terms of component products purchased, selling prices, product volumes, ordering patterns and inventory management.
Our EPS customers are primarily companies involved in oil and gas exploration, oceanography and aerospace.
We have entered into a supply agreement with Guidant pursuant to which Guidant purchases batteries from us for use in its IMDs. The agreement secures pricing and volumes for Li Iodine, Li SVO and CFx batteries. The contract period for the agreement is April 1, 2003 to December 31, 2006 and can be renewed for additional one-year periods upon mutual agreement. Guidant also separately purchases components from us for use in its IMDs.
We have entered into a supply agreement with St. Jude Medical pursuant to which St. Jude Medical purchases batteries, wet tantalum capacitors, components and enclosures under specified price and volume terms. The contract period is January 1, 2004 to December 31, 2006 and can be extended for an additional two-year period at the option of St. Jude Medical.
SUPPLIERS AND RAW MATERIALS
We purchase certain critical raw materials for our business from a limited number of suppliers due to the technically challenging requirements of the supplied product and / or the lengthy process required to qualify these materials with our customers. We cannot quickly establish additional or replacement suppliers for these materials because of these requirements. In the past, we have not experienced any significant interruptions or delays in obtaining these raw materials. We maintain minimum safety stock levels of critical raw materials.
For other raw material purchases, we utilize competitive pricing methods to secure supply such as bulk purchases, precious metal pool buys, blanket orders, and long term contracts at terms that are favorable to us. We believe that there are alternative suppliers or substitute products available for each of the materials we purchase at competitive prices.
COMPETITION
Our existing or potential competitors in our IMC business includes leading IMD manufacturers, such as Guidant, St. Jude Medical, Medtronic, and Biotronik, which have vertically integrated operations or may become vertically integrated in the future, as well as independent suppliers who typically specialize in one type of component.
We also have the following non-vertically integrated competition in our IMC and EPS businesses:
Product Line Competitors Medical batteries Litronik (a subsidiary of Biotronik) Eagle-Picher NanoGram Devices Corporation Quallion
Capacitors Critical Medical Components
Feedthroughs Alberox (subsidiary of The Morgan Crucible Co. PLC)
EMI filtering AVX (subsidiary of Kyocera)
Components Donatelle Heraeus Johnson Matthey Stellar
Enclosures National Manufacturing
Commercial batteries/battery Engineered Power packs Saft Tadiran Tracer Technologies Ultralife
GOVERNMENT REGULATION
Except as described below, our business is not subject to direct governmental regulation other than the laws and regulations generally applicable to businesses in the jurisdictions in which we operate. We are subject to federal, state and local environmental laws and regulations governing the emission, discharge, use, storage and disposal of hazardous materials and the remediation of contamination associated with the release of these materials at our facilities and at off-site disposal locations. Our manufacturing and research, development and engineering activities involve the controlled use of, and our products contain, small amounts of hazardous materials. Liabilities associated with hazardous material releases arise principally under the Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws which impose strict, joint and several liability on owners and operators of contaminated facilities and parties that arrange for the off-site disposal of hazardous materials. We are not aware of any material noncompliance with the environmental laws currently applicable to our business and we are not subject to any material claim for liability with respect to contamination at any company facility or any off-site location. We cannot assure you, however, that we will not be subject to such environmental liabilities in the future as a result of historic or current operations.
As a component manufacturer, our products are not subject to regulation by the Food and Drug Administration (FDA). However, the FDA and related state and foreign governmental agencies regulate many of our customers' products as medical devices. In many cases, the FDA must approve those products prior to commercialization. In addition, because some of the products produced by our engineered components division may be considered finished medical devices, some of the operations within that division are subject to FDA inspection and must comply with current good manufacturing practices (CGMP) requirements.
We have four Master Files on record with the FDA. Master Files may be used to provide confidential detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more medical device components. These submissions may be used by device manufacturers to support the premarket notification process required by Section 510(k) of the Federal Food Drug & Cosmetic Act. This notification process is necessary to obtain clearance from the FDA to market a device for human use in the United States.
RECRUITING AND TRAINING
We invest substantial resources in our recruiting efforts that focus on supplying quality personnel to support our business objectives. We have established a number of programs that are designed to challenge and motivate our employees. All staff is encouraged to be proactive in contributing ideas. Feedback surveys are used to collect suggestions on ways that our business and
operations can be improved. We further meet our hiring needs through outside sources as required.
We provide an intensive training program for our new employees that is designed to educate them on safety, quality, business strategy, corporate culture, and the methodologies and technical competencies that are required for our business. Our safety training programs focus on such areas as basic industrial safety practices and emergency response procedures to deal with any potential fires or chemical spills. All of our employees are required to participate in a twenty hour specialized training program that is designed to provide an understanding of our quality objectives. Supporting our lifelong learning environment, we offer our employees a tuition reimbursement program and encourage them to continue their education at accredited colleges and universities. Many of our professionals attend seminars on topics that are related to our corporate objectives and strategies. We believe that comprehensive training is necessary to ensure that our employees have state of the art skills, utilize best practices, and have a common understanding of work practices.
EMPLOYEES
The following table provides a breakdown of employees by primary function as of December 31, 2003:
Manufacturing 1,132 Research and development 114 General and administrative 105 Engineering 51 Sales and marketing 29 ----- Total 1,431 =====
We also employ a number of temporary employees to assist us with various projects and service functions and address peaks in staff requirements. Our employees are not represented by any union and are retained on an at-will basis. We believe that we have a good relationship with our employees.
AVAILABLE INFORMATION
The Company makes available free of charge on or through its internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission. Our Internet address is http://www.greatbatch.com. The information contained on the Company's website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Some of the statements contained in this Annual Report on Form 10-K and other written and oral statements made from time to time by us and our representatives, are not statements of historical or current fact. As such, they 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. We have based these forward-looking statements on our current expectations, which are subject to known and unknown risks, uncertainties and assumptions. They include statements relating to:
o future sales, expenses and profitability;
o the future development and expected growth of our business and the IMD industry;
o our ability to execute our business model and our business strategy;
o our ability to identify trends within the IMD, medical component, and commercial power source industries and to offer products and services that meet the changing needs of those markets;
o projected capital expenditures; and
o trends in government regulation.
You can identify forward-looking statements 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 only predictions. Actual events or results may differ materially from those suggested by these forward-looking statements. In evaluating these statements and our prospects generally, you should carefully consider the factors set forth below. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary factors and to others contained throughout this report. We are under no duty to update any of the forward-looking statements after the date of this report or to conform these statements to actual results.
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 our forward-looking statements or that may affect our future results, some of these factors include the following: dependence upon a limited number of customers, product obsolescence, inability to market current or future products, pricing pressure from customers, reliance on third party suppliers for raw materials, products and subcomponents, fluctuating operating results, inability to maintain high quality standards for our products, challenges to our intellectual property rights, product liability claims, inability to successfully consummate and integrate acquisitions, unsuccessful expansion into new markets, competition, inability to obtain licenses to key technology, regulatory changes or consolidation in the healthcare industry, and other risks and uncertainties that arise from time to time and are described in the Company's periodic filings with the Securities and Exchange Commission and in Exhibit 99.1 to this filing.
ITEM 2.
ITEM 2. PROPERTIES
Our executive offices are located in Clarence, New York. The building that houses our executive offices also contains warehouse operations, a variety of support services and capacity for light manufacturing or laboratory space.
The following table sets forth information about all of our principal manufacturing or testing facilities:
We believe these facilities are suitable and adequate for our current business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various lawsuits and claims incidental to our business. We believe the ultimate outcome resulting from resolution of these lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on the New York Stock Exchange (NYSE) under the symbol "GB." The following table sets forth, for the periods indicated, the high and low closing prices per share for the common stock as reported on the NYSE Composite Tape.
As of March 5, 2004 there were 267 record holders of the Company's common stock. Our Employee Stock Ownership Plan (ESOP) is considered one record holder for the purposes of this calculation. There are approximately 1,600 participants in the ESOP including active and former employees.
We have not paid cash dividends and currently intend to retain any earnings to further develop and grow our business.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table provides selected financial data of our Company for the periods indicated. You should read the selected consolidated financial data set forth below in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and with our consolidated financial statements and related notes appearing elsewhere in this report. The consolidated statement of operations data and the consolidated balance sheet data for the periods indicated have been derived from our financial statements and related notes.
(1) In August 2000, we acquired the capital stock of Battery Engineering, Inc. (BEI). These amounts include the results of operations of BEI subsequent to its acquisition. (2) In June 2001, we acquired substantially all of the assets and liabilities of Greatbatch-Sierra. These amounts include the results of operations of Greatbatch-Sierra subsequent to its acquisition. (3) In July 2002, we acquired the capital stock of Greatbatch-Globe. These amounts include the results of operations of Greatbatch-Globe subsequent to its acquisition. (4) The Company's fiscal year ends on the Friday closest to December 31. For clarity of presentation, the Company describes all periods as if the year-end is December 31. Fiscal 2002 contained 53 weeks. (5) We adopted Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB 13, and Technical Corrections, at the beginning of fiscal year 2003. Under SFAS No. 145, we are no longer allowed to classify debt extinguishments as extraordinary items in our consolidated financial statements, subject to limited exceptions. Accordingly, amounts previously classified as extraordinary related to debt extinguishments in fiscal 2001and 2000 have been reclassified as components of income (loss) before income taxes.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
We are a leading developer and manufacturer of batteries, capacitors, feedthroughs, enclosures, and other components used in implantable medical devices ("IMDs") through our Implantable Medical Components ("IMC") business. We also leverage our core competencies in technology and manufacturing through our Electrochem Power Solutions ("EPS") business to develop and produce batteries and battery packs for commercial applications that demand high performance and reliability, including oil and gas exploration, oceanographic equipment and aerospace.
Most of the IMC products that we sell are utilized by customers in cardiac rhythm management ("CRM") devices. The CRM market comprises devices utilizing high-rate batteries and capacitors such as implantable cardioverter defibrillators ("ICDs") and cardiac resynchronization therapy with backup defibrillation devices ("CRT-D") and devices utilizing low or medium rate batteries but no capacitors (pacemakers and CRTs). All CRM devices utilize other components such as enclosures and feedthroughs, and certain CRM devices utilize electromagnetic interference ("EMI") filtering technology. The nature and extent of our selling relationships with each CRM customer are different in terms of component products purchased, selling prices, product volumes, ordering patterns and inventory management. Consequently, our sales and gross profit can be significantly affected by our customers' actions. Our EPS sales are derived primarily from sales of batteries and battery packs for use in oil and gas exploration. We also supply batteries to NASA for its space shuttle program and other similarly demanding commercial applications.
A substantial part of our business is conducted with a limited number of customers. Our two largest customers accounted for approximately 66% of consolidated sales in 2003. We have entered into long-term supply agreements with some of our customers. For each of our products, we recognize revenue when the products are shipped and title passes.
We utilize a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For clarity of presentation, the Company describes all periods as if the year-end is December 31st. Fiscal 2002 included 53 weeks.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect reported amounts and related disclosures. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Management considers an accounting estimate to be critical if:
o It requires assumptions to be made that were uncertain at the time the estimate was made; and
o Changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations, financial position, or cash flows.
Our most critical accounting estimates are described below. We also have other policies that we consider key accounting policies, such as our policies for revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective.
OVERVIEW
During 2003, there were many accomplishments that should further strengthen our position in the marketplace in 2004 and beyond.
o We achieved record financial results with sales growth of 29% and earnings per share growth of 59%.
o We successfully completed a $170.0 million convertible subordinated notes offering.
o We improved our operating leverage as evidenced by the increase in our operating margins to 17.7% in 2003 up from 15.5% last year.
o We signed our third wet tantalum capacitor customer. Three of the five worldwide CRM device manufacturers have now adopted our capacitor technology.
In 2003, we continued to invest in a corporate realignment with the goal being to present "a single face" to our customers. Whereas in the past we have been organized as a group of individual operating units developing, manufacturing and selling discrete components, effective January 1, 2004, we are now comprised of two business units - IMC and EPS.
On the new technologies front is our first generation Quasar implantable power source. This product offering further enhances our market position as a leading developer and manufacturer of implantable batteries for medical devices. Our new Quasar technology, combined with our wet tantalum capacitor, should provide performance advantages our customers require. Our filtering inductor slab and integrated filtered feedthrough technologies provide enhanced protection from EMI (electro-magnetic interference). This supplies an important added measure of security in our customer's products.
We have under taken several initiatives to change and improve our infrastructure. These initiatives, to date, have included additions to our management team, the commencement of the installation of a company wide integrated ERP business platform, increased commitment to the expansion of the Six Sigma program, new lean manufacturing implementation, a philosophy and practice of continuous improvement and the certification of all company wide operations to ISO 9001-2000 standards.
As we look forward into next year, we will focus on a number of critical areas. We will continue to address ways to expand our product offering and customer penetration. Our production operations will be expanded to meet increased capacitor demand and we will continue to focus our efforts on signing the remaining CRM customers to this technology. Significant resources will be spent on our next generation Quasar battery technology and we expect to begin product delivery by year-end. We will continue to leverage our infrastructure over a higher sales base resulting in improved operating margins. The base implementation of our ERP business platform at all locations is scheduled to be completed by the end of the year. And finally, we will continue to look for acquisition opportunities that will strengthen our technological leadership or broaden our product offering.
Our forecasted sales growth is estimated to be lower than experienced in the last two years. In 2004 the Company has begun to see downward pricing pressures on some of its products.
However, we expect to expand our operating margins based on increased sales volume, increased leverage of our infrastructure and manufacturing cost reductions. Partially offsetting this growth, are increased costs for the start-up of our new medical production facility, increased cost to comply with the Sarbanes-Oxley requirements, higher insurance premiums and the establishment of an internal audit function. We anticipate that in 2004 we will incur additional capital costs primarily due to the build-out of the medical production facility and from the continuation of the ERP implementation. We must continue to invest in research and development in order to maintain our competitive position.
In summary, our results for the full year reached record levels reflecting the continued robustness in the CRM market. Our focus for 2004 will be in five critical areas:
o Increasing our capacitor customer penetration;
o Identifying value-add sales opportunities from our broad product offering;
o Delivering on our next generation quasar battery technology by year end;
o Improving our operating margin through leverage of our existing infrastructure and from manufacturing cost reductions; and
o Completing the implementation of the base ERP system.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The commentary that follows should be read in conjunction with our consolidated financial statements and related notes.
FISCAL 2003 COMPARED WITH FISCAL 2002
We achieved record sales performance in 2003. The increase in total sales for 2003 included a full year of sales of Greatbatch-Globe, which we acquired in July 2002.
Sales
IMC. The sales growth for IMC was led by sales of ICD batteries reflecting the strength of this market. In addition, capacitor and components sales increased substantially over last year. Substantially all of the sales changes during 2003 were attributable to volume and sales mix. Looking at our overall sales mix, CRM product sales increased over last year and now represent 83% of our overall product mix, up from 80% last year. We remain very positive about the growth prospects of the CRM market long term.
EPS. Commercial sales increased modestly from a slight rise in volume of orders from oil and gas customers.
Gross profit
The decrease in gross margin is primarily due to the costs incurred to consolidate the EPS plants, the start-up costs from the implementation of lean manufacturing, the inclusion of the lower margin enclosure products for the full year, the costs for the hiring of new plant management personnel and changes in selling prices for certain medical components. These factors contributed to a 310 basis point reduction in gross margin on a year over year basis.
SG&A expenses
Expenses increased compared to last year in absolute dollars, but declined as a percent of sales due to improved operating leverage. The increase in absolute dollars is partially due to the hiring of additional senior management employees.
RD&E expenses
Expenses increased compared to last year in absolute dollars, but decreased as a percent of sales compared to last year as sales growth has outpaced spending. We expect to maintain our spending on RD&E at a level that will support the new technologies demanded by the IMD markets.
Amortization expense
The reduction in intangible amortization reflects the impact of the sale of certain intangible assets of the ceramic capacitor product line that was part of the Sierra-KD components acquisition in 2003. In addition, one of the patent licenses for wet tantalum capacitors was fully amortized during 2002.
Other operating expense
The 2003 amount is primarily attributable to the write-down of a manufacturing facility that became available as the result of a decision to purchase an additional manufacturing facility in New York.
Interest expense and interest income
Interest expense was lower and interest income was higher primarily due to the issuance of the $170.0 million convertible subordinated notes in May 2003. These securities allowed for the outstanding line of credit to be fully replaced at a lower rate of interest and additional funds to be invested on a short-term basis.
Provision for income taxes
Our effective tax rate declined primarily as a result of increased research and development credits, as well as the benefits of state tax planning strategies. The impact of the lower effective tax rate during 2003 was approximately $0.5 million.
The Extraterritorial Income Exclusion (ETI) provided approximately $1.0 million of tax benefit in 2003. There is currently legislation in Congress to repeal the ETI provisions of the Internal Revenue Code and to make numerous changes to the United States international tax regime and other laws affecting domestic businesses.
FISCAL 2002 COMPARED WITH FISCAL 2001
The increase in total sales for 2002 included sales of Greatbatch-Globe, which we acquired in July 2002.
IMC. Sales for IMC increased mainly due to our customers' increased demand for ICD batteries in the CRM market. Partially offsetting this increase was a decline in royalty revenues from Medtronic on patents that had expired. Capacitor sales increased as a result of increased demand by the existing customer for capacitors in 2002. The increase in sales of medical components was primarily due to the inclusion of sales from our Greatbatch-Sierra acquisition during the full year of 2002 and our Greatbatch-Globe acquisition for the second half of 2002. Substantially all of the revenue changes during 2002 were attributable to volume.
EPS. Commercial battery and pack sales decreased principally due to a decreased level of exploration in the oil and gas industry in the first six months of 2002 compared to 2001.
Gross profit
Gross profit increased as a result of increased sales. Production yield issues for filtered feedthroughs, reduced royalty revenues in 2002 compared to 2001, and the inclusion of lower margin Greatbatch-Globe Tool operations were the primary contributors to the reduced overall gross margin.
SG&A expenses
SG&A expenses increased both in dollars and as a percentage of total sales. The increase is primarily due to the inclusion of costs associated with the addition of Greatbatch-Sierra for the last half of 2001 and the full year 2002 and Greatbatch-Globe for the last half of 2002, costs associated with our Six Sigma(TM) quality initiatives, the general development of our infrastructure to support our growth, and expenses related to ongoing patent activity.
RD&E expenses
RD&E expenses increased in dollars, but as a percentage of total sales were at the same level for both years. The decrease in the percentage of expenses as related to sales is primarily attributable to the low level of RD&E expenses at Greatbatch-Globe. We expect to maintain our spending on RD&E at a level that will support the new technologies demanded by the IMD markets.
Amortization expense
Intangible amortization decreased significantly due to the cessation of the amortization for goodwill and other intangible assets with indefinite lives effective the beginning of our fiscal year 2002.
If the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142) had been implemented on January 1, 2001, income from continuing operations and diluted earnings per share from continuing operations for 2001 would have been $13.8 million and $0.69, respectively.
If SFAS No. 142 had been implemented on January 1, 2001, net income and diluted earnings per share for 2001 would have been $10.8 million and $0.54, respectively.
Other expenses
In 2002, other operating expense included a non-recurring charge of $1.7 million representing the write-off of a noncompete agreement after the passing of Mr. Fred Hittman.
Interest expense declined as a result of reduced interest rates during the year. The rate reductions arose from reduced market rates as well as contracted rate reductions due to the reduction in leverage measurements during the year. Interest income increased slightly as the Company's investable cash was higher in 2002 than 2001 due to the timing of its follow-on public offering and the acquisition of Greatbatch-Globe.
In 2002 other expense included a non-recurring charge of $1.5 million representing the write-off of the investment in an unrelated company based on an analysis of the financial viability of that company. It was determined that the Company's investment in the unrelated company had a fair value that is less than its carrying value.
In 2001 other expense included a charge for the early extinguishment of debt associated with the restructuring of our long-term debt and the related write-off of deferred financing fees, a call premium paid, and loan discounts associated with the previous long-term debt.
Provision for income taxes
Our effective tax rate declined primarily as a result of increased research and development credits, as well as the benefits of state tax planning strategies, net of anticipated increased state taxes related to the Greatbatch-Globe acquisition. The impact of the lower effective tax rate during 2003 was approximately $1.2 million.
Liquidity and Capital Resources
Our principal source of short-term liquidity is our working capital of $170.5 million at December 31, 2003 combined with our unused $20 million credit line with our lending syndicate. Historically we have generated cash from operations sufficient to meet our capital expenditure and debt service needs, other than for acquisitions. At December 31, 2003 our current ratio was 8.1:1, so short-term liquidity is not an issue.
The Company regularly engages in discussions relating to potential acquisitions and has identified possible acquisition opportunities and we may announce an acquisition transaction at any time.
At December 31, 2003, our capital structure consisted primarily of $170.0 million of convertible subordinated notes and our 21.6 million shares of common stock outstanding. We have in excess of $131.0 million in cash, cash equivalents and short-term investments and are in a position to facilitate future acquisitions if necessary. We are also authorized to issue 100 million shares of common stock and 100 million shares of preferred stock. The market value of our outstanding common stock since our IPO has exceeded our book value and the average daily trading volume of our common stock has also increased; accordingly, we believe that if needed we can access public markets to sell additional common or preferred stock assuming conditions are appropriate.
In addition to the improved working capital, capital spending of $12.0 million in 2003 was lower than historical expenditure levels. The majority of the current year spending was for maintenance capital. In comparison, we spent $21.0 million in 2002 , which included approximately $8.0 million for new investment projects in addition to approximately $13.0 million for maintenance capital. In 2003, we significantly enhanced our balance sheet through improved cash flow from operations and through the convertible note financing we completed in May. This improved capital structure allows us to support our internal growth and provides liquidity for corporate development initiatives. We anticipate that in 2004 we will incur additional capital costs primarily due to the build-out of the medical production facility and from the continuation of the ERP implementation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 31, 2003, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
(a) The current portion of these liabilities is included. Amounts do not include imputed interest. See Note 8 - Debt of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information about our long-term obligations. (b) See Note 14 of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information about our operating lease obligations. (c) Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are normally based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We enter into blanket orders with vendors that have preferred pricing and terms, however these orders are normally cancelable by us without penalty. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected requirements in the short-term. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
Inflation
We do not believe that inflation has had a significant effect on our operations.
Impact of Recently Issued Accounting Standards In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires disclosures about variable interest entities for which it is reasonably possible that we will be required to consolidate or disclose information when the Interpretation becomes effective. The provisions of FIN 46 are effective for us for the interim period ending April 2, 2004, or earlier in certain instances. Such instances did not have an effect on our consolidated financial statements in 2003. We have
determined that it is not reasonably possible that we will be required to consolidate or disclose information about a variable interest entity in 2004. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments subject to the provisions of this Statement. Subsequent to the issuance of SFAS No. 150, the FASB decided to revise the effective dates of the application of certain provisions of the statement. For mandatorily redeemable financial instruments that do not have a fixed redemption date or are not redeemable for a fixed or determinable amount the Board agreed to defer application for an indefinite period of time. The adoption of SFAS No. 150 did not have an effect on our consolidated financial statements in 2003. ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Under our existing line of credit any borrowings bear interest at fluctuating market rates. At December 31, 2003, we did not have any borrowings outstanding under our line of credit and thus no interest rate sensitive financial instruments.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of our Company and report of independent auditors thereon are set forth below.
Independent Auditors' Report.
Consolidated Balance Sheet as of December 31, 2003 and 2002.
Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001.
Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001.
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001.
Notes to Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
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 subsidiaries (the "Company") as of January 2, 2004 and January 3, 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 2, 2004. Our audits also included the financial statement schedule at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of 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 significant 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 subsidiaries as of January 2, 2004 and January 3, 2003, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
Buffalo, New York March 1, 2004
The accompanying notes are an integral part of these consolidated financial statements
WILSON GREATBATCH TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
The Company - The consolidated financial statements include the accounts of Wilson Greatbatch Technologies, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.
Nature of Operations - The Company operates in two reportable segments-Implantable Medical Components ("IMC") and Electrochem Power Solutions ("EPS"). The IMC segment designs and manufactures batteries, capacitors, filtered feedthroughs, engineered components and enclosures used in IMDs. The EPS segment designs and manufactures high performance batteries and battery packs for use in oil and gas exploration, oceanographic equipment and aerospace.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Year End - The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For clarity of presentation, the Company describes all periods as if the year-end is December 31st. Fiscal 2002 included 53 weeks.
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.
Short-term Investments - Short-term investments are those investments acquired with maturities that exceed three months and are less than one year at the time of acquisition. Securities that the Company has the ability and positive intent to hold to maturity are accounted for as held-to-maturity securities and are carried at amortized cost. The cost of securities sold is based on the specific identification method.
Inventories - Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market.
Assets Available for Sale - Assets available for sale are accounted for at the lower of the carrying amount or each asset's estimated fair value less costs to sell.
Property, Plant and Equipment - Property, plant and equipment is carried at cost. Depreciation is computed primarily by the straight-line method over the estimated 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.
The cost of repairs and maintenance is charged to expense as incurred; renewals and betterments are capitalized. Upon retirement or sale of an
asset, its cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is recorded in income or expense.
Goodwill - Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets with indefinite lives. At adoption, the Company reassessed the useful lives of trademarks and names and deemed them to have an indefinite life because they are expected to generate cash flows indefinitely. Note 14 - Business Segment information contains an analysis of goodwill by segment.
Goodwill and trademark and names are no longer amortized but are periodically tested for impairment. An analysis of the proforma effects of these standards had the adoption occurred as of the beginning of fiscal 2001 is included in Note 6 - Intangible Assets.
SFAS No. 142 requires the Company to assess goodwill for impairment by comparing the fair value of the reporting units to their carrying amounts on an annual basis, or more frequently if certain events occur or circumstances change, to determine if there is potential impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value. Fair values for goodwill are determined based on discounted cash flows, market multiples or appraised values as appropriate. The Company has determined that, based on the goodwill impairment test, no impairment of goodwill and other indefinite-lived intangible assets has occurred.
Intangible Assets - Acquired intangible assets apart from goodwill and trademark and names consist primarily of patented and unpatented technology. The Company continues to amortize its definite-lived assets on a straight-line basis over their estimated useful lives as follows: patented technology, 8-17 years; unpatented technology, 5-15 years; and other intangible assets, 3-10 years.
The Company tests long-lived assets, exclusive of goodwill, for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of long-lived assets is not recoverable and exceeds its fair value based on the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
Fair Value of Financial Instruments - The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair value of cash and cash equivalents approximates their recorded values due to the nature of the instruments.
Concentration of Credit Risk - Financial instruments which potentially subject the Company to concentration of credit risk consist principally of trade receivables. A significant portion of the Company's sales are to customers in the medical device industry, and, as such, the Company is directly affected by the condition of that industry. However, the credit
risk associated with trade receivables is minimal due to the Company's stable customer base. The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits.
Allowance for Doubtful Accounts - The Company provides credit, in the normal course of business, to its customers. The Company also maintains an allowance for doubtful customer accounts and charges actual losses against this allowance when incurred.
Stock-Based Compensation - The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). As permitted in that standard, the Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, and related interpretations.
The Company has determined the pro forma information as if the Company had accounted for stock options granted under the fair value method of SFAS No. 123. The Black-Scholes option pricing model was used with the following weighted average assumptions. 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.
The Company's net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each year is as follows (in thousands except per share data):
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.
Revenue Recognition - Revenue from the sale of products is recognized at the time product is shipped to customers. The Company allows customers to return defective or damaged products for credit, replacement, or exchange. Revenue is recognized as the net amount to be received after deducting estimated amounts for product returns and allowances.
Product Warranties - The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The Company accrues its estimated exposure to warranty claims based upon recent historical experience and other specific information as it becomes available.
Research and Development - Research, development and engineering costs are expensed as incurred.
Engineering Costs - Engineering expenses are expensed as incurred. Cost reimbursements for engineering services from customers for whom the Company designs products are recorded as an offset to engineering costs upon achieving development milestones.
Net research, development and engineering costs are as follows (in thousands):
Earnings Per Share - Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated by adjusting for common stock equivalents, which consist of stock options and unvested restricted stock. Holders of our convertible notes may convert them into shares of the Company's common stock under certain circumstances (see Note 8 - Debt for a description of our convertible subordinated notes). For computation of earnings per share under conversion conditions, the number of diluted shares outstanding will increase by the amount of shares that are potentially convertible during that period. Also, net income will be adjusted for the calculation to add back interest expense on the convertible notes as well as deferred financing fees amortization recorded during the period.
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
Comprehensive Income - Comprehensive income includes all changes in stockholders' equity during a period 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 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 sales and expenses during the reporting period. Actual results could differ materially from those estimates.
Supplemental Cash Flow Information (in thousands):
Recent Accounting Pronouncements -- In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires disclosures about variable interest entities for which it is reasonably possible that we will be required to consolidate or disclose information when the Interpretation becomes effective. The provisions of FIN 46 are effective for the Company for the interim period ending April 2, 2004, or earlier in certain instances. Such instances did not have an effect on the Company's consolidated financial statements in 2003. The Company has determined that it is not reasonably possible that it will be required to consolidate or disclose information about a variable interest entity in 2004.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments subject to the provisions of this Statement. Subsequent to the issuance of SFAS No. 150, the FASB decided to revise the effective dates of the application of certain provisions of the statement. For mandatorily redeemable financial instruments that do not have a fixed redemption date or are not redeemable for a fixed or determinable amount the Board agreed to defer application for an indefinite period of time. The adoption of 150 did not have an effect on the Company's consolidated financial statements in 2003.
Reclassifications - Certain reclassifications were made to the prior years' financial statements to conform with the current year presentation. None of the reclassifications affected net income (loss) or stockholders' equity.
The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB 13, and Technical Corrections," at the beginning of fiscal year 2003. Under SFAS No. 145, the Company no longer classifies debt extinguishments as extraordinary items in the consolidated financial statements, subject to limited exceptions. Accordingly, amounts previously classified as extraordinary related to debt extinguishments in fiscal 2001 have been reclassified as components of income before income taxes.
3. SHORT-TERM INVESTMENTS
Short-term investments at December 31, 2003, consist of investments acquired with maturities that exceed three months and are less than one year at the time of acquisition. Held-to-maturity securities comprised the following (in thousands):
The municipal bonds have maturity dates ranging from January 2004 to April 2004. There were no short-term investments as of December 31, 2002.
4. INVENTORIES
Inventories comprised the following (in thousands):
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised the following (in thousands):
Depreciation expense during 2003, 2002 and 2001 was approximately $9,390,000, $7,610,000, and $5,917,000, respectively.
6. INTANGIBLE ASSETS
Intangible assets comprised the following (in thousands):
Estimated amortization expense for years subsequent to 2003 are as follows (in thousands):
2004 $2,843 2005 2,361 2006 2,332 2007 2,314 2008 2,314
The following table reflects consolidated results for 2001, with data adjusted as though the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, had occurred as of the beginning of 2001 (in thousands except per share amounts):
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities comprised the following (in thousands):
8. DEBT
Long-term debt comprised the following (in thousands):
Convertible Subordinated Notes
In May 2003, the Company completed a private placement of contingent convertible subordinated notes totaling $170.0 million, due 2013. In November 2003 the Company had a Registration Statement with the Securities and Exchange Commission declared effective with respect to these notes and the underlying common stock. The notes bear interest at 2.25 percent per annum, payable semiannually. Beginning with the six-month interest period commencing June 15, 2010, the Company will pay additional contingent interest during any six-month interest period if the trading price of the notes for each of the five trading days immediately preceding the first day of the interest period equals or exceeds 120% of the principal amount of the notes.
Holders may convert the notes into shares of the Company's common stock at a conversion rate of 24.8219 shares per $1,000 principal amount of notes, subject to adjustment, before the close of business on June 15, 2013 only under the following circumstances: (1) during any fiscal quarter commencing after July 4, 2003, if the closing sale price of the Company's common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding fiscal quarter; (2) subject to certain exceptions, during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of the notes for each day of such period was less than 98% of the product of the closing sale price of the Company's common stock and the number of shares issuable upon conversion of $1,000 principal amount of the notes; (3) if the notes have been called for redemption; or (4) upon the occurrence of certain corporate events.
Beginning June 20, 2010, the Company may redeem any of the notes at a redemption price of 100% of their principal amount, plus accrued interest. Note holders may require the Company to repurchase their notes on June 15, 2010 or at any time prior to their maturity following a fundamental change at a repurchase price of 100% of their principal amount, plus accrued interest. The notes are subordinated in right of payment to all of our senior indebtedness and effectively subordinated to all debts and other liabilities of our subsidiaries.
Concurrent with the issuance of the notes, the Company used approximately $72.5 million of the proceeds from this private placement to pay off the term loan. Debt issuance expenses totaled $4.5 million and are being amortized using the effective yield method over a seven-year term.
The fair-value of the convertible subordinated notes as of December 31, 2003 was $212.5 million based on quoted market prices.
Capital Lease Obligations
The Company leases assets under non-cancelable lease arrangements. As of December 31, 2003, future minimum lease payments under capital leases are as follows:
Revolving Line of Credit
As of December 31, 2003 the Company had no balance outstanding on its $20.0 million committed revolving line of credit. The revolving line of credit continues to be available to the Company for future borrowing and matures on July 1, 2005. The revolving line of credit is secured by the Company's accounts receivable and inventories and requires the Company to comply with various quarterly financial covenants, as defined, related to net earnings or loss before interest, taxes, depreciation, and amortization ("EBITDA"), and ratios of leverage, interest, fixed charges, and capitalization as they relate to EBITDA. Interest rates under the revolving line of credit vary with the Company's leverage. The Company is required to pay a commitment fee of between .50% and .125% per annum on the unused portion of the revolving line of credit based on the Company's leverage.
9. EMPLOYEE BENEFIT PLANS
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. Under the terms of the ESOP plan document there is a defined contribution equal to five percent of each employee's annual compensation. This contribution is contributed to the ESOP in the form of Company stock. The ESOP is subject to contribution limitations as defined in the plan. Compensation cost under the ESOP
recognized by the Company for the defined contribution was approximately $2.7 million, $2.3 million, and $1.8 million in 2003, 2002 and 2001, respectively.
Savings Plan - The Company sponsors a defined contribution 401(k) plan, which covers substantially all of its employees. The plan provides for the deferral of employee compensation under Section 401(k) and a Company match. Net costs related to this defined contribution plan were approximately $847,000, $718,000 and $622,000 in 2003, 2002 and 2001, respectively.
Education Assistance Program - The Company reimburses tuition, textbooks and laboratory fees for college or other lifelong learning programs for all of its employees. The Company also reimburses college tuition for the dependent children of its full-time employees. For certain employees, the dependent children benefit vests on a straight-line basis over ten years. Minimum academic achievement is required in order to receive reimbursement under both programs. Aggregate expenses under the programs were approximately $669,000, $621,000 and $460,000 in 2003, 2002 and 2001, respectively.
10. STOCK OPTION PLANS
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 the Company's common stock. 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 granted at exercise prices equal to or greater than the fair market value of the Company's common stock at the date of the grant.
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 the Company's common stock, 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 the date of the grant. Stock options are granted at exercise prices equal to or greater than the fair value of the Company's common stock at the date of the grant.
The Company has a stock option plan that provides for the issuance of nonqualified stock options to Non-Employee Directors (the "Director Plan"). The Director Plan authorizes the issuance of nonqualified stock options to purchase up to 100,000 shares of the Company's common stock from its treasury, subject to the terms of the plan. The stock options vest over a three-year period. The stock options expire 10 years from the date of grant. Stock options are granted at exercise prices equal to or greater than the fair value of the Company's common stock at the date of the grant.
As of December 31, 2003, options for 472,211 shares were available for future grants under the plans. The weighted average remaining contractual life is seven years.
A summary of the transactions under the 1997 Plan, 1998 Plan, and the Director Plan for 2001, 2002 and 2003 follows:
The following table provides detail regarding the options outstanding at December 31, 2003.
11. RESTRICTED STOCK PLAN
On November 15, 2002, the Company's Board of Directors approved the Restricted Stock Plan under which stock awards may be granted to employees. The Plan received shareholder approval at the Annual Meeting of Stockholders held on May 9, 2003. The number of shares that are reserved and may be issued under the plan cannot exceed 200,000. The Compensation and Organization Committee of the Company's Board of Directors determines the number of shares that may be granted under the plan. Restricted stock awards are either time-vested or performance-vested based on the terms of each individual award agreement. Time-vested restricted stock vests 50% on the first anniversary of the date of the award and 50% on the second anniversary of the date of the award. Performance-vested restricted stock vests upon the achievement of certain annual diluted earnings per share targets by the company, or the seventh anniversary date of the award.
There were 50,400 shares granted to certain officers and key employees under the terms of the plan. 13,500 shares of restricted stock fully vested as of December 31, 2003. Unamortized deferred compensation expense with respect to the restricted stock grants amounted to $1,185,000 at December 31, 2003 and is being amortized based on the vesting schedules attributable to the underlying restricted stock grants. Compensation expense of $583,000 was recognized during 2003.
12. INCOME TAXES
The components of the provision for income taxes comprised the following (in thousands):
The tax effect of major temporary differences that give rise to the Company's net deferred tax accounts are as follows (in thousands):
In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the consideration of the weight of both positive and negative evidence, management has determined that it is more likely than not that a portion of the deferred tax asset remaining at December 31, 2003 related to the valuation of an investment will not be realized.
The provision for income taxes differs in each of the years from the federal statutory rate due to the following:
13. CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares of common stock, $.001 par value per share and 100,000,000 shares of preferred stock, $.001 par value per share. There are no preferred shares issued or outstanding. There were 21,231,121 and 21,049,805 shares issued in 2003 and 2002, respectively. There were 21,226,357 and 20,996,115 shares outstanding in 2003 and 2002, respectively.
14. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal actions arising in the normal course of business. The Company does not believe that the ultimate resolution of any such pending activities will have a material adverse effect on its consolidated results of operations, financial position, or cash flows.
The Company is a party to various license agreements through 2018 for technology that is utilized in certain of its products. The most significant of these is an agreement to license the basic technology used for wet tantalum capacitors. The initial payment under the original agreement was $800,000 and was fully amortized in 2002. The company is required to pay royalties based on agreed upon terms through August 2014.
The Company is also subject to a license agreement covering the exclusive use of a patent for a hybrid electrode until December 2016. The initial payment under this agreement was $100,000 and will be fully amortized in 2004. The Company is required to pay royalties based on the selling price of products that incorporate such licensed technology.
Expenses related to license agreements were $1,531,000, $1,367,000 and $317,000 for 2003, 2002, and 2001, respectively.
Product Warranties - The change in aggregate product warranty liability for the year ended December 31, 2003, is as follows (dollars in thousands):
Operating Leases - The Company is a party to various operating lease agreements for buildings, equipment and software. The Company incurred operating lease expense of $1,716,000, $928,000 and $909,000 in 2003, 2002 and 2001, respectively.
If all lease extension options are exercised as expected by the Company, minimum future annual operating lease payments are $1,815,000 in 2004; $1,391,000 in 2005; $604,000 in 2006; $196,000 in 2007; and $0 in 2008.
15. BUSINESS SEGMENT INFORMATION
The Company operates its business in two reportable segments: IMC and EPS. The IMC segment designs and manufactures batteries for devices in the cardiac rhythm management ("CRM") industry including implantable cardioverter defibrillators ("ICDs"), pacemakers, cardiac resynchronization therapy ("CRT") and other medical devices; capacitors for ICDs, filtered feedthroughs, engineered components and enclosures used in IMDs. The EPS segment designs and manufactures high performance batteries for use in oil and gas exploration, oceanographic equipment, and aerospace.
The Company's IMC segment includes multiple business units 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 reportable segments are separately managed, and their performance is evaluated based on numerous factors, including income from operations.
The Company defines segment income from operations as gross profit less costs and expenses attributable to segment specific selling, general and administrative and research, development and engineering expenses, and intangible amortization. In 2003, segment income also includes a portion of non-segment specific selling, general and administrative and research, development and engineering expenses based on allocation bases appropriate to the expense categories. The remaining unallocated operating expenses along with other income and expense are not allocated to reportable segments. This change is not reflected in the 2002 or 2001 calculation of segment income from operations because it is impractical to do so. The allocation of expenses to segments in 2003 does not change the composition of the reportable segments; the change is only a revision to the calculation of segment income from operations. Transactions between the two segments are not significant. The accounting policies of the segments are the same as those described and referenced in Note 2.
An analysis and reconciliation of the Company's business segment information to the respective information in the consolidated financial statements is as follows (dollars in thousands):
Sales by geographic area are presented by attributing sales from external customers based on where the products are shipped. All dollars are in thousands.
Two customers accounted for a significant portion of the Company's sales and accounts receivable as follows:
16. ACQUISITIONS
During 2001 and 2002, the Company completed two acquisitions as follows:
o Substantially all of the assets of the Sierra-KD Components division of Maxwell Technologies, Inc. (Sierra), a developer and manufacturer of electromagnetic interference filtering capacitors for implantable medical devices.
o Globe Tool and Manufacturing Company, Inc. (Globe Tool), a manufacturer of precision titanium enclosures for implantable medical devices. Globe Tool was acquired to further broaden our product offering to include enclosures.
These acquisitions have been accounted for using the purchase method of accounting and accordingly, the results of the operations of these acquisitions have been included in the consolidated financial statements from the date of acquisition.
Acquisition information (in thousands):
The following unaudited pro forma summary presents the Company's consolidated results of operations for 2002 and 2001 as if the acquisitions had been consummated at January 1, 2001. The pro forma consolidated results of operations include certain pro forma adjustments, including the amortization of intangible assets and interest on a term loan.
The proforma results are not necessarily indicative of those that would have actually occurred had the acquisitions taken place at the beginning of the periods presented.
17. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED
******
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. Controls and Procedures.
a) Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of the Company's management including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.
b) Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Reference is made to the information responsive to the Items comprising this Part III that is contained in our definitive proxy statement for our 2004 Annual Meeting of Stockholders, which is incorporated by reference herein.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of our company and report of independent auditors thereon are set forth below:
Independent Auditors' Report.
Consolidated Balance Sheet as of December 31, 2003 and 2002.
Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001.
Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001.
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001.
Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in this report on Form 10-K: Schedule II - Valuation and Qualifying Accounts.
(1) Allowance recorded in the provision for income taxes.
(2) Accounts written off, net of collections on accounts receivable previously written off.
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
(3) EXHIBITS
EXHIBIT DESCRIPTION NUMBER ----------- - ------
3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our registration statement on Form S-1 (File No. 333-37554)). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our quarterly report on Form 10-Q for the quarterly period ended March 29, 2002). 4.1 Registration Rights Agreement dated February 14, 2002 among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners (incorporated by reference to Exhibit 4.1 to our quarterly report on Form 10-Q for the quarterly period ended June 28, 2002). 4.2 Indenture for 2 1/4% Convertible Subordinated Debentures Due 2013 dated May 28, 2003 (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-3 (File No. 333-107667) filed on August 5, 2003). 4.3 Registration Rights Agreement dated May 28, 2003 by among us and the initial purchasers of the Debentures described above (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-3 (File No. 333-107667) filed on August 5, 2003). 10.1# 1997 Stock Option Plan (including form of "standard" option agreement and form of "special" option agreement) (incorporated by reference to Exhibit 10.1 to our registration statement on Form S-1 (File No. 333-37554)). 10.2# 1998 Stock Option Plan (including form of "standard" option agreement, form of "special" option agreement and form of "non-standard" option agreement) (incorporated by reference to Exhibit 10.2 to our registration statement on Form S-1 (File No. 333-37554)). 10.3# Wilson Greatbatch Ltd. Equity Plus Plan Money Purchase Plan (incorporated by reference to Exhibit 10.3 to our registration statement on Form S-1 (File No. 333-37554)).
10.4# Wilson Greatbatch Ltd. Equity Plus Plan Stock Bonus Plan (incorporated by reference to Exhibit 10.4 to our registration statement on Form S-1 (File No. 333-37554)). 10.5# Non-Employee Director Stock Incentive Plan (incorporated by reference to Exhibit A to our definitive proxy statement on Schedule 14-A filed on April 22, 2002). 10.6# Employment Agreement, dated as of July 9, 1997, between Wilson Greatbatch Ltd. and Edward F. Voboril (incorporated by reference to Exhibit 10.5 to our registration statement on Form S-1 (File No. 333-37554)). 10.7 Registration and Anti-Dilution Agreement, dated as of July 10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ Investment Partners, L.P., DLJ Investment Funding, Inc., DLJ First ESC L.L.C., The Northwestern Mutual Life Insurance Company and Donaldson, Lufkin & Jenrette Securities Corporation (incorporated by reference to Exhibit 10.7 to our registration statement on Form S-1 (File No. 333-37554)). 10.8 Amended and Restated Credit Agreement dated as of July 9, 2002 by and among Wilson Greatbatch Ltd., the lenders party thereto and Manufacturers and Traders Trust Company, as administrative agent (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed on July 24, 2002). 10.9 Stockholders Agreement, dated as of July 16, 1997, among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners, and the other holders of common stock of Wilson Greatbatch Technologies Inc. party thereto (incorporated by reference to Exhibit 10.12 to our registration statement on Form S-1 (File No. 333-37554)). 10.10 Amendment No. 1 to Stockholders Agreement, dated as of October 31, 1997, among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners, and the other holders of common stock of Wilson Greatbatch Technologies, Inc. party thereto (incorporated by reference to Exhibit 10.13 to our registration statement on Form S-1 (File No. 333-37554)). 1 0.11 Management Stockholders Agreement, dated as of July 10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners, and the other holders of common stock of Wilson Greatbatch Technologies, Inc. party thereto (incorporated by reference to Exhibit 10.14 to our registration statement on
Form S-1 (File No. 333-37554)). 10.12 Subordinated Note Holders Stockholders Agreement, dated as of July 10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners, DLJ Investment Partners, L.P., DLJ Investment Funding, Inc., The Northwestern Mutual Life Insurance Company and Donaldson, Lufkin & Jenrette Securities Corporation (incorporated by reference to Exhibit 10.15 to our registration statement on Form S-1 (File No. 333-37554)). 10.13# 2002 Restricted Stock Plan (incorporated by reference to Appendix B to our definitive proxy statement on Schedule 14A filed on April 9, 2003). 10.14+ Supply Agreement, dated as of February 1, 1999, between Wilson Greatbatch Ltd. and Guidant/CRM (incorporated by reference to Exhibit 10.20 to our registration statement on Form S-1 (File No. 333-37554)). 10.15+ Amendment No. 1 to the Supply Agreement, dated as of September 21, 2001, between Wilson Greatbatch Technologies, Inc. and Guidant/CRM (incorporated by reference to Exhibit 10.13 to our annual report on Form 10-K for the fiscal year ended December 28, 2001). 10.16+ Supply Agreement dated April 10, 2003, between Wilson Greatbatch Technologies, Inc. and Guidant/CRM (incorporated by reference to our Form 10-Q for the quarter ended April 4, 2003, filed May 16, 2003). 10.17 Agreement, dated as of April 16, 1997, between Wilson Greatbatch Ltd. and Pacesetter, Inc., a St. Jude Medical Company (incorporated by reference to Exhibit 10.21 to our registration statement on Form S-1 (File No. 333-37554)). 10.18 License Agreement, dated August 8, 1996, between Wilson Greatbatch Ltd.
and Evans Capacitor Company (incorporated by reference to Exhibit 10.23 to our registration statement on Form S-1 (File No. 333-37554)). 10.19+ Amendment No. 2, dated December 6, 2002, between Wilson Greatbatch Technologies, Ltd. and Evans Capacitor Company. 10.20*+ Supplier Partnering Agreement, dated as of October 23, 2003, between Wilson Greatbatch Technologies, Inc. and Pacesetter, Inc., a St. Jude Medical Company. 10.21 License Agreement, dated March 16, 1976, between Wilson Greatbatch Ltd. and Medtronic Inc. (incorporated by reference to Exhibit 10.24 to our registration statement on Form S-1 (File No. 333-37554)). 10.22 Amendment No. 1 to License Agreement, dated July 20, 1976, between Wilson Greatbatch Ltd. and Medtronic Inc. (incorporated by reference to Exhibit 10.25 to our registration statement on Form S-1 (File No. 333-37554)). 10.23 Stockholders Agreement, dated as of August 23, 1999, among Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners and Fred Hittman (incorporated by reference to Exhibit 10.26 to our registration statement on Form S-1 (File No. 333-37554)). 10.24 Form of Subscription Agreement, dated on or about July 17, 1997, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Larry T. DeAngelo, Curtis F. Holmes, Ph.D., Arthur J. Lalonde, Richard W. Mott and Susan M. Bratton (incorporated by reference to Exhibit 10.27 to our registration statement on Form S-1 (File No. 333-37554)). 10.25 Form of Management Subscription Agreement, dated November 1, 1997, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Larry T. DeAngelo, Curtis F. Holmes, Ph.D., Arthur J. Lalonde, Richard W. Mott and Susan M. Bratton (incorporated by reference to Exhibit 10.28 to our registration statement on Form S-1 (File No. 333-37554)). 10.26 Form of Promissory Note, dated November 1, 1997, payable to Wilson Greatbatch Technologies, Inc. by each of Edward F. Voboril, Larry T. DeAngelo, Curtis F. Holmes, Ph.D., Arthur J. Lalonde, Richard W. Mott and
Susan M. Bratton (incorporated by reference to Exhibit 10.29 to our registration statement on Form S-1 (File No. 333-37554)). 10.27 Form of Pledge Agreement, dated November 1, 1997, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Larry T. DeAngelo, Curtis F. Holmes, Ph.D., Arthur J. Lalonde, Richard W. Mott and Susan M. Bratton (incorporated by reference to Exhibit 10.30 to our registration statement on Form S-1 (File No. 333-37554)). 10.28# Form of Change of Control Agreement, dated December 17, 2001, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Larry T. DeAngelo, Curtis F. Holms, Ph.D. and Richard W. Mott. 10.29 Stock Purchase Agreement, dated as of July 31, 2000, among Wilson Greatbatch Technologies, Inc., Battery Engineering, Inc. and Hitachi Maxell, Ltd. (incorporated by reference to Exhibit 10.31 to our registration statement on Form S-1 (File No. 333-37554)). 10.30 Stockholders Agreement, dated as of August 7, 2000, among Wilson Greatbatch Technologies, Inc., Hitachi Maxell, Ltd., DLJ Merchant Banking Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P. and UK Investment Plan 1997 Partners (incorporated by reference to Exhibit 10.32 to our registration statement on Form S-1 (File No. 333-37554)). 10.31 Subscription Agreement, dated as of August 7, 2000, between Wilson Greatbatch Technologies, Inc. and Hitachi Maxell, Ltd. (incorporated by reference to Exhibit 10.33 to our registration statement on Form S-1 (File No. 333-37554)). 10.32 Non-Compete Agreement, dated as of August 7, 2000, between Wilson Greatbatch Technologies, Inc. and Hitachi Maxell, Ltd. (incorporated by reference to Exhibit 10.34 to our registration statement on Form S-1 (File No. 333-37554)). 10.33 Asset Purchase Agreement, dated as of June 18, 2001, among Wilson Greatbatch Technologies, Inc., GB Acquisition Co., Inc., Maxwell Technologies, Inc. and Maxwell Electronic Components Group, Inc. (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed June 19, 2001). 10.34 Stock Purchase Agreement, dated as of July 9, 2002, among Wilson
Greatbatch Technologies, Inc., Globe Tool and Manufacturing Company, Inc. ("Globe"), Charter Oak Partners of Westport, Connecticut and certain other shareholders of Globe (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed on July 24, 2002). 12.1* Ratio of Earnings to Fixed Charges. 21.1* List of subsidiaries. 23.1* Consent of Deloitte & Touche LLP. 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act. 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act. 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1* Risks Related to our Business.
Portions of those exhibits marked "+" have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
* Filed herewith.
# Indicates exhibits that are management contracts or compensation plans or arrangements required to be filed pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
On November 5, 2003, the Company filed a Current Report on Form 8-K containing information pursuant to Item 9 ("Regulation FD Disclosure") relating to the announcement of earnings for the quarter ended October 3, 2003.
On November 26, 2003, the Company filed a Current Report on Form 8-K containing information pursuant to Item 5 ("Other events") to correct a typographical error contained in exhibit 23.1 (Consent of Deloitte & Touche LLP) to the Company's Registration Statement on Form S-3 filed on November 18, 2003.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 12, 2004 WILSON GREATBATCH TECHNOLOGIES, INC.
By /s/ Edward F. Voboril --------------------- Edward F. Voboril President, Chief Executive Officer And Chairman (Principal Executive Officer)
By /s/ Lawrence P. Reinhold ------------------------- Lawrence P. Reinhold Executive Vice President and Chief Financial Officer (Principal Financial Officer)
By /s/ Thomas J. Mazza --------------------- Thomas J. Mazza Vice President and Controller (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
EXHIBIT INDEX
EXHIBIT DESCRIPTION NUMBER ----------- ------