10-Q 1 a4638502.txt WILSON GREATBATCH TECHNOLOGIES, INC. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended April 2, 2004 Commission File Number 1-16137 WILSON GREATBATCH TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware (State of incorporation) 16-1531026 (I.R.S. employer identification no.) 9645 Wehrle Drive Clarence, New York 14031 (Address of principal executive offices) (716) 759-5600 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ] The number of shares outstanding of the Company's common stock, $.001 par value per share, as of May 7, 2004 was: 21,367,821 shares WILSON GREATBATCH TECHNOLOGIES, INC. TABLE OF CONTENTS FOR FORM 10-Q QUARTER ENDED MARCH 31, 2004 Page COVER PAGE 1 TABLE OF CONTENTS 2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statement of Operations 4 Condensed Consolidated Statement of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20 ITEM 4. Controls and Procedures 20 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 21 ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 21 ITEM 3. Defaults Upon Senior Securities 21 ITEM 4. Submission of Matters to a Vote of Security Holders 21 ITEM 5. Other Information 21 ITEM 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 EXHIBIT INDEX 23 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WILSON GREATBATCH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEET - Unaudited (IN THOUSANDS) ---------------------------------------------------------------------- ASSETS March 31, Dec. 31, 2004 2003 Current assets: Cash and cash equivalents $74,253 $119,486 Short-term investments 7,649 11,559 Accounts receivable, net 27,491 23,726 Inventories 31,379 28,598 Prepaid expenses and other current assets 3,426 3,591 Refundable income taxes 591 583 Deferred income taxes 3,163 3,163 Asset available for sale 3,600 3,658 --------- --------- Total current assets 151,552 194,364 Property, plant, and equipment, net 68,129 63,735 Intangible assets, net 67,161 51,441 Goodwill 156,664 119,521 Deferred income taxes 2,896 2,896 Other assets 6,332 6,286 --------- --------- Total assets $452,734 $438,243 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,541 $4,091 Accrued expenses and other current liabilities 14,212 18,968 Current portion of long-term debt 612 850 --------- --------- Total current liabilities 20,365 23,909 Long-term debt, net of current portion 879 928 Convertible subordinated notes 170,000 170,000 Deferred income taxes 15,246 7,251 Other long-term liabilities 815 815 --------- --------- Total liabilities 207,305 202,903 --------- --------- Stockholders' equity: Preferred stock - - Common stock 21 21 Additional paid-in capital 211,092 207,969 Deferred stock-based compensation (1,017) (1,185) Treasury stock, at cost - (179) Retained earnings 35,333 28,714 --------- --------- Total stockholders' equity 245,429 235,340 --------- --------- Total liabilities and stockholders' equity $452,734 $438,243 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements 3 WILSON GREATBATCH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - Unaudited (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) ---------------------------------------------------------------------- Three months ended March 31, 2004 2003 Sales $55,525 $54,857 Cost of sales 32,350 32,044 -------- -------- Gross profit 23,175 22,813 Selling, general and administrative expenses 6,925 7,691 Research, development and engineering costs, net 4,881 4,560 Amortization of intangible assets 775 815 Other operating expense, net 221 70 -------- -------- Operating income 10,373 9,677 Interest expense 1,160 931 Interest income (313) (9) Other expense (income), net 2 (58) -------- -------- Income before income taxes 9,524 8,813 Provision for income taxes 2,905 2,776 -------- -------- Net income $6,619 $6,037 ======== ======== Earnings per share: Basic $0.31 $0.29 Diluted $0.31 $0.28 Weighted average shares outstanding: Basic 21,281 21,070 Diluted 21,692 21,354 The accompanying notes are an integral part of these condensed consolidated financial statements 4 WILSON GREATBATCH TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - Unaudited (IN THOUSANDS) ---------------------------------------------------------------------- Three months ended March 31, 2004 2003 Cash flows from operating activities: Net income $6,619 $6,037 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,362 3,419 Stock-based compensation 881 - Loss on disposal of assets 221 70 Changes in operating assets and liabilities: Accounts receivable (3,765) (7,459) Inventories (2,781) 2,191 Prepaid expenses and other current assets 210 2,052 Accounts payable 1,333 (974) Accrued expenses and other current liabilities (3,837) (622) Income taxes 332 311 -------- ------- Net cash provided by operating activities 2,575 5,025 -------- ------- Cash flows from investing activities: Sale of short-term investments 3,910 - Acquisition of property, plant and equipment (6,615) (2,100) Proceeds from sale of assets 9 2 Increase in other assets (68) (10) Acquisition of subsidiary, net (45,445) - -------- ------- Net cash used in investing activities (48,209) (2,108) -------- ------- Cash flows from financing activities: Principal payments of long-term debt - (5,500) Principal payments of capital lease obligations (286) - Issuance of common stock 508 - Issuance of treasury stock 179 178 -------- ------- Net cash provided by (used in) financing activities 401 (5,322) -------- ------- Net decrease in cash and cash equivalents (45,233) (2,405) Cash and cash equivalents, beginning of year 119,486 4,608 -------- ------- Cash and cash equivalents, end of period $74,253 $2,203 ======== ======= The accompanying notes are an integral part of these condensed consolidated financial statements 5 WILSON GREATBATCH TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of Wilson Greatbatch Technologies, Inc. (the "Company") for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 2, 2004. The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For 52-week years, each quarter contains 13 weeks. For 53-week years, the first, second and third quarters each have 13 weeks, and the fourth quarter has 14 weeks. For clarity of presentation, the Company describes all periods as if each quarter end is March 31st, June 30th and September 30th and as if the year-end is December 31st. 2. ACQUISITION During March 2004, the Company completed the following acquisition: -- NanoGram Devices Corporation (NDC), a materials research and development company focused on developing nanoscale materials for implantable medical devices. NDC was acquired to further broaden our battery product line offering. NDC utilizes nanomaterials synthesis technology in the development of battery and medical device applications. The acquisition was accounted for using the purchase method of accounting and accordingly, the results of the operations of NDC has been included in the consolidated financial statements from the date of acquisition. 6 Acquisition information (in thousands): NDC ---------- Acquisition date March 16, 2004 Purchase price: Cash paid $45,000 Transaction costs 445 ---------- Total purchase price $45,445 ========== Purchase price allocation: Property and equipment $717 Other assets/(liabilities) (6,695) Intangible assets (amortizing over 13 years) 16,500 Goodwill 34,923 ---------- Total purchase price $45,445 ========== The above preliminary purchase price allocation has not been finalized, and any required adjustments will be recorded as necessary. The following pro forma information presents the Company's consolidated results of operations for 2004 and 2003 as if the acquisition had been consummated at January 3, 2003. The pro forma consolidated results of operations include certain pro forma adjustments, including the amortization of intangible assets and interest on a term loan. March 31, In thousands except per share amounts: 2004 2003 Revenues $55,525 $54,857 Net income $5,542 $5,116 Net income per diluted share: $0.26 $0.24 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. 3. 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 periods presented and, as such, the impact is not necessarily indicative of the effects on reported net income of future years. 7 Three months ended March 31, 2004 2003 Risk-free interest rate 3.07% 2.89% Expected volatility 50% 55% Expected life (in years) 5 5 Expected dividend yield 0% 0% 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): Three months ended March 31, 2004 2003 Net income as reported $6,619 $6,037 Stock-based employee compensation cost included in net income as reported, net of related tax effects $612 $- Stock-based employee compensation cost determined using the fair value based method, net of related tax effects $1,154 $385 Pro forma net income $6,077 $5,652 Earnings per share: Basic - as reported $0.31 $0.29 Basic - pro forma $0.29 $0.27 Diluted - as reported $0.31 $0.28 Diluted - pro forma $0.28 $0.26 4. SUPPLEMENTAL CASH FLOW INFORMATION Three months ended March 31, 2004 2003 Noncash investing and financing activities (in thousands): Common stock contributed to ESOP $2,723 $3,668 8 5. SHORT-TERM INVESTMENTS Short-term investments at March 31, 2004 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): As of March 31, 2004 Cost Gross Gross Estimated unrealized Unrealized Fair gains losses Value Municipal Bonds $7,649 $- $(7) $7,642 -------- ----------- ----------- -------- Short-term investments $7,649 $- $(7) $7,642 ======== =========== =========== ======== The municipal bonds have maturity dates ranging from April 2004 to July 2004. As of December 31, 2003 Cost Gross Gross Estimated unrealized Unrealized Fair gains losses Value Municipal Bonds $11,559 $- $(1) $11,558 -------- ----------- ----------- -------- Short-term investments $11,559 $- $(1) $11,558 ======== =========== =========== ======== 6. INVENTORIES Inventories comprised the following (in thousands): March 31, Dec. 31, 2004 2003 Raw materials $12,074 $11,688 Work-in-process 11,142 10,421 Finished goods 8,163 6,489 -------- -------- Total $31,379 $28,598 ======== ======== 9 7. INTANGIBLE ASSETS Intangible assets comprised the following (in thousands): As of March 31, 2004 Gross Accumulated Net carrying Amortization Carrying amount Amount Amortizing intangible assets: Patented technology $21,462 $(8,937) $12,525 Unpatented technology 30,886 (4,857) 26,029 Other 1,340 (918) 422 --------- ------------- -------- 53,688 (14,712) 38,976 Unamortizing intangible assets: Trademark and names 31,420 (3,235) 28,185 --------- ------------- -------- Total intangible assets $85,108 $(17,947) $67,161 ========= ============= ======== Aggregate amortization expense for first quarter 2004 and 2003 was $781,000 and $819,000 respectively. Estimated amortization expense for the remainder of 2003 and for the years subsequent to 2004 are as follows: Remainder of 2004 3,202 2005 3,801 2006 3,772 2007 3,754 2008 3,754 2009 3,208 10 8. EARNINGS PER SHARE The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts): Three months ended March 31, 2004 2003 ------- ------- Earnings per share - basic ------------------------------------------------------- Earnings available to common shareholders $6,619 $6,037 Weighted average shares outstanding 21,281 21,070 Earnings per share - basic $0.31 $0.29 Earnings per share - diluted ------------------------------------------------------- Earnings available to common shareholders $6,619 $6,037 Weighted average shares outstanding 21,281 21,070 Dilutive impact of options outstanding & unvested restricted stock 411 284 ------- ------- Weighted average shares and potential dilutive shares outstanding 21,692 21,354 Earnings per share - diluted $0.31 $0.28 9. COMPREHENSIVE INCOME For all periods presented, the Company's only component of comprehensive income is its net income. 10. 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. Product Warranties - The change in aggregate product warranty liability for the quarter ended March 31, 2004, is as follows (dollars in thousands): Beginning balance $313 Additions to warranty reserve 27 Warranty claims paid (27) ----- Ending balance $313 ===== 11. BUSINESS SEGMENT INFORMATION The Company operates its business in two reportable segments: Implantable Medical Components ("IMC") and Electrochem Power Solutions ("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; and capacitors for ICDs, filtered feedthroughs, engineered components and enclosures used in implantable medical devices ("IMDs"). The EPS segment designs and manufactures high performance batteries and battery packs for use in oil and gas exploration, oceanographic equipment, and aerospace. 11 During 2003, the Company's IMC segment included multiple business units that were 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 were separately managed, and their performance was evaluated based on numerous factors, including income from operations. Effective January 1, 2004, the Company completed an internal reorganization consolidating three business units into one business unit within the IMC segment. The Company defines segment income from operations as gross profit less costs and expenses attributable to segment specific selling, general and administrative, research, development and engineering expenses, intangible amortization and other operating expenses. Segment income also includes a portion of non-segment specific selling, general and administrative, and research, development and engineering expenses based on allocations appropriate to the expense categories. The remaining unallocated operating expenses along with other income and expense are not allocated to reportable segments. Transactions between the two segments are not significant. The accounting policies of the segments are the same as those described and referenced in Note 1. An analysis and reconciliation of the Company's business segment information to the respective information in the condensed consolidated financial statements is as follows (dollars in thousands): 12 Three months ended March 31, Sales: 2004 2003 IMC ICD batteries $9,420 $10,760 Pacemaker and other batteries 5,689 6,420 ICD Capacitors 8,408 7,148 Feedthroughs 13,755 11,173 Enclosures 5,397 6,934 Other 5,609 5,593 -------- -------- Total IMC 48,278 48,028 EPS 7,247 6,829 -------- -------- Total sales $55,525 $54,857 ======== ======== Segment income from operations: IMC $10,822 $11,326 EPS 2,295 588 -------- -------- Total segment income from operations 13,117 11,914 Unallocated operating expenses (2,744) (2,237) -------- -------- Operating income as reported 10,373 9,677 Unallocated other income and expense (849) (864) -------- -------- Income before income taxes as reported $9,524 $8,813 ======== ======== The changes in the carrying amount of goodwill are as follows (amounts in thousands): IMC EPS Total Balance at December 31, 2003 $116,955 $2,566 $119,521 Goodwill recorded during the year 37,143 - 37,143 --------- ------- --------- Balance at March 31, 2004 $154,098 $2,566 $156,664 ========= ======= ========= 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction 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. The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For 52-week years, each quarter contains 13 weeks. For 53-week years, the first, second and third quarters each have 13 weeks, and the fourth quarter has 14 weeks. For clarity of presentation, the Company describes all periods as if each quarter end is March 31st, June 30th and September 30th and as if the year-end is December 31st. The commentary that follows should be read in conjunction with our consolidated financial statements and related notes and with the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the fiscal year ended December 31, 2003. Application of Critical Accounting Estimates Our unaudited consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that some of the more critical estimates and related assumptions that affect our financial condition and results of operations are in the areas of inventories, goodwill and other indefinite lived intangible assets, long-lived assets and income taxes. During the three months ended March 31, 2004, we did not change or adopt new accounting policies that had a material effect on our consolidated financial condition and results of operations. Overview During first quarter 2004, there were many accomplishments that should further strengthen our position in the marketplace for the balance of the year and beyond. -- We signed a development agreement with our fourth wet tantalum capacitor customer and have commenced product development. Four of the five worldwide cardiac rhythm management ("CRM") device manufacturers have now adopted our capacitor technology. 14 -- We signed a QHR (formerly referred to as Quasar) high rate battery product development agreement with a major CRM customer. This is the second major CRM customer to adopt this next generation battery technology. -- We remain on schedule to deliver qualified QHR cells by the end of the year. -- We completed the acquisition of NDC allowing us to further broaden our battery product line. -- We improved our operating leverage as evidenced by the increase in our operating margins to 18.7% in the first quarter of 2004 up from 17.7% at the end of 2003. -- We achieved our first Oracle implementation milestone by completing the implementation for our EPS business unit. We remain on schedule to complete the phase one enterprise-wide implementation by the end of 2004. 15 Results of Operation and Financial Condition Three months ended March 31, In thousands, except per share data 2004 2003 $Change % Change ---------------------------------------------------------------------- IMC ICD batteries $9,420 $10,760 $(1,340) -12% Pacemaker and other batteries 5,689 6,420 (731) -11% ICD Capacitors 8,408 7,148 1,260 18% Feedthroughs 13,755 11,173 2,582 23% Enclosures 5,397 6,934 (1,537) -22% Other 5,609 5,593 16 0% -------------------------------- Total IMC 48,278 48,028 250 1% EPS 7,247 6,829 418 6% -------------------------------- Total sales 55,525 54,857 668 1% Cost of sales 32,350 32,044 306 1% -------------------------------- Gross profit 23,175 22,813 362 2% Gross margin 41.7% 41.6% Selling, general, and administrative expenses (SG&A) 6,925 7,691 (766) -10% SG&A as a % of sales 12.5% 14.0% Research, development and engineering costs, net (RD&E) 4,881 4,560 321 7% RD&E as a % of sales 8.8% 8.3% Intangible amortization 775 815 (40) -5% Other operating expense 221 70 151 216% -------------------------------- Operating income 10,373 9,677 696 7% Operating margin 18.7% 17.6% Interest expense 1,160 931 229 25% Interest income (313) (9) (304) 3378% Other expense (income), net 2 (58) 60 -103% Provision for income taxes 2,905 2,776 129 5% Effective tax rate 30.5% 31.5% -------------------------------- Net income $6,619 $6,037 $582 10% ================================ Net margin 11.9% 11.0% Diluted earnings per share $0.31 $0.28 $0.03 11% 16 Sales IMC. The slight sales growth for IMC was led by sales of filtered feedthroughs. Overall volume and mix more than offset a 3% price decrease. In addition, ICD capacitor and coated component sales increased considerably over last year. The sales increases over the prior year were tempered by decreased medical battery sales in the quarter. Lower demand by certain of our CRM customers combined with lower selling prices for both ICD and pacemaker batteries contributed to the decline. Also affected by lower demand at certain CRM customers, medical enclosure revenues declined from first quarter 2003. Selling price was not a contributor to this decline. EPS. The sales growth for EPS was the result of higher demand for products used in domestic oceanographic applications and an increase in specialty batteries for certain international customers. Gross profit Gross margin remained relatively flat compared to the first quarter of 2003. IMC gross margin declined due to lower sales volumes for batteries and enclosures combined with a sales mix that favored lower margin filtered feedthroughs and coated components. The increase in gross margin is primarily due to cost reductions for EPS resulting from the consolidation of the EPS plants that was completed in 2003. SG&A expenses Expenses declined compared to last year in absolute dollars, and as a percent of sales due the implementation of cost controls, the timing of certain expenditures and the elimination of certain general management positions resulting from an internal reorganization from four business units to two. RD&E expenses Expenses increased compared to last year in absolute dollars, and as a percent of sales due to the addition of one month of development costs from NDC, our newly acquired materials research laboratory. We expect the expense level for RD&E to increase for the balance of 2004 as the new laboratory is fully integrated. The additional expense is estimated at between $6.0 million and $7.0 million. Amortization expense The decrease in intangible amortization reflects the impact of the sale in June 2003 of certain intangible assets of the ceramic capacitor product line that was part of the Sierra-KD components. Other operating expense The increase is primarily attributable to dispositions of property, plant and equipment in the first quarter of 2004. Interest expense and interest income Interest expense increased as the interest-bearing debt as a percentage of total capitalization increased from 27% in first quarter 2003 to 41% in the first quarter of 2004. This increase in debt is the result of the issuance of the convertible subordinated notes in second quarter 2003. Interest income increased as the issuance of the notes provided additional funds that are being invested on a short-term basis. 17 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 federal and state tax planning strategies. Liquidity and Capital Resources Our principal source of short-term liquidity is our working capital of $131.1 million at March 31, 2004 combined with our unused $20 million credit line with our lending syndicate. At March 31, 2004 our current ratio was 7.4:1, down from 8.1:1 at December 31, 2003. We do not consider this decline to be significant as $45.5 million of cash was utilized during the quarter to fund the acquisition of NDC and our liquidity remains strong. The Company regularly engages in discussions relating to potential acquisitions and may announce an acquisition transaction at any time. At March 31, 2004, our capital structure consisted primarily of $170.0 million of convertible subordinated notes and our 21.3 million shares of common stock outstanding. We have in excess of $81.0 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. Capital spending of $7.0 million in the first quarter of 2004 is significantly higher than historical expenditure levels. The majority of the current year spending was for the build-out of our new medical battery plant and the continuation of the ERP implementation. In comparison, we spent $2.1 million in the first quarter of 2003, which was primarily for maintenance capital expenditures. 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 continue to incur additional capital costs related to the battery plant and the ERP project. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K. Inflation We do not believe that inflation has had a significant effect on our operations. Impact of Recently Issued Accounting Standards None. 18 Forward-Looking Statements Some of the statements contained in this Quarterly Report on Form 10-Q 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: -- future sales, expenses and profitability; -- the future development and expected growth of our business and the implantable medical device industry; -- our ability to successfully execute our business model and our business strategy; -- our ability to identify trends within the for implantable medical devices, medical components, and commercial power sources industries and to offer products and services that meet the changing needs of those markets; -- projected capital expenditures; and -- 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 as described in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission. 19 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. Under our existing line of credit any borrowings bear interest at fluctuating market rates. At March 31, 2004, we did not have any borrowings outstanding under our line of credit and thus no interest rate sensitive financial instruments. ITEM 4. 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. 20 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters to a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits See the Exhibit Index for a list of those exhibits filed herewith. (b) Reports on Form 8-K On February 10, 2004, the Company filed a Current Report on Form 8-K containing information pursuant to Item 12 ("Results of Operations and Financial Condition") relating to the announcement of earnings for the fiscal quarter and full year ended January 2, 2004. On March 16, 2004, the Company filed a Current Report on Form 8-K containing information pursuant to Item 2 ("Acquisition or Disposition of Assets") relating to the announcement of the acquisition of NanoGram Devices Corporation ("NDC") on March 16, 2004. 21 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: May 11, 2004 WILSON GREATBATCH TECHNOLOGIES, INC. By /s/ Edward F. Voboril ----------------------------------------- Edward F. Voboril Chairman of the Board, President and Chief Executive Officer (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) 22 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 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) filed on May 22, 2000). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our quarterly report on Form 10-Q ended March 29, 2002). 10.1 Agreement and Plan of Merger dated as of March 16, 2004 by and among NanoGram Devices Corporation, Wilson Greatbatch Technologies, Inc. and Pluto Acquisition Corporation. 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. 23