-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RwUbZ06EgXPQuuCM+Tyv7dBR6aTiNskWHKBxt3+nZZau0YB+jV94Sw5dHDQEcWSg x9EuCuqmuKEEQMYzc2mOng== 0001157523-05-002570.txt : 20050315 0001157523-05-002570.hdr.sgml : 20050315 20050315170717 ACCESSION NUMBER: 0001157523-05-002570 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050315 DATE AS OF CHANGE: 20050315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILSON GREATBATCH TECHNOLOGIES INC CENTRAL INDEX KEY: 0001114483 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 161531026 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16137 FILM NUMBER: 05682439 BUSINESS ADDRESS: STREET 1: 9645 WEHRLE DRIVE CITY: CLARENCE STATE: NY ZIP: 14031 BUSINESS PHONE: 716-759-5600 MAIL ADDRESS: STREET 1: 9645 WEHRLE DRIVE CITY: CLARENCE STATE: NY ZIP: 14031 10-K 1 a4842884.txt WILSON GREATBATCH TECHNOLOGIES INC. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 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) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on Which Registered: Common Stock, Par Value $.001 Per Share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None 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. [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] Aggregate market value of common stock of Wilson Greatbatch Technologies, Inc. held by nonaffiliates as of July 2, 2004, based on the last sale price of $27.13, as reported on the New York Stock Exchange: $580.0 million. Solely for the purpose of this calculation, shares held by directors and officers and 10 percent shareholders of the Registrant have been excluded. Such exclusion should not be deemed a determination by or an admission by the Registrant that these individuals are, in fact, affiliates of the Registrant. Shares of common stock outstanding on March 11, 2005: 21,564,618 DOCUMENTS INCORPORATED BY REFERENCE Portions of the company's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. 2 PART I 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, multiple product offerings, market leadership and dedication to quality provide us with competitive advantages and create a barrier to entry for potential market entrants. We plan on expanding our business into value-added assembly of products that incorporate components. With this in mind, we designed and built a state of the art manufacturing facility in Tijuana Mexico, incorporating two class 100,000 clean rooms, 90,000 square feet of manufacturing space, engineering, metrology and quality laboratories, and led by a management team with diverse medical device and contract manufacturing backgrounds. We will be starting operations in the 2nd quarter of 2005. Our company was incorporated in 1997 and since that time has completed the following acquisitions:
Acquisition date Acquired company Business at time of acquisition - ---------------- ---------------- ------------------------------- July 10, 1997 Wilson Greatbatch Ltd. Founded in 1970, the company designed and manufactured ("WGL") batteries for IMDs and commercial applications including oil and gas, aerospace, and oceanographic. August 7, 1998 Hittman Materials and Founded in 1962, the company designed and manufactured Medical Components, Inc. ceramic and glass feedthroughs and specialized porous ("Hittman") coatings for electrodes used in IMDs. August 4, 2000 Battery Engineering, Inc. Founded in 1983, the company designed and manufactured ("BEI") high-energy density batteries for industrial, commercial, military and medical applications.
3
Acquisition date Acquired company Business at time of acquisition - ---------------- ---------------- ------------------------------- June 18, 2001 Sierra-KD Components Founded in 1986, the company designed and manufactured division of Maxwell ceramic electromagnetic filtering capacitors and Technologies, Inc. integrated them with wire feedthroughs for use in IMDs. ("Sierra") Sierra also designed and manufactured ceramic capacitors for military, aerospace and commercial applications. July 9, 2002 Globe Tool and Founded in 1954, the company designed and manufactured Manufacturing Company, Inc. precision enclosures used in IMDs and commercial products ("Globe") used within the aerospace, electronic, and automotive sectors. March 16, 2004 NanoGram Devices Founded in 1996, the company utilized their laser-based Corporation ("NanoGram") nanomaterials synthesis technology to develop nanoscale materials for battery and medical device applications.
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 17 - 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"). Another sector of the IMD market is neurostimulation ("Neuro"), which is comprised of pacemaker-type devices that stimulate various nerves for the treatment of various conditions. Beyond pain control, nerve stimulation for the treatment of movement disabilities such as Parkinson's disease, epilepsy, migraines, obesity and depression has shown promising results. 4 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 Neurostimulators....................................... Chronic pain, movement disabilities, epilepsy, obesity or depression. Left ventricular assist devices (LVADs)................ Heart failure Drug pumps............................................. Diabetes or chronic pain
CRM and Neuro markets are expected to experience double-digit growth for the next three to five years. Increased demand is being driven by the following factors: o Advances in medical technology - new therapies will allow physicians to use IMDs to treat a wider range of heart diseases. o New, more sophisticated implantable devices - device manufacturers are developing new CRM devices and adding new features to existing products. o New indications for CRM devices - the patient groups that are eligible for CRM devices has increased. Insurance guidelines may allow device reimbursements for these expanding patient populations. o Expansion of Neurostimulator applications - therapies expected to expand as new therapeutic applications for pulse generators are identified. o 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. o New indications for other devices - there is an increased use of recently developed IMDs. o New performance requirements - government regulators are increasingly requiring that IMDs be protected from EMI interference. o Global markets - increased market penetration worldwide. 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 drilling tools, pipeline inspection systems, lightening detectors and seismic applications in the oil and gas markets. High quality, reliable products that can deliver increased performance in severe environments 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. 5 PRODUCTS The following table provides information about our principal products: IMPLANTABLE MEDICAL COMPONENTS: The following implantable medical products are used in IMDs unless otherwise noted.
PRODUCT DESCRIPTION PRINCIPAL PRODUCT ATTRIBUTES ------- ----------- ---------------------------- Batteries Power sources include: High reliability and predictability Lithium Iodine ("Li Iodine") Long service life Lithium silver vanadium oxide ("Li SVO") Customized configuration Lithium carbon monoflouride ("Li CFx") Light weight Lithium ion rechargeable ("Li Ion") Compact and less intrusive Lithium SVO/CFx ("QHR" & "QMR") Capacitors Storage for energy generated by a Stores more energy per unit volume battery before delivery to the heart. (energy density) than other existing Used in ICDs and CRT-Ds. technologies Customized configuration EMI Filters Filters electromagnetic interference to High reliability attenuation of EMI RF limit undesirable response, over wide frequency ranges malfunctioning or degradation in the Customized design performance of electronic equipment Feedthroughs Allow electrical signals to be brought Ceramic to metal seal is substantially from inside hermetically sealed IMD to an more durable than traditional seals electrode Multifunctional Coated electrodes Deliver electric signal from the High quality coated surface feedthrough to a body part undergoing Flexible in utilizing any combination stimulation of biocompatible coating surfaces Customized offering of surfaces and tips Precision components o Machined High level of manufacturing precision o Molded and over molded products Broad manufacturing flexibility Enclosures and related o Titanium Precision manufacturing, flexibility in components o Stainless steel configurations and materials. Value-add assemblies Combination of multiple components in a Leveraging products and capabilities to single package/unit provide subassemblies and assemblies Provides synergies in component technology and procurement systems
ELECTROCHEM POWER SOLUTIONS: - ---------------------------- The following commercial products are used in oil and gas exploration, military and oceanographic equipment PRODUCT DESCRIPTION PRINCIPAL PRODUCT ATTRIBUTES ------- ----------- ---------------------------- Batteries o Mid-rate Long-life dependability o Spiral (high rate) High energy density Battery packs Bundling of commercial batteries in a customer Increased power capabilities and ease specific configuration of integration into customer applications.
6 RESEARCH AND DEVELOPMENT Our position as a leading developer and manufacturer of components for IMDs and commercial batteries 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, 2004, we have 246 active U.S. patents and 67 active foreign patents. We also have 129 U.S. and 329 foreign pending patent applications at various stages of approval. During the past three years, we have received 113 new U.S. patents, of which 43 were received in 2004. 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. As part of the NanoGram acquisition, we purchased 5 patents and the license agreements for 28 others. This gives us access to a proprietary laser pyrolysis system for producing nano-sized particles that will be used in our products and manufacturing processes. In the near future, we intend to incorporate nano-cathode materials into selected models of our next generation implantable power sources. We also expect this innovative technology to have broad applications to development work across other product offerings including capacitor materials and implantable coatings. 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. One of these agreements is for the basic technology used in our wet tantalum capacitors that we license from Evans Capacitor Company. 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. 7 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 existing manufacturing plants 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 existing manufacturing plants 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 2004, approximately 65% of our products were sold in the United States. Information regarding our sales by geographic area is set forth at Note 17 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 Heart Rhythm Society's Annual Scientific Sessions, CardioStim, and the American Society for Artificial Internal Organs. 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, 2004 and 2003, were $89.5 million and $40.4 million, respectively. Most of these orders are expected to be shipped within one year. 8 CUSTOMERS Our medical customers include leading IMD manufacturers such as Guidant, St. Jude Medical, Medtronic, Biotronik, Cyberonics and the Sorin Group ("Sorin / ELA"). In 2004, Guidant, St. Jude Medical, and Medtronic collectively accounted for approximately 70% of our total sales. The nature and extent of our selling relationships with each CRM customer are different in terms of breadth of component products purchased, purchased product volumes, length of contractual commitment, ordering patterns, inventory management and selling prices. Our EPS customers are primarily companies involved in oil and gas exploration, military, oceanography and aerospace, including Halliburton, Computalog, PII and Pathfinder. 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 batteries, and establishes pricing at defined volume levels for Li SVO and CFx batteries. A contract amendment effective August 16, 2004 adds QHR Frontier Cell pricing to the original agreement. 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. We entered into an agreement with Guidant during December 2004 pursuant to which Guidant will purchase a minimum quantity of wet tantalum capacitors at prices specified in the agreement during 2005. The period of the agreement is January 1, 2005 to December 31, 2005. We have entered into a supply agreement with St. Jude Medical pursuant to which St. Jude Medical purchases batteries, wet tantalum capacitors, filtered feedthroughs, molded components and enclosures under specified price and volume terms. A contract amendment effective January 1, 2005 extended the contract term to December 31, 2008 and added QHR high rate, QMR medium rate, and Nano battery technologies to the Agreement. We have entered into a supply agreement with Medtronic pursuant to which Medtronic will purchase implantable device shield sub-assemblies and other products under specified price and volume terms. The contract term is seven years, commencing August 2, 2004 and ending August 2, 2011. SUPPLIERS AND RAW MATERIALS We purchase certain critical raw materials 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. We believe that there are alternative suppliers or substitute products available for each of the materials we purchase at competitive prices. 9 COMPETITION Our existing or potential competitors in our IMC business includes leading IMD manufacturers, such as Guidant, St. Jude Medical, Medtronic, Sorin / ELA and Biotronik which currently have vertically integrated operations and may expand their vertical integration capability in the future. Competitors also include independent suppliers who typically specialize in one type of component. Our known non-vertically integrated competitors include the following: Product Line Competitors Medical batteries Litronik (a subsidiary of Biotronik) Eagle-Picher Quallion Capacitors Critical Medical Components Feedthroughs Alberox (subsidiary of The Morgan Crucible Co. PLC) EMI filtering AVX (subsidiary of Kyocera) Eurofarad Enclosures Heraeus Hudson National Manufacturing Commercial batteries/battery Eagle-Picher packs Engineered Power Saft Tadiran Tracer Technologies Ultralife Machined and molded Numerous components Value Added Assembly Numerous 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. Manufacturing and research, 10 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 medical 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. We believe that our existing medical manufacturing plants comply with current Good Manufacturing Practices ("cGMP") as applicable. We have five 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. 11 EMPLOYEES The following table provides a breakdown of employees by primary function as of December 31, 2004: Manufacturing 919 Research and development 116 General and administrative 92 Engineering 82 Sales and marketing 16 ----- Total 1,225 ===== 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. 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. 12 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. 13 ITEM 2. PROPERTIES Our executive offices are located in Clarence, New York. The following table sets forth information about all of our significant facilities as of December 31, 2004:
Location Sq. Ft. Own/Lease Principal Use -------- ------- --------- ------------- Alden, NY...................... 125,000 Own Future medical battery and capacitor manufacturing Amherst, NY.................... 81,650 Own Available for sale Clarence, NY................... 82,766 Own Medical battery manufacturing and research, development and engineering ("RD&E") Clarence, NY................... 20,800 Own Machining and assembly of components Clarence, NY................... 18,550 Lease Machining and assembly of components Clarence, NY................... 45,306 Lease Executive offices and warehouse Cheektowaga, NY................ 35,509 Lease Capacitor manufacturing and RD&E Canton, MA..................... 32,000 Own Commercial battery manufacturing and RD&E Columbia, MD................... 30,000 Lease Feedthrough and electrode manufacturing and RD&E Carson City, NV................ 23,840 Own EMI filtering manufacturing and RD&E Minneapolis, MN................ 72,000 Own Enclosure manufacturing and engineering Tijuana, Mexico................ 144,000 Lease Future value-add assembly
We believe these facilities are suitable and adequate for our current business. ITEM 3. LEGAL PROCEEDINGS We are involved in various legal actions arising in the normal course of business. While we do not believe that the ultimate resolution of any such pending activities will have a material adverse effect on our consolidated results of operations, financial position, or cash flows, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact in the period in which the ruling occurs. During 2002, a former non-medical customer commenced an action alleging that the Company had used proprietary information of the customer to develop certain products. We have meritorious defenses and are vigorously defending the case. No accrual for an adverse judgment has been made as such outcome is not deemed probable, the potential range of loss is between $0.0 and $1.7 million. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 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. 2003 High Low ---- ------ ------ First Quarter $29.77 $23.50 Second Quarter 37.25 26.55 Third Quarter 40.30 35.37 Fourth Quarter 43.05 35.60 2004 ---- First Quarter $45.15 $34.60 Second Quarter 37.42 23.10 Third Quarter 27.10 14.41 Fourth Quarter 22.94 15.30 As of March 9, 2004 there were 239 record holders of the Company's common stock. The Company Stock account included in our 401(k) Plan is considered one record holder for the purposes of this calculation. There are approximately 1,600 holders of Company stock in the 401(k) 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. The following table summarizes the information required by Item 703 of Regulation S-K for purchases of the Company's equity securities by the Company or any affiliated purchasers, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act, during the Company's fourth quarter:
(d) Maximum number (c) Total number of (or approximate value) shares (or units) of shares (or units) that a) Total number of purchased as part of may yet be purchased shares (or units) (b) Average price paid publicly announced under the plans or Period purchased per share (or unit) plans or programs programs - ------------------ -------------------- ----------------------- ------------------------- ------------------------- November 2004 4,679(1) $ 20.39 N/A N/A ==================== ======================= ========================= ==========================
(1) Includes 4,679 shares of Common Stock withheld from employees for payment of taxes due upon the vesting of restricted stock. 15 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.
December 31, (5) Years ended 2004 (4) 2003 2002 (3) 2001 (2)(6) 2000 (1)(6) - ---------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Consolidated Statement of Operations Data: Sales $ 200,119 $ 216,365 $ 167,296 $ 135,575 $ 97,790 Income (loss) before income taxes $ 23,732 $ 33,316 $ 20,965 $ 13,778 $ (876) Income (loss) per share Basic $ 0.76 $ 1.10 $ 0.69 $ 0.44 $ (0.04) Diluted $ 0.75 (7) $ 1.05 (7) $ 0.68 $ 0.43 $ (0.04) - ---------------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheet Data: Working capital $ 134,399 $ 170,455 $ 40,204 $ 61,596 $ 15,079 Total assets $ 479,938 $ 438,243 $ 312,251 $ 283,520 $ 181,647 Long-term obligations $ 195,681 $ 178,994 $ 77,040 $ 61,397 $ 30,951
(1) In August 2000, we acquired the capital stock of 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 Sierra. These amounts include the results of operations of Sierra subsequent to its acquisition. (3) In July 2002, we acquired the capital stock of Globe. These amounts include the results of operations of Globe subsequent to its acquisition. (4) In March 2004, we acquired the capital stock of NanoGram. These amounts include the results of operations of NanoGram subsequent to its acquisition. (5) 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. (6) 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. (7) We adopted Emerging Issues Task Force (EITF) Issue 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share, in the fourth quarter of 2004. Under EITF 04-08, we must include the effect of the conversion of our convertible subordinated notes in the calculation of diluted earnings per share using the if-converted method as long as the effect is dilutive. The impact on the full year 2003 was a $0.03 reduction in earnings per share from $1.08 to $1.05. There was no impact on the full year 2004. Diluted earnings per share for 2003 are restated to reflect the adoption of EITF 04-08. 16 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. Index Our Business o Our business o Our customers o Our CEO's view Our Critical Accounting Estimates o Inventories o Goodwill and other indefinite lived assets o Long-lived assets o Provision for income taxes Our Financial Results o Results of operations table o Fiscal 2004 compared to 2003 o Fiscal 2003 compared to 2002 o Liquidity and capital resources o Off-balance sheet arrangements o Contractual obligations o Inflation o Impact of recently issued accounting standards o Subsequent events Our Business 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. 17 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. Our 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 the Sorin Group. A substantial part of our business is conducted with a limited number of customers. In 2004, Guidant, St. Jude Medical, and Medtronic collectively accounted for approximately 70% of our total sales. The nature and extent of our selling relationships with each CRM customer are different in terms of breadth of component products purchased, purchased product volumes, length of contractual commitment, ordering patterns, inventory management and selling prices. Our EPS customers are primarily companies involved in oil and gas exploration, military, oceanography and aerospace. 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. Our CEO's View At the end of 2003 and the beginning of 2004, we gathered the relevant data and information on which to base our business forecast. Much of what constitutes the bulk of the forecasting process relates to communications with customers as well as our knowledge of historic and current industry trends. The forecasting process is inexact with some significant factors either unknown to us or out of our control. This was certainly the case in 2004 when the decision and sudden actions of a significant customer adversely affected our sales and our earnings. While a few isolated incidents did affect the 2004 results, it is also true that there were other more systemic contributing factors. Concentration of risk, with relatively few customers serving vertical markets, increased competition and price pressures all played a role and these factors are expected to continue into the future. This overview will detail our reactions to all of these influences and provide a summary of how we are addressing each one of these contributing factors. Concentration of Risk - We will be launching new products in 2005, and will also be providing important new services to expand our business with existing customers. We are also nurturing opportunities to work with new customers on development programs for components for totally new interventional cardiac rhythm therapies. Increased Competition - We have been the premier supplier of CRM device power in the form of batteries and capacitors. We have expanded that business to also include components that make up the vast majority of those found in a typical pacemaker and defibrillator. Device feedthrough components, EMI filters, hybrid molded header assemblies and enclosures are all part of our product line. Our current product portfolio offers leading technology in power sources and tantalum capacitors, and provides the opportunity for "bundling" these products with our new assembly capabilities to provide "single source solutions." 18 Price Pressures - Technology leadership in a vacuum will not ensure success. Technology, no matter how advanced, must be priced to present the best value package to the customer. To that end we continue to implement sweeping changes in our facilities and processes. The execution of our Pre-Production Quality Assurance process ("PPQA"), with defined stage gates driven by strict adherence to Six-Sigma criteria ("Six Sigma" is a Motorola trademark), will speed the new product development process and add significant efficiencies to mature product production. Six Sigma is a quality methodology for eliminating defects in any process. The fundamental objective of the Six Sigma methodology is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction. Along with these initiatives, we are excited to be commissioning two new manufacturing facilities that will provide enhanced capability for cost reduction. As part of our continuing efforts to improve our cost structure and manufacturing efficiencies, we will be undertaking two consolidation efforts in 2005. The first will be the consolidation of our capacitor and medical battery manufacturing operations into our newly constructed advanced power source manufacturing facility in Alden, NY. Also, we will be consolidating the work conducted at our Carson City, NV plant into the newly constructed Tijuana, Mexico value-add assembly facility. We believe we will then be well positioned to offer "best value" pricing to the market. Foundation for the Future - It is important to recognize that these processes and initiatives were started over the past few years as part of our broader strategic plan. They are the drivers at the very core of our strategy, which is to be the supplier of the highest quality, most technologically advanced and cost effective solutions for the industries we serve. This will certainly raise the expectations of a vital and growing industry and at the same time raise the bar for our competition. In the near term however, in reaction to the unexpected reduction in sales during 2004, we began the difficult process of reducing our workforce to align our costs with our anticipated revenue for the year. It is vital to understand that this realignment was totally motivated and implemented after careful consideration on how to best achieve our already established near and long-term strategic goals. The flip side to the disappointing news is confirmation that the vast majority of our customers not only met, but actually exceeded our internal projections for sales growth in 2004. In 2004 (and continuing into 2005), we witnessed an unprecedented flow of new products through the pipeline. One near term catalyst for growth is the introduction of our Q-Series medical batteries. Initially they will be available in two configurations - QHR (High Rate) and QMR (Medium Rate). These batteries hold the promise of unparalleled performance in a wide range of implantable device and neurostimulation applications and allow our customers to incorporate advanced power-hungry features into these devices. While companies typically announce new products that have modest improvements in form and/or function regularly, the Q-Series firmly establishes a new industry standard. It delivers advanced performance criteria to an industry that historically embraces new products. We believe the Q-Series will represent a major breakthrough by combining a smaller size with greater energy density (more power). 19 New products, as well as enhancements to existing products, were a big part of our story in 2004, and will continue to gain momentum and have positive impact in 2005 and beyond. In addition, 2004 was witness to still another watershed event that marks a unique achievement in our corporate history. In 2004 we entered into an agreement with Medtronic to provide device sub-assembly services. It allows us to add value beyond our traditional role as a provider of discrete components, while providing opportunities for cross-selling and "bundling" products and services. While at present we are working with Medtronic in this arena and are focused on CRM and neurostimulator assemblies, we feel confident in and are aggressively pursuing our options for similar agreements with other customers and products. Our work with nanotechnology driven products demonstrates real potential for generating still more "milestone products" serving the CRM device market. The investment WGT made in acquiring proprietary nanotechnology in 2004 is expected to provide a springboard for the next major design/manufacturing/performance revolution in batteries and related products. As the word implies, "nano" unlocks the promise of smaller size, but just as significant it offers potential for enhanced product performance and manufacturability. Additionally, nano applications are not limited to batteries. Our Critical Accounting Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States ("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. 20
- -------------------------------------- ---------------------------------------------------- --------------------------------------- Balance Sheet Caption / Nature of Effect of Variations on Key Critical Estimate Item Assumptions / Approach Used Assumptions Used - -------------------------------------- ---------------------------------------------------- --------------------------------------- Inventories Inventory standard costing requires complex Variations in methods could have a calculations that include assumptions for overhead material impact on the results. If Inventories are stated at the lower absorption, scrap and sample calculations, our demand forecast for specific of cost, determined using the manufacturing yield estimates and the products is greater than actual first-in, first-out method, or determination of which costs are capitalizable. demand and we fail to reduce market. The valuation of inventory requires us to estimate manufacturing output accordingly, we obsolete or excess inventory as well as inventory could be required to record that is not of saleable quality. additional inventory reserves, which would have a negative impact on our gross margins. - -------------------------------------- ---------------------------------------------------- --------------------------------------- Goodwill and other indefinite lived We perform an annual review, or more frequently if We make certain estimates and assets indicators of potential impairment exist, to assumptions that affect the determine if the recorded goodwill and other determination of the expected future Goodwill is initially recorded when indefinite lived assets are impaired. We assess cash flows from our goodwill and the purchase price paid for an these assets for impairment by comparing the fair indefinite lived assets. These acquisition exceeds the estimated value of the reporting units to their carrying estimates and assumptions include fair value of the net identified value to determine if there is potential sales growth projections, cost of tangible and intangible assets impairment. If the fair value of a reporting unit capital projections, and other key acquired. Other indefinite lived is less than its carrying value, an impairment indications of future cash flows. assets such as trademark & names are loss is recorded to the extent that the implied Significant changes in these considered unamortizing intangible fair value of the goodwill within the reporting estimates and assumptions could assets as they are expected to unit is less than its carrying value. Fair values create future impairment losses in generate cash flows indefinitely. for goodwill are determined based on discounted either reporting unit. These assets are subject to the cash flows, market multiples or appraised values estimation risks related to the as appropriate. purchase price allocation conducted at acquisition. - -------------------------------------- ---------------------------------------------------- --------------------------------------- Long-lived assets We assess the impairment of long-lived assets when Estimation of the useful lives of events or changes in circumstances indicate that assets that are long-lived requires Property, plant and equipment, the carrying value of the assets may not be significant management judgment. definite-lived intangible assets, recoverable. Factors that we consider in deciding Events could occur, including changes and other long-lived assets are when to perform an impairment review include in cash flow that would materially carried at cost. This cost is significant under-performance of a business or affect our estimates and assumptions charged to depreciation or product line in relation to expectations, related to depreciation. Unforeseen amortization expense over the significant negative industry or economic trends, changes in operations or technology estimated life of the operating and significant changes or planned changes in our could substantially alter the assets primarily using straight-line use of the assets. Recoverability potential is assumptions regarding the ability to rates. Long-lived assets acquired measured by comparing the carrying amount of the realize the return of our investment through acquisition are subject to asset to the related total future undiscounted cash in operating assets and therefore the the estimation risks related to the flows. If an asset's carrying value is not amount of depreciation expense to initial purchase price allocation. recoverable through related cash flows, the asset charge against both current and is considered to be impaired. Impairment is future sales. Also, as we make measured by comparing the asset's carrying amount manufacturing process conversions and to its fair value, based on the best information other factory planning decisions, we available, including market prices or discounted must make subjective judgments cash flow analysis. When it is determined that regarding the remaining useful lives useful lives of assets are shorter than originally of assets, primarily manufacturing estimated, and there are sufficient cash flows to equipment and building improvements. support the carrying value of the assets, we accelerate the rate of depreciation in order to fully depreciate the assets over their new shorter useful lives. - -------------------------------------- ---------------------------------------------------- ---------------------------------------
21
- -------------------------------------- ---------------------------------------------------- --------------------------------------- Balance Sheet Caption / Nature of Effect of Variations on Key Critical Estimate Item Assumptions / Approach Used Assumptions Used - -------------------------------------- ---------------------------------------------------- --------------------------------------- Provision for Income Taxes In relation to recording the provision for income Changes could occur that would taxes, management must estimate the future tax materially affect our estimates and In accordance with the liability rates applicable to the reversal of tax assumptions regarding deferred method of accounting for income differences, make certain assumptions regarding taxes. Changes in current tax laws taxes specified in Statement of whether tax differences are permanent or temporary and tax rates could affect the Financial Accounting Standards No. and the related time of expected reversal. Also, valuation of deferred tax assets and 109, Accounting for Income Taxes, estimates are made as to whether taxable operating liabilities, thereby changing the the provision for income taxes is income in future periods will be sufficient to income tax provision. Also, the sum of income taxes both fully recognize any gross deferred tax assets. If significant declines in taxable currently payable and deferred. The recovery is not likely, we must increase our income could materially impact the changes in deferred tax assets and provision for taxes by recording a valuation realizable value of deferred tax liabilities are determined based allowance against the deferred tax assets that we assets. At December 31, 2004 we had upon the changes in differences estimate will not ultimately be recoverable. $3.6 million of deferred tax assets between the basis of assets and Alternatively, we may make estimates about the on our balance sheet. A 1% increase liabilities for financial reporting potential usage of deferred tax assets that in the effective tax rate would purposes and the basis of assets and decrease our valuation allowances. As of December increase the current year provision liabilities as measured by the 31, 2004, the Company has recorded a valuation by $237,000, reducing fully diluted enacted tax rates that management allowance of $2.7 million against potential earnings per share by $0.01 based on estimates will be in effect when the non-utilizable deferred tax assets. shares outstanding at December 31, differences reverse. 2004. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be. - -------------------------------------- ---------------------------------------------------- ---------------------------------------
22 Our Financial Results RESULTS OF OPERATIONS AND FINANCIAL CONDITION The commentary that follows should be read in conjunction with our consolidated financial statements and related notes. 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.
Results of Operations Year ended December 31, 2004 - 2003 2003 - 2002 $ % $ % In thousands, except per share data 2004 2003 2002 Change Change Change Change - ---------------------------------------------------------------------------- ------------------------------------------------- IMC ICD batteries $ 35,646 $ 41,494 $28,518 $ (5,848) -14% $12,976 46% Pacemaker and other batteries 19,494 24,578 21,692 (5,084) -21% 2,886 13% ICD capacitors 21,981 31,668 24,679 (9,687) -31% 6,989 28% Feedthroughs 47,387 48,257 36,378 (870) -2% 11,879 33% Enclosures 21,709 24,742 10,845 (3,033) -12% 13,897 128% Other 26,438 19,482 19,789 6,956 36% (307) -2% --------------------------------- --------------------- --------------------- Total IMC 172,655 190,221 141,901 (17,566) -9% 48,320 34% EPS 27,464 26,144 25,395 1,320 5% 749 3% --------------------------------- --------------------- --------------------- Total sales 200,119 216,365 167,296 (16,246) -8% 49,069 29% Cost of sales 119,397 126,537 96,398 (7,140) -6% 30,139 31% --------------------------------- --------------------- --------------------- Gross profit 80,722 89,828 70,898 (9,106) -10% 18,930 27% Gross margin 40.3% 41.5% 42.4% -1.2% -0.9% Selling, general, and administrative expenses 26,719 30,384 24,369 (3,665) -12% 6,015 25% SG&A as a % of sales 13.4% 14.0% 14.6% -0.7% -0.5% Research, development and engineering costs, net ("RD&E") 18,476 16,991 14,440 1,485 9% 2,551 18% RD&E as a % of sales 9.2% 7.9% 8.6% 1.4% -0.8% Intangible amortization 4,002 3,217 3,702 785 24% (485) -13% Other operating expense 4,585 1,036 2,481 3,549 343% (1,445) -58% --------------------------------- --------------------- --------------------- Operating income 26,940 38,200 25,906 (11,260) -29% 12,294 47% Operating margin 13.5% 17.7% 15.5% -4.2% 2.2% Interest expense 4,535 4,101 3,752 434 11% 349 9% Interest income (1,235) (702) (442) (533) 76% (260) 59% Other (income) expense, net (92) 1,485 1,631 (1,577) -106% (146) -9% Provision for income taxes 7,475 10,028 6,604 (2,553) -25% 3,424 52% Effective tax rate 31.5% 30.1% 31.5% 1.4% -1.4% --------------------------------- --------------------- --------------------- Net income $ 16,257 $ 23,288 $14,361 $ (7,031) -30% $ 8,927 62% ================================= ===================== ===================== Net margin 8.1% 10.8% 8.6% -2.6% 2.2% Diluted earnings per share $ 0.75 $ 1.05 $ 0.68 $ (0.30) -29% $ 0.37 54%
23 FISCAL 2004 COMPARED WITH FISCAL 2003 Sales IMC. The nature and extent of our selling relationship with each CRM customer is different in terms of component products purchased, selling prices, product volumes, ordering patterns and inventory management. We have pricing arrangements with our customers that many times do not specify minimum order quantities. Our visibility to customer ordering patterns is over a relatively short period of time. Our customers may have inventory management programs and alternate supply arrangements of which we are unaware. Additionally, the relative market share among the CRM device manufacturers changes periodically. Consequently, these and other factors can significantly impact our sales in any given period. Volume accounted for approximately 7% of the 9% decrease in IMC sales, primarily due to lower demand by a major customer for wet tantalum capacitors. Total sales to this customer declined by $27.0 million in comparison to 2003. Sales to other customers increased by 11% over 2003. The balance of the decrease (2%) was attributable to lower selling prices. We believe that pricing pressures will continue into the near future. The decrease in volume of batteries and capacitors was partially offset by increased volume of other IMC products, primarily coated components. The overall markets for CRM and Neuro are expected to experience double-digit growth for the next three to five years. EPS. Similar to IMC customers, we have pricing arrangements with our customers that many times do not specify minimum quantities. Our visibility to customer ordering patterns is over a relatively short period of time. The 5% increase in EPS sales is due to volume, resulting from increased demand in the oil and gas market both domestically and internationally. Gross profit The 120 basis point decrease in gross margin was primarily due to the following factors: a. Lower IMC selling prices: 200 basis points; and b. Increased period costs resulting from excess capacity at our wet tantalum capacitor manufacturing plant: 100 basis points. c. Savings instituted during the year: (180) basis points, primarily scrap reductions. SG&A expenses The realignment of management resources resulted in a $3.4 million reduction in allocated costs to SG&A. Expenses also decreased as a result of cost savings initiatives instituted mid-year including incentive compensation reductions of approximately $1.0 million. These savings were partially offset by costs of approximately $1.0 million associated with Sarbanes-Oxley compliance. The remaining $0.3 million of expenses were comprised of individually insignificant items. 24 RD&E expenses Expenses prior to reimbursements increased by $4.4 million. The main causes of this increase include additional costs related to the Chief Technology Officer position ($.9 million), additional development project expenses ($1.3 million) and the balance was primarily due to the acquisition of NanoGram in March 2004. These costs were offset by an increase in development efforts for projects where the company is reimbursed for achieving certain development milestones. The increase in reimbursements amounted to approximately $3.0 million. We expect to maintain our spending on RD&E at a level that will support the new technologies demanded by the customers we serve. Amortization expense The increase primarily reflects the impact of the additional intangible amortization resulting from the NanoGram acquisition. The amortization of the NanoGram intangibles amounts to approximately $1.1 million in 2004. There was also a $0.2 million reduction in expense as certain definite lived intangibles were fully amortized during 2003. Other operating expense The 2004 amount comprised the following: a. $2.0 million associated with patents acquired in the second quarter. These patents cover how capacitors are used in an ICD. Although management believes the patents could have been successfully challenged in court proceedings, a decision was made to acquire the patents and remove this as a potential obstacle for existing customers to more fully adopt wet tantalum technology and for potential customers to initially adopt the technology; b. $0.8 million related to severance cost from a 7% mid-year reduction in workforce; c. $0.9 million related to costs associated with the start-up of Tijuana facility; and d. $0.8 million primarily related to various asset disposals. Interest expense and interest income Interest expense increased due to the addition of $90.0 million in interest-bearing debt in May of 2003 resulting from the issuance of the convertible subordinated notes. Interest income increased as the issuance of the convertible subordinated notes provided additional funds that are being invested on a short-term basis. Provision for income taxes Our effective tax rate increased primarily due to the recording of a valuation allowance against certain New York State deferred tax assets. Based on managements' review, after considering both the positive and negative support, it was determined that certain tax assets primarily investment tax credits and employees incentive credits were not considered to be more likely than not to be realized. The tax provision increase related to the valuation allowance was $2.2 million. 25 Our effective tax rate is below the United States statutory rate primarily as a result of federal and state tax credits (3.3%), and the Extraterritorial Income Exclusion ("ETI") for 2004 of (4.2%). The American Jobs Creation Act of 2004 (P.L. 108-357) ("the Act") signed into law on October 22, 2004 repeals the ETI after December 31, 2004, and creates new tax incentives for a broad spectrum of taxpayers. We have not completed a full assessment on how this law change will impact the Company due to the potential changes in our manufacturing locations. FISCAL 2003 COMPARED WITH FISCAL 2002 The increase in total sales for 2003 included a full year of sales of Globe, which we acquired in July 2002. The Globe acquisition added $14.0 million, $3.7 million, and $1.8 million to sales, gross profit, and operating expenses respectively in 2003 compared to 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 2002 and represented 83% of our overall product mix, up from 80% in 2002. EPS. Commercial sales increased modestly from a slight rise in volume of orders from oil and gas customers. Gross profit The following factors contributed to an approximately a 310 basis point decline in the gross margin between 2003 and 2002: a. Consolidation of EPS plants: 50 basis points; b. Start-up costs from lean manufacturing: 50 basis points; c. Inclusion of enclosure products: 100 basis points; d. Hiring of new plant management personnel: 40 basis points; and e. Changes in selling prices for certain medical components: 70 basis points. SG&A expenses Expenses increased in absolute dollars, but declined as a percent of sales due to improved operating leverage. The $6.0 million increase in SG&A was comprised of the following factors: a. Incentive compensation and profit sharing expense: $1.0 million; b. Incremental senior management related expenses: $2.0 million; c. Corporate spending for information technology: $2.0 million; and d. All other SG&A comprised of individually insignificant items: $1.0 million. 26 RD&E expenses Expenses increased in absolute dollars, but decreased as a percent of sales as sales growth outpaced spending. The increase in RD&E was comprised primarily of the $1.8 million of expenses for the development of our QHR high rate battery product. 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 for sale 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 ETI provided approximately $1.0 million of tax benefit in 2003. Liquidity and Capital Resources Our principal sources of liquidity are our operating cash flow combined with our working capital of $134.4 million at December 31, 2004 and 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, 2004, our current ratio was 5.8:1, so short-term liquidity is not a concern to management at this time. The Company regularly engages in discussions relating to potential acquisitions and may announce an acquisition transaction at any time. However, no active negotiations are presently being conducted. 27 Operating activities In all years presented significant positive cash flows from operating activities were achieved. Net cash provided by operating activities exceeded the combination of net income, depreciation and amortization due to the favorable cash flow impact of deferred taxes. Over the three-year period, changes in operating assets and liabilities amounted to a net use of cash of approximately $5.0 million. Investing activities Capital spending of $38.4 million in 2004 was significantly higher than historical expenditure levels. The majority of the current year spending was for the following: a. New medical power manufacturing plant in Alden, NY ($22.1 million); b. Oracle ERP system ($5.0 million); and c. New assembly plant in Tijuana, Mexico ($4.6 million). In comparison, we spent $11.9 million in 2003, which was primarily related to normal maintenance capital. In March 2004, we purchased NanoGram for approximately $45.7 million. The most significant elements of the purchase price allocation were to patented and unpatented technology and goodwill. NanoGram has a strong intellectual property position around the laser pyrolysis process and accordingly a significant allocation was made to these assets. The cost will be amortized over the remaining estimated useful life of 11.5 years. For 2004 the amortization expense was approximately $0.1 million per month. The residual amount of the allocation of $35.1 million went to goodwill, which is not amortized but rather subject to periodic testing for impairment. Pursuant to the valuation we obtained, the status of the NanoGram technology was sufficiently advanced such that technical feasibility requirements were met at the acquisition date; consequently, no in-process R&D charge was recorded. NanoGram was a materials research and development company focused on developing nanoscale materials for use in various battery and potentially other medical device applications. The primary purpose of this acquisition is to provide us with additional intellectual property as well as additional research and development capabilities. NanoGram is now referred to as our Advanced Research Laboratory. Since the primary function of this operation is research and development, all costs are appropriately classified in that category. No sales revenue was attributable to this acquisition in 2004. In 2002, approximately $47.1 million was spent related to the acquisition of Globe. Globe was a manufacturer of precision titanium enclosures for IMDs. Globe was acquired to further broaden our product offerings to include enclosures. 28 Approximately $9.0 million of short-term investments were converted to cash during the year. Financing activities During 2003, we successfully completed a $170.0 million convertible subordinated notes offering. The proceeds of this offering were utilized to repay $85.0 million in long-term debt that was previously outstanding. Capital Structure At December 31, 2004, our capital structure consisted primarily of $170.0 million of convertible subordinated notes and our 21.4 million shares of common stock outstanding. We have in excess of $92.0 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. Our capital structure allows us to support our internal growth and provides liquidity for corporate development initiatives. The current expectation for 2005 is that capital spending is expected to be in the range of $30.0 million to $35.0 million, primarily due to the build-out of the advanced manufacturing facility ($11.0 million), our value-add assembly plant ($10.0 million), and normal maintenance capital expenditures. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K. Litigation We are a party to various legal actions arising in the normal course of business. While we do not believe that the ultimate resolution of any such pending activities will have a material adverse effect on our consolidated results of operations, financial position, or cash flows, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact in the period in which the ruling occurs. 29 Contractual Obligations The following table summarizes our significant contractual obligations at December 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. ------------------------------------------------ Less than 1-3 3-5 More than CONTRACTUAL OBLIGATIONS Total 1 year years years 5 years - -------------------------------------------------------------------------------- Long-Term Debt Obligations (a): Convertible Debentures $ 170,000 $ - $ - $ - $ 170,000 Capital Lease Obligations 1,652 1,000 652 - - Operating Lease Obligations (b) 11,466 2,350 3,651 2,652 2,813 Purchase Obligations (c) 10,051 10,051 - - - ------------------------------------------------ Total $ 193,169 $ 13,401 $ 4,303 $ 2,652 $ 172,813 ================================================ (a) The current portion of these liabilities is included. Amounts do not include imputed interest. The annual interest expense on the convertible debentures is 2.25%, or $3.8 million. See Note 9 - 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 16 - Commitments and Contingencies 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. During 2004, the Company commenced the build out of its medical battery and capacitor manufacturing facility in Alden, NY and its value-add manufacturing facility in Tijuana, Mexico. These facilities will enable the Company to further consolidate its operations and implement state of the art manufacturing capabilities at both locations. The contractual obligations for construction of these facilities is $10.0 million and will be financed by existing, or internally generated cash. 30 Inflation We do not believe that inflation has had a significant effect on our operations. Impact of Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R). This statement is a revision of SFAS 123, Accounting for Stock-Based Compensation, and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, or over the period that a performance measure is expected to be met. We will adopt SFAS 123(R) on July 2, 2005, requiring compensation cost to be recorded as expense for the portion of the outstanding unvested awards, based on the grant-date fair value of those awards calculated using the Black-Scholes option pricing model currently used under SFAS 123 for proforma disclosures. Based on unvested options currently outstanding, the effect of adopting SFAS 123(R) will reduce our net income by approximately $1.4 million in the second half of 2005. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that such items be recognized as current-period charges, regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. We do not expect that adoption of SFAS No. 151 will have a material effect on its consolidated financial position, consolidated results of operations, or liquidity. Subsequent Events On February 23, 2005 we announced our intent to consolidate our medical capacitor manufacturing operations, currently in Cheektowaga, NY, and the implantable medical battery manufacturing operations, currently in Clarence, NY, into the advanced power source manufacturing facility in Alden, NY. We will also consolidate the capacitor research, development and engineering operations from the Cheektowaga, NY, facility into the existing implantable medical battery research, development, and engineering operations in Clarence, NY. The total cost estimated for these consolidation efforts is anticipated to be between $3.5 and $4.0 million. We expect to incur this additional expense over the next four fiscal quarters. The major categories of costs to be incurred, which will primarily be cash expenditures, include the following: o Production inefficiencies and revalidation - $1.5 to $1.7 million; 31 o Training - $0.6 to $0.7 million; o Moving and facility closures - $0.9 million to $1.0 million; and o Infrastructure - $0.5 to $0.6 million On March 7, 2005 we announced our intent to close the Carson City, NV facility and consolidate the work performed at Carson City into the Tijuana, Mexico facility. The total estimated cost for this facility consolidation plan is anticipated to be between $4.5 million and $5.4 million. We expect to incur this additional cost over the next four fiscal quarters. The major categories of costs to be incurred include the following: o Costs related to the shut-down of the Carson City facility: a. Severance and retention - $1.4 to $1.6 million; b. Accelerated depreciation - $0.5 to $0.6 million; and c. Other - $0.6 to $0.7 million o Costs related to the move and consolidation of work into Tijuana: a. Production inefficiencies and revalidation - $0.4 to $0.5 million; b. Relocation and moving expenses - $0.3 to $0.5 million; c. Personnel costs (including travel, training and duplicate wages) - $1.0 to $1.1 million; and d. Other - $0.3 to $0.4 million All categories of costs are considered to be future cash expenditures, except accelerated depreciation. 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, 2004, we did not have any borrowings outstanding under our line of credit and thus no interest rate sensitive financial instruments. 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of our Company and report of the independent registered public accounting firm thereon are set forth below. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet as of December 31, 2004 and 2003. Consolidated Statement of Operations for the years ended December 31, 2004, 2003 and 2002. Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002. Consolidated Statement of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002. Notes to Consolidated Financial Statements. 33 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 December 31, 2004 and January 2, 2004, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index 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 the standards of the Public Company Accounting Oversight Board (United States). 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 December 31, 2004 and January 2, 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 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, present fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. /s/ Deloitte & Touche LLP Buffalo, New York March 15, 2005 34 WILSON GREATBATCH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET (In thousands) - -------------------------------------------------------------------------------- ASSETS December 31, 2004 2003 Current assets: Cash and cash equivalents $ 89,473 $ 119,486 Short-term investments 2,759 11,559 Accounts receivable, net 24,288 23,726 Inventories 34,027 28,598 Prepaid expenses and other current assets 1,037 3,591 Refundable income taxes 3,673 583 Deferred income taxes 3,622 3,163 Asset available for sale 3,600 3,658 ---------- ---------- Total current assets 162,479 194,364 Property, plant, and equipment, net 92,210 63,735 Intangible assets, net 63,984 51,441 Goodwill 156,772 119,521 Deferred income taxes - 2,896 Other assets 4,493 6,286 ---------- ---------- Total assets $ 479,938 $ 438,243 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,971 $ 4,091 Accrued expenses and other current liabilities 18,109 18,968 Current portion of long-term debt 1,000 850 ---------- ---------- Total current liabilities 28,080 23,909 Long-term debt, net of current portion 652 928 Convertible subordinated notes 170,000 170,000 Deferred income taxes 25,029 7,251 Other long-term liabilities - 815 ---------- ---------- Total liabilities 223,761 202,903 ---------- ---------- Commitments and contingencies (Note 16) Stockholders' equity: Preferred stock - - Common stock 21 21 Additional paid-in capital 212,131 207,969 Deferred stock-based compensation (833) (1,185) Treasury stock, at cost (95) (179) Retained earnings 44,971 28,714 Accumulated other comprehensive income (18) - ---------- ---------- Total stockholders' equity 256,177 235,340 ---------- ---------- Total liabilities and stockholders' equity $ 479,938 $ 438,243 ========== ========== The accompanying notes are an integral part of these consolidated financial statements 35 WILSON GREATBATCH TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except per share amounts) - -------------------------------------------------------------------------------- Year Ended December 31, 2004 2003 2002 Sales $ 200,119 $ 216,365 $ 167,296 Cost of sales 119,397 126,537 96,398 ---------- ---------- ---------- Gross profit 80,722 89,828 70,898 Selling, general and administrative expenses 26,719 30,384 24,369 Research, development and engineering costs, net 18,476 16,991 14,440 Amortization of intangible assets 4,002 3,217 3,702 Other operating expense, net 4,585 1,036 2,481 ---------- ---------- ---------- Operating income 26,940 38,200 25,906 Interest expense 4,535 4,101 3,752 Interest income (1,235) (702) (442) Other (income) expense, net (92) 1,485 1,631 ---------- ---------- ---------- Income before income taxes 23,732 33,316 20,965 Provision for income taxes 7,475 10,028 6,604 ---------- ---------- ---------- Net income $ 16,257 $ 23,288 $ 14,361 ========== ========== ========== Earnings per share: Basic $ 0.76 $ 1.10 $ 0.69 Diluted $ 0.75 $ 1.05 $ 0.68 Weighted average shares outstanding: Basic 21,358 21,149 20,941 Diluted 25,759 24,026 21,227 The accompanying notes are an integral part of these consolidated financial statements 36
WILSON GREATBATCH TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) - ---------------------------------------------------------------------------------------- Year Ended December 31, 2004 2003 2002 Cash flows from operating activities: Net income $ 16,257 $ 23,288 $ 14,361 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,835 13,179 12,100 Stock-based compensation 3,312 3,306 3,667 Early extinguishment of debt - 1,487 - Write-off of noncompete agreement - - 1,723 Write-off of investment in unrelated company - - 1,547 Deferred income taxes 12,203 4,578 3,765 Loss on disposal of assets 1,177 1,036 758 Changes in operating assets and liabilities: Accounts receivable (563) (4,416) (379) Inventories (5,429) 5,822 (2,752) Prepaid expenses and other current assets 2,780 2,335 (1,450) Accounts payable 4,763 (1,635) (1,685) Accrued expenses and other current liabilities (1,149) 5,797 (2,972) Income taxes (3,020) 24 (873) ---------- ---------- --------- Net cash provided by operating activities 45,166 54,801 27,810 ---------- ---------- --------- Cash flows from investing activities: Sale (purchase) of short-term investments 9,059 (11,559) - Acquisition of property, plant and equipment (38,444) (11,925) (20,501) Proceeds from sale of property, plant and equipment and other assets 67 2,734 14 Decrease (increase) in other assets 23 107 (1,459) Acquisition of subsidiary, net (45,716) - (47,124) ---------- ---------- --------- Net cash used in investing activities (75,011) (20,643) (69,070) ---------- ---------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt - 170,000 32,000 Principal payments of long-term debt - (85,000) (29,880) Principal payments of capital lease obligations (1,278) (434) - Payment of debt issue costs - (4,535) - Issuance of common stock 1,205 868 476 Net repurchase of treasury stock (95) (179) - ---------- ---------- --------- Net cash provided by financing activities (168) 80,720 2,596 ---------- ---------- --------- Net (decrease) increase in cash and cash equivalents (30,013) 114,878 (38,664) Cash and cash equivalents, beginning of year 119,486 4,608 43,272 ---------- ---------- --------- Cash and cash equivalents, end of year $ 89,473 $ 119,486 $ 4,608 ========== ========== ========= The accompanying notes are an integral part of these condensed consolidated financial statements
37
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Retained Accumulated Total Common Stock Additional Deferred Treasury Stock Earnings Other Stock- -------------- Paid in Stock Based ----------------(Accumulated Comprehensive holder's Shares Amount Capital Compensation Shares Amount Deficit) Income Equity Balance, December 31, 2001 20,983 21 200,880 - 195 (3,122) (8,935) - 188,844 Exercise of stock options 67 - 519 - - - - - 519 Shares contributed to ESOP - - 761 - (140) 2,254 - - 3,015 Common stock issuance expenses - - (39) - - - - - (39) Reissuance of treasury stock - - 9 - (1) 5 - - 14 Tax benefit of stock option exercises - - 149 - - - - - 149 Net income - - - - - - 14,361 - 14,361 ------- ------ --------- ------------ -------- ------- ----------- ------------- ---------- Balance, December 31, 2002 21,050 21 202,279 - 54 (863) 5,426 - 206,863 Shares contributed to ESOP 90 - 2,804 - (54) 863 - - 3,667 Exercise of stock options 77 - 868 - - - - - 868 Stock-based compensation 14 - - 583 - - - - 583 Restricted stock issued - - 1,768 (1,768) - - - - - Tax benefit of stock option exercises - - 250 - - - - - 250 Purchase of treasury stock - - - - 5 (179) - - (179) Net income - - - - - - 23,288 - 23,288 ------- ------ --------- ------------ -------- ------- ----------- ------------- ---------- Balance, December 31, 2003 21,231 21 207,969 (1,185) 5 (179) 28,714 - 235,340 Exercise of stock options 100 - 1,200 - - - - - 1,200 Shares contributed to ESOP 66 - 2,571 - (4) 152 - - 2,723 Restricted stock issued - - 349 (349) - - - - - Tax benefit of stock option exercises - - 123 - - - - - 123 Restricted stock forfeitures - - (85) 85 - - - - - Stock-based compensation 14 - 4 616 (1) 27 - - 647 Purchase of treasury stock - - - - 5 (95) - - (95) Net income - - - - - - 16,257 - 16,257 Unrealized losses on available-for-sale securities - - - - - - - (18) (18) ---------- Total comprehensive income - - - - - - - - 16,239 ------- ------ --------- ------------ -------- ------- ----------- ------------- ---------- Balance, December 31, 2004 21,411 21 212,131 (833) 5 (95) 44,971 (18) 256,177 ======= ====== ========= ============ ======== ======= =========== ============= ========== The accompanying notes are an integral part of these consolidated financial statements.
38 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 comprised of municipal bonds acquired with maturities that exceed three months and are less than one year at the time of acquisition and equity securities classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income. 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. Unrealized losses considered to be other than temporary during the period are recognized in current earnings. Fair Value of Financial Instruments - The carrying amount of financial instruments, including cash and cash equivalents, trade receivables and accounts payable, approximated their fair value as of December 31, 2004 and 2003 because of the relatively short maturity of these instruments. 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. Fair value is determined at prevailing market conditions or appraisals as needed. At December 31, 2003, the Company classified its Amherst, NY facility as held for sale. The Company recorded impairment for $0.06 million for the year ended December 31, 2004. The Company continues to pursue disposition of its held for sale asset, however there can be no assurance if or when a sale will be completed or whether such sale will be completed on terms that will enable the Company to realize the full carrying value of the asset. 39 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. 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. Impairment of Long-lived Assets - The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors that are considered in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. Recoverability potential is measured by comparing the carrying amount of the asset to the related total future undiscounted cash flows. If an asset's carrying value is not recoverable through related cash flows, the asset is considered to be impaired. Impairment is measured by comparing the asset's carrying amount to its fair value, based on the best information available, including market prices or discounted cash flow analysis. When it is determined that useful lives of assets are shorter than originally estimated, and there are sufficient cash flows to support the carrying value of the assets, the rate of depreciation is accelerated in order to fully depreciate the assets over their new shorter useful lives. There was no impairment of long-lived assets in 2002, 2003 or 2004. Goodwill - Goodwill and trademark and names are not amortized but are periodically tested for impairment. The Company assesses 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. Note 17 - Business Segment information contains an analysis of goodwill by segment. 40 Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade receivables. A significant portion of the Company's sales are to three customers, all in the medical device industry, and, as such, the Company is directly affected by the condition of those customers and 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. Note 17 - Business Segment information contains an analysis of sales and accounts receivable for the Company's significant customers. 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. Income Taxes - The Company provides for income taxes using the liability method whereby deferred tax liabilities and assets are recognized for changes in deferred tax assets and liabilities determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities as measured by the enacted tax rates that management estimates will be in effect when the differences reverse. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized. Revenue Recognition - Revenue from the sale of products is recognized at the time product is shipped to customers and title passes. 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. The Company includes shipping and handling fees billed to customers in Sales. Shipping and handling costs associated with inbound freight are generally recorded in Cost of Goods Sold. 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 and development 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 specified in the contracts. 41 Net research, development and engineering costs are as follows (in thousands): Year Ended December 31, 2004 2003 2002 Research and development costs $ 15,760 $ 9,446 $ 7,156 --------- --------- --------- Engineering costs 6,729 8,649 8,882 Less cost reimbursements (4,013) (1,104) (1,598) --------- --------- --------- Engineering costs, net 2,716 7,545 7,284 --------- --------- --------- Total research and development and engineering costs, net $ 18,476 $ 16,991 $ 14,440 ========= ========= ========= 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. Year Ended December 31, 2004 2003 2002 Risk-free interest rate 3.62% 2.75% 3.79% Expected volatility 52% 55% 55% Expected life (in years) 5 5 5 Expected dividend yield 0% 0% 0% 42 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): Year Ended December 31, 2004 2003 2002 Net income as reported $ 16,257 $ 23,288 $ 14,361 Stock based employee compensation cost included in net income as reported $ 2,250 $ 2,311 $ 2,512 Stock-based employee compensation cost determined using the fair value based method, net of related tax effects $ 4,635 $ 4,054 $ 2,972 Pro forma net income $ 13,872 $ 21,545 $ 13,901 Net earnings per share: Basic - as reported $ 0.76 $ 1.10 $ 0.69 Basic - pro forma $ 0.65 $ 1.02 $ 0.66 Diluted - as reported $ 0.75 $ 1.05 $ 0.68 Diluted - pro forma $ 0.66 $ 0.98 $ 0.65 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 9 - Debt for a description of our convertible subordinated notes). The Company adopted Emerging Issues Task Force ("EITF") Issue 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share, in the fourth quarter of 2004. Under EITF 04-08, we must include the effect of the conversion of our convertible subordinated notes in the calculation of diluted earnings per share using the if-converted method as long as the effect is dilutive. For computation of earnings per share under conversion conditions, the number of diluted shares outstanding increases by the amount of shares that are potentially convertible during that period. Also, net income is adjusted for the calculation to add back interest expense on the convertible notes as well as deferred financing fees amortization recorded during the period. 43 The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts): 2004 2003 2002 ---- ---- ---- Numerator for basic earnings per share: Income from continuing operations $ 16,257 $ 23,288 $ 14,361 Effect of dilutive securities: Interest expense on convertible notes and related deferred financing fees, net of tax 3,027 1,881 - --------- --------- --------- Numerator for diluted earnings per share $ 19,284 $ 25,169 $ 14,361 ========= ========= ======== Denominator for basic earnings per share: Weighted average shares outstanding 21,358 21,149 20,941 Effect of dilutive securities: Convertible notes 4,219 2,492 - Stock options and unvested restricted stock 182 385 286 --------- --------- --------- Dilutive potential common shares 4,401 2,877 286 --------- --------- --------- Denominator for diluted earnings per share 25,759 24,026 21,227 ========= ========= ========= Basic earnings per share $ 0.76 $ 1.10 $ 0.69 ========= ========= ========= Diluted earnings per share $ 0.75 $ 1.05 $ 0.68 ========= ========= ========= 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 2003 and 2002, the Company's only component of comprehensive income is its net income. For 2004, the Company's comprehensive income includes net income and unrealized losses on available-for-sale securities. 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): 2004 2003 2002 Cash paid during the year for: Interest $ 4,586 $ 3,740 $ 3,092 Income taxes 318 5,674 6,055 Noncash investing and financing activities: Acquisition of property utilizing capitalized leases $ 1,159 $ 2,212 $ - Common stock contributed to ESOP 2,723 3,667 3,019 44 Recent Accounting Pronouncements -- In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123(R)"). This statement is a revision of SFAS 123, Accounting for Stock-Based Compensation, and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, or over the period that a performance measure is expected to be met. The Company will adopt SFAS 123(R) on July 2, 2005, requiring compensation cost to be recorded as expense for the portion of the outstanding unvested awards, based on the grant-date fair value of those awards calculated using the Black-Scholes option pricing model currently used under SFAS 123 for proforma disclosures. Based on unvested options currently outstanding, the effect of adopting SFAS 123(R) will reduce the Company's net income by approximately $1.4 million in the second half of 2005. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 ("SFAS No. 151"). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that such items be recognized as current-period charges, regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The company does not expect that adoption of SFAS No. 151 will have a material effect on its consolidated financial position, consolidated results of operations, or liquidity. 3. ACQUISITIONS During 2002 and 2004, the Company completed two acquisitions as follows: o Globe Tool and Manufacturing Company, Inc. ("Globe"), a manufacturer of precision titanium enclosures for implantable medical devices. Globe was acquired to further broaden our product offering to include enclosures. o NanoGram Devices Corporation ("NanoGram"), a materials research and development company focused on developing nanoscale materials for implantable medical devices. NanoGram was acquired to further broaden our materials science expertise. NanoGram utilizes nanomaterials synthesis technology in the development of battery and medical device applications. 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. 45 Acquisition information (in thousands): Acquired Company ------------------------------- Globe NanoGram -------------- -------------- Acquisition date July 9, 2002 March 16, 2004 Purchase price: --------------- Cash paid $ 46,637 $ 45,000 Transaction costs 487 716 -------------- -------------- Total purchase price $ 47,124 $ 45,716 ============== ============== Purchase price allocation: -------------------------- Assets: Cash $ 923 $ - Accounts receivable 1,558 - Refundable income tax 2,427 - Inventories 3,130 - Property and equipment 8,490 562 Other assets 263 168 Trademark and names 1,760 - Patented and unpatented technology 7,392 16,500 Noncompete/employment agreements 1,177 - Goodwill 35,384 35,096 Liabilities: Accounts payable 858 117 Accrued payroll and related expenses 3,036 - Other current liabilities - 718 Deferred income taxes 1,356 5,775 Other liabilities 10,130 - -------------- -------------- Total purchase price $ 47,124 $ 45,716 ============== ============== Amounts disclosed for Globe as part of the purchase price allocation table have been expanded from prior year presentation to provide more information related to the significant assets and liabilities included in the acquisition. The NanoGram patented and unpatented technology is being amortized over 11.5 years. The goodwill is not deductible for tax purposes. 46 The following unaudited pro forma summary presents the Company's consolidated results of operations for 2004 and 2003 as if the NanoGram acquisition had been consummated at January 1, 2003. The pro forma consolidated results of operations include certain pro forma adjustments, including the amortization of intangible assets and adjusted interest income. December 31, In thousands except per share amounts: 2004 2003 Revenues $ 200,119 $ 216,365 Net income $ 15,195 $ 19,344 Net income per diluted share: $ 0.71 $ 0.89 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. 4. SHORT-TERM INVESTMENTS Short-term investments at December 31, 2004 and 2003 consist of investments acquired with maturities that exceed three months and are less than one year at the time of acquisition and equity securities classified as available-for-sale securities. Short-term investments comprised the following (in thousands): As of December 31, 2004 Cost Gross Gross Estimated unrealized unrealized fair gains losses value Available-for-sale: Equity Security $ 276 $ - $ (18) $ 258 Held-to-maturity: Municipal Bonds 2,501 - 1 2,502 --------- ---------- ---------- --------- Short-term investments $ 2,777 $ - $ (17) $ 2,760 ========= ========== ========== ========= As of December 31, 2003 Cost Gross Gross Estimated unrealized unrealized fair gains losses value Available-for-sale: Equity Security $ - $ - $ - $ - Held-to-maturity: Municipal Bonds 11,559 - (1) 11,558 --------- ---------- ---------- --------- Short-term investments $ 11,559 $ - $ (1) $ 11,558 ========= ========== ========== ========= The municipal bonds have maturity dates ranging from January 2005 to April 2005. 47 5. INVENTORIES Inventories comprised the following (in thousands): December 31, 2004 2003 Raw material 14,053 11,688 Work-in-process 11,275 10,421 Finished goods 8,699 6,489 ---------- ---------- Total 34,027 28,598 ========== ========== 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment comprised the following (in thousands): December 31, 2004 2003 Manufacturing machinery and equipment $ 57,781 $ 53,313 Buildings and building improvements 16,285 15,380 Information technology hardware and software 8,950 7,384 Leasehold improvements 8,782 5,440 Land and land improvements 4,659 4,659 Property under capital leases 3,370 - Furniture and fixtures 2,766 2,631 Construction work in process 32,129 8,595 Other 147 148 ---------- ---------- 134,869 97,550 Less accumulated depreciation (42,659) (33,815) ---------- --------- Total $ 92,210 $ 63,735 ========== ========== Depreciation expense for property and equipment, including property under capital leases, during 2004, 2003 and 2002 was approximately $10.1 million, $9.3 million, and $7.6 million, respectively. 48 7. INTANGIBLE ASSETS Intangible assets comprised the following (in thousands): As of December 31, 2004 Gross Net carrying Accumulated carrying amount amortization Amount Amortizing intangible assets: Patented technology $ 21,462 $ (10,137) $ 11,325 Unpatented technology 30,886 (6,525) 24,361 Other 1,340 (1,294) 46 --------- ------------ --------- 53,688 (17,956) 35,732 Unamortizing intangible assets: Trademark and names 31,420 (3,168) 28,252 --------- ------------ --------- Total intangible assets $ 85,108 $ (21,124) $ 63,984 ========= ============ ========= As of December 31, 2003 Gross Net carrying Accumulated carrying amount amortization Amount Amortizing intangible assets: Patented technology $ 21,462 $ (8,536) $ 12,926 Unpatented technology 15,335 (5,549) 9,786 Other 1,340 (863) 477 --------- ------------ --------- 38,137 (14,948) 23,189 Unamortizing intangible assets: Trademark and names 31,420 (3,168) 28,252 --------- ------------ --------- Total intangible assets $ 69,557 $ (18,116) $ 51,441 ========= ============ ========= Annual amortization expense is estimated to be $3.8 million for 2005 to 2008, and $3.2 million for 2009. 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities comprised the following (in thousands): December 31, 2004 2003 Salaries and benefits $ 5,805 $ 5,170 Profit sharing and bonuses 6,796 9,589 Other 5,508 4,209 --------- --------- Total $ 18,109 $ 18,968 ========= ========= 49 9. DEBT Long-term debt comprised the following (in thousands): December 31, 2004 2003 2.25% convertible subordinated notes, due 2013 $ 170,000 $ 170,000 Capital lease obligations 1,652 1,778 ---------- ---------- 171,652 171,778 Less current portion (1,000) (850) ---------- ---------- Total long-term debt $ 170,652 $ 170,928 ========== ========== 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. 50 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, 2004 was $154.7 million based on quoted market prices. Capital Lease Obligations The Company leases assets under non-cancelable lease arrangements. As of December 31, 2004, future minimum lease payments under capital leases are as follows: (In thousands) Amount -------------- -------- 2005 $ 1,031 2006 659 -------- Total minimum lease payments 1,690 Less imputed interest (38) -------- Present value of minimum lease payments 1,652 Less current portion (1,000) -------- Long-term capital lease obligations $ 652 ======== The fair-value of the capital leases as of December 31, 2004 was $1.6 million based on interest rates in effect at year-end. Revolving Line of Credit As of December 31, 2004 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 as they relate to EBITDA and funded debt to total capitalization. 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. 10. EMPLOYEE BENEFIT PLANS 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 $0.9 million, $0.8 million and $0.7 million in 2004, 2003 and 2002, respectively. 51 Employee Stock Ownership Plan - The Company sponsored a non-leveraged Employee Stock Ownership Plan ("ESOP") and related trust prior to June 29, 2004. Effective June 29, 2004 the ESOP was merged into the 401(k) plan. Under the terms of the amended 401(k) plan document there is an annual defined contribution equal to five percent of each employee's eligible annual compensation. This contribution is contributed to the 401(k) plan in the form of Company stock. Compensation cost recognized for the defined contribution in Company stock was approximately $2.7 million, $2.7 million, and $2.3 million in 2004, 2003 and 2002, respectively. As of December 31, 2004, the 401(k) Plan held 499,430 shares of WGT stock and there were 121,743 committed-to-be released shares for the plan, which equals the estimated number of shares to settle the liability based on the closing market price of the shares at December 31, 2004. The final number of shares contributed to the plan was 153,268, computed based on the closing market price of the shares on the actual contribution date of February 22, 2005, with an adjustment for forfeitures remaining in the plan. 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 $0.8 million, $0.7 million, and $0.6 million in 2004, 2003 and 2002, respectively. 11. 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. 52 As of December 31, 2004, options for 430,183 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 2002, 2003 and 2004 follows:
Weighted Weighted Average Average Option Exercise Grant Date Activity Price Fair Value -------- ----- ---------- Options outstanding at December 31, 2001 666,319 $ 11.38 Options granted 344,774 24.97 $ 12.22 Options exercised (67,783) 7.77 Options forfeited (67,661) 12.78 ---------- Options outstanding at December 31, 2002 875,649 $ 16.92 Options granted 377,360 33.28 $ 16.51 Options exercised (77,094) 11.14 Options forfeited (23,015) 25.20 ---------- Options outstanding at December 31, 2003 1,152,900 $ 22.50 Options granted 288,516 25.97 $ 12.62 Options exercised (99,774) 12.51 Options forfeited (91,788) 28.65 ---------- Options outstanding at December 31, 2004 1,249,854 $ 23.68 ========== Options exercisable at: December 31, 2002 451,037 12.09 December 31, 2003 657,452 17.39 December 31, 2004 824,453 21.59
53 The following table provides detail regarding the options outstanding and exercisable at December 31, 2004.
Options Outstanding Options Exercisable ---------------------------------------- ------------------------ Weighted Weighted Weighted Average Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - --------------- ----------- ---- ----- ----------- ----- $5.00 165,605 2.8 $ 5.00 165,604 $ 5.00 $15.00 - 21.35 241,845 6.3 16.16 163,591 15.64 $23.85 - 35.70 760,706 8.2 28.63 472,381 28.67 $37.36 - 42.57 81,698 8.9 37.79 22,877 37.82 ----------- --- ------- --------- ------- 1,249,854 7.1 $ 23.68 824,453 $ 21.59 =========== === ======= ========= =======
12. 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. A summary of the transactions under the Restricted Stock Plan for 2003 and 2004 follows: Restricted Weighted Average Stock Grant Date Activity Fair Value -------- ---------- Restricted stock outstanding at December 31, 2002 Shares granted 50,400 $ 35.08 Shares vested (13,500) Shares forfeited - -------- Restricted stock outstanding at December 31, 2003 36,900 Shares granted 19,100 $ 18.29 Shares vested (13,500) Shares forfeited (2,200) -------- Restricted stock outstanding at December 31, 2004 40,300 ======== 54 Unamortized deferred compensation expense with respect to the restricted stock grants amounted to $0.8 million and $1.2 million at December 31, 2004 and 2003, respectively. The deferred compensation is being amortized based on the vesting schedules attributable to the underlying restricted stock grants. Compensation expense of $0.6 million was recognized during 2004 and 2003. 13. OTHER OPERATING EXPENSE During second quarter 2004, there were two charges included in other operating expense in the Company's Condensed Consolidated Statement of Operations. Patent acquisition. The Company recorded a $2.0 million pre-tax charge associated with the acquisition of certain patents during the quarter. The acquired patents cover how wet tantalum capacitors are used in an Impantable Cardioverter Defibrillator ("ICD"). Although the Company believed that the patents could have been successfully challenged in court proceedings prior to the acquisition, a decision was made to acquire the patents and remove this as a potential obstacle for existing customers to more fully adopt wet tantalum technology and for potential customers to initially adopt the technology. The Company had a prior legal opinion that in effect concluded the patents were not valid, therefore the Company believes it is appropriate to record the $2.0 million acquisition cost in accordance with its economic substance as a period expense. This expense is included in year to date other operating expense for IMC. Severance charges. In response to a reduction in forecasted sales for the year, the Company implemented a 7% workforce reduction during June, which resulted in a severance charge of $0.8 million during the second quarter. The severance charges during the second quarter 2004 were $0.6 million and $0.1 million for IMC and EPS, respectively. The remaining $0.1 million related to corporate employees and is included in year to date unallocated operating expenses. There is no remaining accrued severance as of December 31, 2004 related to this event as all amounts have been paid. 55 14. INCOME TAXES The provision (benefit) for income taxes comprised the following (in thousands): Year Ended December 31, 2004 2003 2002 Current: Federal $ (4,620) $ 4,820 $ 2,573 State (125) 630 266 -------- -------- ------- (4,745) 5,450 2,839 -------- -------- ------- Deferred: Federal 8,818 7,363 4,137 State 3,402 (2,785) (372) -------- -------- ------- 12,220 4,578 3,765 -------- -------- ------- Provision for income taxes $ 7,475 $ 10,028 $ 6,604 ======== ======== ======= The tax effect of major temporary differences that give rise to the Company's net deferred tax accounts are as follows (in thousands): December 31, 2004 2003 Depreciation $ (6,023) $ (4,776) Contingent interest on convertible notes (7,194) (2,575) Amortization of intangible assets (12,843) (1,118) Tax credits 1,996 2,779 Accrued expenses and deferred compensation 2,007 2,226 Inventory valuation 2,138 1,745 Investments 579 565 Net operating loss carryforwards 699 433 Other - 94 --------- -------- Net deferred tax (liability) asset (18,641) (627) Less valuation allowance (2,766) (565) --------- -------- Net deferred tax (liability) asset $ (21,407) $ (1,192) ========= ======== As of December 31, 2004, the Company has available $1.1 million of state net operating loss carryforwards that begin to expire in 2018 and $3.1 million of federal and state tax credit carryforwards that begin expiring in 2013. 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 portions of the deferred tax assets remaining at December 31, 2004 related to the valuation of an investment and certain state investment tax credits and NOLs will not be realized. The valuation allowance increase related to the allowance for the state investment tax credits and NOLs was $2.2 million and the valuation allowance increase related to investments was $0.01 million. 56 The provision for income taxes differs in each of the years from the federal statutory rate due to the following: Year Ended December 31, 2004 2003 2002 Statutory rate 35.0 % 35.0 % 35.0 % State taxes, net of federal benefit (1.5) 2.0 3.3 Permanent items (7.2) (6.8) - Federal and state tax credits (3.3) (2.1) (10.7) State net operating losses (0.9) - - Valuation allowance 9.3 - 2.7 Other 0.1 2.0 1.2 ------ ------ ------ Effective tax rate 31.5 % 30.1 % 31.5 % ====== ====== ====== In 2004, 2003, and 2002, 43,911, 39,090, and 27,608 shares of common stock, respectively, were issued through the exercise of non-qualified stock options or through the disqualifying disposition of incentive stock options. The total tax benefit to the Company from these transactions, which is credited to additional paid-in capital rather than recognized as a reduction of income tax expense, was $0.1 million, $0.3 million, and $0.1 million in 2004, 2003, and 2002, respectively. These tax benefits have also been recognized in the consolidated balance sheet as a reduction of current income taxes payable. 15. 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 21,410,319 and 21,231,121 shares issued in 2004 and 2003, respectively. There were 21,405,640 and 21,226,357 shares outstanding in 2004 and 2003, respectively. 16. COMMITMENTS AND CONTINGENCIES Litigation - The Company is a party to various legal actions arising in the normal course of business. While 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, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact in the period in which the ruling occurs. 57 During 2002, a former non-medical customer commenced an action alleging that the Company had used proprietary information of the customer to develop certain products. We have meritorious defenses and are vigorously defending the case. No accrual for an adverse judgment has been made as such outcome is not deemed probable, the potential risk of loss is between $0.0 and $1.7 million. License agreements - 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 $0.8 million and was fully amortized in 2002. The company is required to pay royalties based on agreed upon terms through August 2014. Expenses related to license agreements were $1.3 million, $1.5 million, and $1.4 million, for 2004, 2003, and 2002, respectively. Product Warranties - The change in aggregate product warranty liability for the year ended December 31, 2004, is as follows (in thousands): Beginning balance $ 313 Additions to warranty reserve 781 Warranty claims paid (168) ------ Ending balance $ 926 ====== Operating Leases - The Company is a party to various operating lease agreements for buildings, equipment and software. The Company incurred operating lease expense of $2.2 million, $1.7 million, and $0.9 million, in 2004, 2003 and 2002, respectively. If all lease extension options are exercised as expected by the Company, minimum future annual operating lease payments are $2.4 million in 2005; $1.7 million in 2006; $1.1 million in 2007; $0.8 million in 2008; and $0.9 million in 2009 and $4.6 million thereafter. Workers' Compensation Trust - In Western New York, the Company is a member of a group self-insurance trust that provides workers' compensation benefits to eligible employees of the Company and other group member employers. For locations outside of Western New York, the Company utilizes traditional insurance relationships to provide workers' compensation benefits. Under the terms of the Trust, the Company makes annual contributions to the Trust based on reported salaries paid to the employees using a rate based formula. Based on actual experience, the Company could receive a refund or be assessed additional contributions. For financial statement purposes, no amounts have been recorded for any refund or additional assessment since the Trust has not informed the Company of any such adjustments. Under the trust agreement, each participating organization has joint and several liability for trust obligations if the assets of the trust are not sufficient to cover its obligation. The Company does not believe that it has any current obligations under the joint and several liability. Purchase Commitments - 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. 58 Capital Expenditures - During 2004, the Company commenced the build out of its medical battery and capacitor manufacturing facility in Alden, NY and its value-add manufacturing facility in Tijuana, Mexico. These facilities will enable the Company to further consolidate its operations and implement state of the art manufacturing capabilities at both locations. The contractual obligations for construction of these facilities is $10.0 million and will be financed by existing, or internally generated cash. 17. 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 critical components used in implantable medical devices. The principal components are batteries, capacitors, filtered feedthroughs, enclosures and precision components. The principal medical devices are pacemakers, defibrillators and neurostimulators. The EPS segment designs and manufactures high performance batteries and battery packs; principal markets for these products are for oil and gas exploration, oceanographic equipment, and aerospace. 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. In 2002, segment income did not include any non-segment specific selling, general and administrative and research, development and engineering expenses. The change in 2003 to allocate these expenses is not reflected in the 2002 calculation of segment income from operations because it is impractical to do so. 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 2. 59 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):
Year Ended December 31, 2004 2003 2002 Sales: IMC Medical batteries: ICD batteries $ 35,646 $ 41,494 $ 28,518 Pacemakers and other batteries 19,494 24,578 21,692 ICD capacitors 21,981 31,668 24,679 Feedthroughs 47,387 48,257 36,378 Enclosures 21,709 24,742 10,845 Other 26,438 19,482 19,789 --------- --------- --------- Total IMC sales 172,655 190,221 141,901 EPS 27,464 26,144 25,395 --------- --------- --------- Total sales $ 200,119 $ 216,365 $ 167,296 ========= ========= ========= Segment income from operations: IMC $ 28,950 $ 43,504 $ 40,969 EPS 8,005 4,374 8,262 --------- --------- --------- Total segment income from operations 36,955 47,878 49,231 Unallocated operating expenses (10,015) (9,678) (23,325) --------- --------- --------- Operating income as reported 26,940 38,200 25,906 Unallocated other income and expense (3,208) (4,884) (4,941) --------- --------- --------- Income before income taxes as reported $ 23,732 $ 33,316 $ 20,965 ========= ========= ========= Depreciation and amortization: IMC $ 11,683 $ 10,809 $ 10,090 EPS 877 854 807 --------- --------- --------- Total depreciation included in segment income from operations 12,560 11,663 10,897 Unallocated depreciation and amortization 2,275 1,516 1,203 --------- --------- --------- Total depreciation and amortization $ 14,835 $ 13,179 $ 12,100 ========= ========= ========= The changes in the carrying amount of goodwill : IMC EPS Total Balance at December 31, 2003 $ 116,955 $ 2,566 $ 119,521 Goodwill recorded during the year 35,096 -- 35,096 Adjustments recorded during the year 2,155 -- 2,155 --------- --------- --------- Balance at December 31, 2004 $ 154,206 $ 2,566 $ 156,772 ========= ========= =========
Amounts disclosed for 2002 and 2003 in the above sales table have been expanded from previous filings to better coincide with our significant product lines. 60 Year Ended December 31, 2004 2003 2002 Expenditures for tangible long-lived assets, excluding acquisitions: IMC $33,537 $ 6,924 $ 6,616 EPS 664 693 1,119 ------- ------- ------- Total reportable segments 34,201 7,617 7,735 Unallocated long-lived tangible assets 5,403 4,308 12,766 ------- ------- ------- Total expenditures $39,604 $11,925 $20,501 ======= ======= ======= December 31, 2004 2003 Identifiable assets, net: IMC $335,380 $250,642 EPS 20,690 20,817 -------- -------- Total reportable segments 356,070 271,459 Unallocated assets 123,868 166,784 -------- -------- Total assets $479,938 $438,243 ======== ======== Sales by geographic area are presented by attributing sales from external customers based on where the products are shipped. Year Ended December 31, 2004 2003 2002 Sales by geographic area: United States $129,166 $140,578 $127,145 Foreign countries 70,953 75,787 40,151 -------- -------- -------- Consolidated sales $200,119 $216,365 $167,296 ======== ======== ======== December 31, 2004 2003 Long-lived assets: United States $312,818 $243,879 Foreign countries 4,641 - -------- -------- Consolidated long-lived assets $317,459 $243,879 ======== ======== 61 Three customers accounted for a significant portion of the Company's sales and accounts receivable as follows: Sales Accounts Receivable -------------------------------- ----------------------- Year Ended December 31, December 31, 2004 2003 2002 2004 2003 Customer A 36% 46% 41% 27% 31% Customer B 24% 20% 25% 20% 19% Customer C 10% 7% 5% 9% 5% --- --- --- --- --- Total 70% 73% 71% 56% 55% === === === === === 18. QUARTERLY SALES AND EARNINGS DATA - UNAUDITED (In Thousands, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 2004 Sales $46,475 $45,177 $52,942 $55,525 Gross profit 16,327 17,402 23,818 23,175 Net income 1,859 3,046 4,733 6,619 Earnings per share - basic 0.09 0.14 0.22 0.31 Earnings per share - diluted 0.09 0.14 0.21 0.28 2003 Sales $49,371 $56,335 $55,802 $54,857 Gross profit 19,838 23,873 23,217 22,813 Net income 4,523 7,776 4,952 6,037 Earnings per share - basic 0.21 0.37 0.23 0.29 Earnings per share - diluted 0.21 0.34 0.23 0.28 19. SUBSEQUENT EVENTS - UNAUDITED On February 23, 2005 the Company announced its intent to consolidate its medical capacitor and its medical battery manufacturing operations, currently in Cheektowaga, NY, and the implantable medical battery manufacturing operations, currently in Clarence, NY, into the advanced power source manufacturing facility in Alden, NY. The Company will also consolidate the capacitor research, development and engineering operations from the Cheektowaga, NY, facility into the existing implantable medical battery research, development, and engineering operations in Clarence, NY. On March 7, 2005 the Company announced its intent to close its Carson City, NV facility and consolidate the work performed at Carson City into its Tijuana, Mexico facility. ****** 62 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The management of Wilson Greatbatch Technologies, Inc. ("the Company"), under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2004 (the "Evaluation"). Based upon the Evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are effective in ensuring that material information relating to the Company, including its consolidated subsidiaries, is made known to them by others within those entities as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this annual report was being prepared. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fourth fiscal quarter of 2004. Management's Report on Internal Control Over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed and maintained under the supervision of its management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2004, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company's internal control over financial reporting as of December 31, 2004 is effective. Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, the Company's independent registered public accounting firm, whose unqualified opinion on management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 is expressed in their report included herein. 63 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Wilson Greatbatch Technologies, Inc. Clarence, New York We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Wilson Greatbatch Technologies, Inc. and subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 64 In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004 of the Company and our report dated March 15, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule. /s/ Deloitte & Touche LLP Buffalo, New York March 15, 2005 65 PART III Reference is made to the information responsive to the Items comprising this Part III contained in our definitive proxy statement for our 2004 Annual Meeting of Stockholders, which is incorporated by reference herein. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT (1) FINANCIAL STATEMENTS The following consolidated financial statements of our company and report of the independent registered public accounting firm thereon are set forth below: Report of Independent Registered Public Accounting Firm. Consolidated Balance Sheet as of December 31, 2004 and 2003. Consolidated Statement of Operations for the years ended December 31, 2004, 2003 and 2002. Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 and 2002. Consolidated Statement of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002. 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. 66
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Col. C Additions --------------------------------- Col. B Col. E Balance at Charged to Col. D Balance at Col. A Beginning Charged to Other Accounts- Deductions - End of Description of Period Costs & Expenses Describe Describe (2) Period 2004 Allowance for doubtful accounts $ 426 $ 5 $ -- $ (26) $ 405 Valuation allowance for income taxes $ 565 $2,201 (1) $ -- $ -- $2,766 2003 Allowance for doubtful accounts $ 460 $ 25 $ -- $ (59) $ 426 Valuation allowance for income taxes $ 565 $ -- $ -- $ -- $ 565 2002 Allowance for doubtful accounts $ 447 $ 13 $ -- $ -- $ 460 Valuation allowance for income taxes $ -- $ 565 (1) $ -- $ -- $ 565
(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 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). 4.2 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). 68 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 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). 10.8# 2002 Restricted Stock Plan (incorporated by reference to Appendix B to our definitive proxy statement on Schedule 14A filed on April 9, 2003). 10.9+ 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). 10.10+* Amendment No.1, dated October 8, 2004, to Supply Agreement dated April 10, 2003, between Wilson Greatbatch Technologies, Inc. and Guidant/CRM. 10.11 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)). 10.12+ Amendment No. 2, dated December 6, 2002, between Wilson Greatbatch Technologies, Ltd. and Evans Capacitor Company (incorporated by reference to Exhibit 10.18 to our annual report on Form 10-K for the year ended January 3, 2003). 10.13+ Supplier Partnering Agreement dated as of October 23, 2003, between Wilson Greatbatch Technologies, Inc. and Pacesetter, Inc., a St. Jude Medical Company (incorporated by reference to Exhibit 10.20 to our annual report on Form 10-K for the year ended January 2, 2004). 10.14+* Amendment No. 1 to Supplier Partnering Agreement dated as of October 23, 2003, between Wilson Greatbatch Technologies, Inc. and Pacesetter, Inc., d/b/a St. Jude Medical CRMD. 10.15+* Purchase Order for wet tantalum capacitors dated December 17, 2004, between Wilson Greatbatch Technologies, Inc. and Guidant Corporation and related documents. 69 10.16# Form of Change of Control Agreement, dated December 17, 2001, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Lawrence P. Reinhold, Larry T. DeAngelo, Thomas J. Hook, Thomas J. Mazza and Curtis F. Holmes (incorporated by reference to Exhibit 10.24 to our annual report on Form 10-K for the fiscal year ended December 28, 2001). 10.17#* Agreement dated March 31, 2003 between Wilson Greatbatch Technologies, Inc. and Larry T. DeAngelo. 10.18#* Employment Offer Letter dated May 29, 2002, and addendum dated June 7, 2002 between Wilson Greatbatch Technologies, Inc. and Lawrence P. Reinhold. 10.19#* Employment Offer Letter dated August 9, 2004, between Wilson Greatbatch Technologies, Inc. and Thomas J. Hook. 10.20#* Wilson Greatbatch Technologies, Inc. Directors Compensation Policy. 12.1* Ratio of Earnings to Fixed Charges - Unaudited. 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. 70 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 15, 2005 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.
Signature Title Date - --------- ----- ---- /s/ Edward F. Voboril President, Chief Executive Officer, March 15, 2005 - ---------------------------- Chairman and Director (Principal Edward F. Voboril Executive Officer) /s/ Pamela G. Bailey Director March 15, 2005 - --------------------------- Pamela G. Bailey /s/ Joseph A. Miller, Jr. Director March 15, 2005 - --------------------------- Joseph A. Miller, Jr. 71 /s/ Bill R. Sanford Director March 15, 2005 - --------------------------- Bill R. Sanford /s/ Peter H. Soderberg Director March 15, 2005 - --------------------------- Peter H. Soderberg /s/ Thomas S. Summer Director March 15, 2005 - --------------------------- Thomas S. Summer /s/ William B. Summers, Jr. Director March 15, 2005 - --------------------------- William B. Summers, Jr. /s/ John P. Wareham Director March 15, 2005 - --------------------------- John P. Wareham
72 EXHIBIT INDEX 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 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). 4.2 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)). 73 10.7 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). 10.8# 2002 Restricted Stock Plan (incorporated by reference to Appendix B to our definitive proxy statement on Schedule 14A filed on April 9, 2003). 10.9+ 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). 10.10+* Amendment No.1, dated October 8, 2004, to Supply Agreement dated April 10, 2003, between Wilson Greatbatch Technologies, Inc. and Guidant/CRM. 10.11 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)). 10.12+ Amendment No. 2, dated December 6, 2002, between Wilson Greatbatch Technologies, Ltd. and Evans Capacitor Company (incorporated by reference to Exhibit 10.18 to our annual report on Form 10-K for the year ended January 3, 2003). 10.13+ Supplier Partnering Agreement dated as of October 23, 2003, between Wilson Greatbatch Technologies, Inc. and Pacesetter, Inc., a St. Jude Medical Company (incorporated by reference to Exhibit 10.20 to our annual report on Form 10-K for the year ended January 2, 2004). 10.14+* Amendment No. 1 to Supplier Partnering Agreement dated as of October 23, 2003, between Wilson Greatbatch Technologies, Inc. and Pacesetter, Inc., d/b/a St. Jude Medical CRMD. 10.15+* Purchase Order for wet tantalum capacitors dated December 17, 2004, between Wilson Greatbatch Technologies, Inc. and Guidant Corporation and related documents. 10.16# Form of Change of Control Agreement, dated December 17, 2001, between Wilson Greatbatch Technologies, Inc. and each of Edward F. Voboril, Lawrence P. Reinhold, Larry T. DeAngelo, Thomas J. Hook, Thomas J. Mazza and Curtis F. Holmes (incorporated by reference to Exhibit 10.24 to our annual report on Form 10-K for the fiscal year ended December 28, 2001). 74 10.17#* Agreement dated March 31, 2003 between Wilson Greatbatch Technologies, Inc. and Larry T. DeAngelo. 10.18#* Employment Offer Letter dated May 29, 2002, and addendum dated June 7, 2002 between Wilson Greatbatch Technologies, Inc. and Lawrence P. Reinhold. 10.19#* Employment Offer Letter dated August 9, 2004, between Wilson Greatbatch Technologies, Inc. and Thomas J. Hook. 10.20#* Wilson Greatbatch Technologies, Inc. Directors Compensation Policy. 12.1* Ratio of Earnings to Fixed Charges - Unaudited. 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. 75 EX-10.10 2 a4842884ex1010.txt EXHIBIT 10.10 EXHIBIT 10.10 THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934. 1st AMENDMENT TO BATTERY SUPPLY AGREEMENT BETWEEN WILSON GREATBATCH LTD. AND CARDIAC PACEMAKERS, INC. This 1st Amendment (the "Amendment") to the Battery Supply Agreement between Wilson Greatbatch Ltd. (WGL), a New York corporation ("Seller" or "WGL"), and Cardiac Pacemakers, Inc. d/b/a "Guidant," a Minnesota corporation ("Buyer" or "CPI"), Seller and Buyer are collectively referred to herein as the "Parties." This Amendment is entered into effective as of August 16, 2004 (the "Effective Date"). BACKGROUND A. The parties entered into a Battery Supply Agreement (the "Agreement") effective April 10, 2003. B. The Parties to the Agreement desire to revise paragraph V C. Frontier Cell Pricing in the Agreement. AGREEMENT The Parties hereby agree as follows: 1. As of the Effective Date, the Agreement is hereby amended to incorporate the new scheduled pricing for Frontier Cell Pricing Schedule (QHR) as set forth below: Units/Year QHR Price ---------- --------- * $ * * $ * * $ * * $ * I. Frontier "Units per year" is determined by battery model on a calendar basis. II. Pricing applies to current technology (QHR). III. Price premiums based upon shape and/or terminal modification complexity apply. 2. Except as provided herein, the Agreement shall remain unchanged and is in full force and effect. The parties have caused this Amendment to be executed by their respective duly authorized representatives as of the Effective Date. BUYER: SELLER: CARDIAC PACEMAKERS, INC. WILSON GREATBATCH LTD. By: ____________________________ By: ____________________________ Title: ____________________________ Title: ____________________________ Date: ____________________________ Date: ____________________________ EX-10.14 3 a4842884ex1014.txt EXHIBIT 10.14 EXHIBIT 10.14 THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934. AMENDMENT NO. 1 TO SUPPLIER PARTNERING AGREEMENT BETWEEN WILSON GREATBATCH LTD. AND PACESETTER, INC. (d/b/a ST. JUDE MEDICAL CRMD) This Amendment (the "Amendment") to the Supplier Partnering Agreement between Wilson Greatbatch Technologies, Inc., a Delaware corporation ("Seller"), and Pacesetter, Inc. d/b/a "St. Jude Medical CRMD", a California corporation ("Buyer" or "St. Jude"). SELLER and BUYER are collectively referred to herein as the "Parties". This Amendment is entered into effective as 01 January 2005 (the "Effective Date"). BACKGROUND A. The parties entered into a Supplier Partnering Agreement (the "Agreement") effective January 1, 2004. B. The Parties to the Agreement desire to revise the following: a. The Initial Term of the Agreement [NOTE: This has implications for all pricing] b. The pricing and terms for certain Batteries AGREEMENT In consideration of the foregoing Recitals and the Parties' mutual covenants contained herein, the Parties hereby agree as follows: 1. Any specifically capitalized terms used and not otherwise defined in this Amendment shall have the meaning set forth in the Agreement. 2. As of the Effective Date, the initial term of the Agreement is hereby amended to reflect that it will remain in force until 31 December 2008 ("Term"). Section 9 to Exhibit A of the Agreement (Option to Extend the Agreement) is hereby amended to read in its entirety as follows: "9. Option to Extend the Agreement. Buyer shall have the option to extend the term of this Agreement beyond the Initial Term for a period of two (2) years ("Option Extension Period") by delivering written notice to Seller not less than sixty (60) days prior to the extension date. The Option Extension Period, however, is subject to all of the following conditions: Page 1 of 6 9.1 The prices for Batteries, Feedthroughs, Components and Enclosures during the Option Extension Period shall be, at the option of * either: (a) the * for each such Product, * or (b) prices for Batteries, Feedthroughs, Components and Enclosures * for all Batteries (in the aggregate), for all Feedthroughs (in the aggregate), for all Components (in the aggregate) and for all Enclosures (in the aggregate) sold to Buyer in each year of the Option Extension Period which is equal to * obtained by Seller for all Batteries (in the aggregate), for all Feedthroughs (in the aggregate), for all Components (in the aggregate) and for all Enclosures (in the aggregate), respectively, *; 9.2 If * elects pricing under Section 9.1(b) above, Seller will notify Buyer as soon as is reasonably possible, as to the pricing applicable for the Option Extension Period. * as to the amount of the * that * with respect to Batteries (in the aggregate), Feedthroughs (in the aggregate), Components (in the aggregate) and Enclosures (in the aggregate), respectively. Seller will cooperate with * so that the * within thirty (30) days of its appointment by Buyer. If the * of the price quoted by Seller, then Buyer will be solely responsible for the * of the *. If the price quoted by Seller is more than *, then Seller will be solely responsible for the * of the *. "*" under Section 9.1(b) above shall: (a) be calculated according to Generally Accepted Accounting Principles (GAAP) and in a manner consistent with Seller's previous practices; and (b) * or *. Seller, Buyer, and * will cooperate in good faith to establish the relevant * of * to be included in the * of *. If Seller and Buyer have not agreed to the composition of the relevant * within thirty (30) days, then the * will be finally *, Seller and Buyer will cooperate and negotiate in good faith in connection with allocating the aggregate price increases permitted by Buyer under Section 9.1(b) among individual Products to be purchased by Buyer during the Option Extension Period". Page 2 of 6 3. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of Lithium Iodine Bradycardia Batteries as set forth according to the tables below: --------------------------------------------------------------------------- Lithium Iodine Pricing --------------------------------------------------------------------------- Model 2004 2005 2006 2007 2008 ----- ---- ---- ---- ---- ---- 8077 $ * $ * $ * $ * $ * 8711 $ * $ * $ * $ * $ * 9701 $ * $ * $ * $ * $ * 9438 $ * $ * $ * $ * $ * 9918 $ * $ * $ * $ * $ * ------ ------------- -------------- ------------- ------------- ----------- Lithium Iodine Bradycardia Battery Terms a. Purchase Requirements: * % of Buyer's total bradycardia device battery demand to be purchased from Seller. b. Pricing schedules for each calendar year listed in Lithium Iodine table above are effective only if total lithium iodine battery unit demand is forecasted by Buyer, per Section 5 of the Supplier Partnering Agreement to exceed * units for the subsequent calendar year. If Buyer's total lithium iodine battery unit demand forecast is less than * units for the subsequent calendar year, the price will be set according to the pricing schedule of the most recent calendar year where at least * units were shipped. c. Pricing applies for current models with standard shape and pin modifications. d. Price premiums based upon shape and/or terminal modification complexity apply. 4. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of SVO Multiplate Defibrillator Batteries as set forth according to the tables below: - ------------------------------------ ------------------------------------------- SVO Multiplate Legacy Products Model 2255 and Model 9443 ------------------------------ ------------------------- - ------------------------------------ ------------------------------------------- Quantity Base Quantity Base by Model Unit Price by Model Unit Price -------- ---------- -------- ---------- < * $ * All Volumes Model 2255 $ * * $ * All Volumes Model 9443 $ * > * $ * ----------------------------- ------------- - ------------------------------------ *Models 2150, 2156, 2356, 2353 - ------------------------------------ ------------------------------------------- Nano SVO Multiplate Nano SVO Multiplate - Proprietary Non-Proprietary* --------------------------------- - ------------------------------------ ------------------------------------------- Page 3 of 6 - ----------------------------------- -------------------------------------- Quantity Base Quantity Base by Model Unit Price by Model Unit Price -------- ---------- -------- ---------- All Volumes $ * All Volumes $ * - ----------------------------------- -------------------------------------- *Model 2466 SVO Multiplate Defibrillator Battery Terms a. Purchase Requirements: Minimum of * % of Buyer's total tachycardia device battery demand to be purchased from Seller b. "Units per year" determined by battery model on a calendar year basis c. Pricing applies to current technologies referred to as High Temperature Pressed Powder/High Temperature Sheet (HTPP/HTS) d. Price premiums based upon shape and/or terminal modification complexity apply e. Qualified Nano SVO multiplate cell to be delivered no later than fourteen (14) months from specification concurrence by both parties in writing and receipt of purchase order. 5. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of Quasar High Rate (QHR) Batteries as set forth according to the tables below: - ---------------------------------------- ------------------------------------ QHR Proprietary Designs* QHR Non-Proprietary Designs* - ---------------------------------------- ------------------------------------ Quantity Base Quantity Base by Model Unit Price by Model Unit Price -------- ---------- -------- ---------- < * $ * < * $ * * $ * * $ * > * $ * > * $ * - -------------------- ------------------- ------------------------------------ *Model 2350 *Example QHR to M2466 ______ Quasar High Rate (QHR) Battery Terms a. Purchase Requirements: Minimum of * % of Buyer's total tachycardia device battery demand to be purchased from Seller b. QHR battery technology defined as High Rate SVO/CFx hybrid c. QHR pricing shown above applies for six plate, eight plate and ten plate designs only d. A price premium not to exceed $ * per cell applies for all odd-number plate QHR cells e. A price premium not to exceed $ * per cell applies for all twelve plate QHR cells Page 4 of 6 f. "Units per year" determined by battery model on a calendar year basis g. A price premium may be applied for shape and/or terminal modification complexity 6. As of the Effective Date, Section 3 of the Agreement is hereby amended to read in its entirety as follows: "3. Pricing. Pricing shall be as shown on Exhibits B (Batteries and Capacitors), C (Feedthroughs, Filtered Feedthroughs), D (Component Parts) and E (Enclosures) throughout the Term of the Agreement, subject to the following: 3.1 The prices for Capacitors set forth on Exhibit B will expire as of March 1, 2005. The parties will negotiate in good faith with respect to the prices to be paid for Capacitors purchased by Buyer after such date and any agreement as to pricing shall be set forth in writing, signed by Seller and Buyers; and 3.2 The price for a Product from time to time set forth on Exhibits B, C, D, and E is subject to upward or downward modification due to an increase or decrease, as the case may be, in the price of platinum. Any price modifications will be indexed and based upon the London spot market price of platinum on 31 August or the sequential business day of each contract year. Any price modification shall be determined and agreed upon in September of each contract year and will be effective with shipments delivered beginning on 01 January of the following year. Price modifications are permissible if the increase or decrease in the spot price of platinum impacts the Seller's platinum cost for a Product by * % or greater. If Seller determines that a price increase or decrease under this Section 3.2 is permissible, Seller shall deliver written notice to Buyer setting forth the basis for such determination. The parties agree to negotiate in good faith after delivery of such notice with respect to an adjustment to the pricing set forth in Exhibits B, C, D or E. No modification of such pricing shall occur unless and until the parties have both signed an amendment to the Agreement." The cost of platinum used as the basis to establish pricing in the Supplier Partnering Agreement effective 01 Jan 04 is $ *. 3.3 Prior to 30 September of each contract year, Buyer shall provide Seller with written certification of Buyer's compliance with the minimum purchase requirements set forth in Section 6 of the Supply Agreement. Page 5 of 6 7. Except as provided herein, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect. The parties have caused this Amendment to be executed by their respective duly authorized representatives as of the Effective Date. BUYER: SELLER: PACESETTER, INC. WILSON GREATBATCH TECHNOLOGIES, INC. By: By: ----------------------------- ------------------------------- Title: Title: -------------------------- ------------------------------- Date: Date: --------------------------- ------------------------------- Page 6 of 6 EX-10.15 4 a4842884ex1015.txt EXHIBIT 10.15 EXHIBIT 10.15 THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934. G U I D A N T Mr. Robert Rusin December 6, 2004 Vice President Sales & Marketing Wilson Greatbatch Technology 10,000 Wehrle Drive Clarence, New York 14031 Subject: Capacitor Forecast Dear Mr. Rusin As per our conversation on December 3rd, 2004 and pursuant to the WGT pricing proposal supplement dated November 8, 2004. Guidant is issuing the following intent to procure capacitors from WGT. Guidant intends to purchase as a minimum, * capacitors (includes all models except *) at a rate of */wk commencing the first week of January 2005 and will remain in effect for the next 25 weeks, at a unit cost of $* each. It is then our intent to purchase as a minimum * capacitors (includes all models except *) at a rate of */wk for the remaining 26 weeks in 2005 at a unit cost of $* each. Any additional capacitor orders placed by Guidant during 2005 will be priced per the appropriate subsequent purchase order table relating to a * initial commitment. This table is located in the WGT pricing proposal supplement dated November 8, 2004. It is our intent, to formalize the above with a written purchase order before the end of December 2004. Sincerely Mr. Michael Malecha /s/ Michael Malecha Manager Supplier Development Cardiac Pacemakers Inc./dba Guidant Corporation Guidant Corporation Cardiac Rhythm Management 4100 Hamline Avenue North, St. Paul, MN 55112-5798 USA Tel 651.582.4000 Fax 651.582.4166 www.guidant.com Wilson Greatbatch Technologies, Inc. (WG) Guidant CRM (GDT) Supplement to Wet Tantalum Capacitor 04 November 2004 Pricing Proposal 08 November 2004 I. Introduction This Supplement outlines a special offer to GDT for capacitor pricing in 2005 only. It is linked to the WG / GDT Wet Tantalum Capacitor 2005 Pricing Proposal dated 04 November 2004 and offers opportunity for additional price discounts to GDT for capacitors purchased under the terms of Option "A". Under the terms of this Supplement, WG is offering additional discounts from pricing offered in the 04 November Proposal if GDT commits to additional level-loaded capacitor volume over specific and defined periods of time. This special pricing offered in this Supplement applies to capacitor models * only. Pricing for capacitor models * remains as offered in the 04 November Proposal. II. Execution Capacitor pricing established under Option "A" of the 04 November Proposal is dependent upon a Baseline Minimum unit volume commitment made for 2005 by GDT. Under the terms of Option "A", additional orders beyond the initial Baseline Minimum can only be ordered in increments of * units. Additional unit orders may be scheduled for delivery at any time; however, all orders must be delivered and invoiced to GDT before 31 December 2005. Lead-time requirements apply. Under the terms of this Supplement, GDT may receive special pricing for models *. Special pricing is offered only if additional unit order volume is level loaded over a defined quarterly basis, thus temporarily increasing the minimum weekly pull rate for an entire quarter or quarters. Lead-time requirements noted under the terms of Option "A" also apply; therefore, an advance commitment by GDT must be made in order to secure the special pricing offered in this Supplement. Additional quantities that are not level-loaded on a quarterly basis (order "spikes") may be ordered under the terms of Option "A" of the 04 November Proposal. Pricing is repeated in the tables in this Supplement. Special pricing offered in this Supplement for additional level-loaded capacitor volume commitments beyond a Secured Baseline Minimum unit volume is shown in the tables on pages 2 and 3 of this document. As in the 04 November proposal, pricing for all additional unit volumes is dependent upon the Secured Baseline Minimum commitment made by GDT. WGT/GDT 2005 Capacitor Pricing Proposal Supplement Page 1 of 3 RCR 11/08/04 Supplement Pricing - Additional Volume Level-Loaded Over Quarters - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- WGT/GDT 2005 Capacitor Pricing Proposal Supplement Page 2 of 3 RCR 11/08/04
- ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Subsequent Purchase Orders Minimum Option "A" Supplement Price - Level-Loaded Commitment Quantity Price 1 Quarter 2 Quarters 3 Quarters 4 Quarters -------- ----- --------- ---------- ---------- ---------- * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* * $* $* $* $* $* - ---------------------------------------------------------------------------------------------------------------------- WGT/GDT 2005 Capacitor Pricing Proposal Supplement Page 3 of 3 RCR 11/08/04
Seils, Janine H (STP) - -------------------------------------------------------------------------------- From: Rusin, Robert [RRusin@greatbatch.com] Sent: Thursday, November 04, 2004 12:27 PM To: Seils, Janine H (STP) Subject: Proposal Attached [WORD ICON] WGT GDT Cap Proposal 04NOV04.d. Janine, Attached is a revised capacitor pricing proposal that reflects the items from our discussion yesterday. New pricing schedules were added for Option "A" to allow for additional unit volume orders after establishment of minimum base volume. Lead times were added to reflect our ability to respond. Note that these key revisions: In this proposal, additional unit volumes must be placed in minimum increments of * units. An incremental order of * offers a more attractive price, but does not get you to the more favorable price level that you would have enjoyed had you made a higher unit volume commitment at the beginning of the year. Also, additional unit volumes beyond baseline are not tied to * month periods. You have flexibility to take them at any time during the calendar year (respecting lead times). Finally, as with the other proposals, there is no opportunity for retro-active pricing (rebate). Call with questions. Thanks. Bob (WGT GDT Cap Proposal 04NOV04.doc) 1 Wilson Greatbatch Technologies, Inc. (WG) Guidant CRM (GDT) Wet Tantalum Capacitor 2005 Pricing Proposal 04 November 2004 I. Effective Dates The pricing shown in this proposal is effective on the latter date of 02 January 2005 or the date of execution of this Agreement. Pricing expires on 31 December 2005. II. Execution Pricing to be established is dependent upon Guidant's selection of Option "A" or Option "B" outlined below. Option "A" requires an annual Baseline quantity in the form of a secured weekly volume commitment from Guidant. Option "B" does not require an annual Baseline quantity commitment from Guidant. Option "B" pricing is purchase order volume dependent. III. Option "A" Terms - Secured Baseline Volume Commitment Pricing for individual modes is determined by the Baseline minimum unit volume commitment made by Guidant (annual volume). Total order volume for all models establishes Baseline and is to be indicated on a firm non-cancelable purchase order provided by GDT to WG. 1. GDT will establish a Baseline volume by making a minimum volume commitment to WG for capacitors per Option "A" Pricing Tables shown below 2. Minimum volume commitments reflect annual quantities to be shipped to Guidant in minimum weekly increments 3. Pricing for all volumes of individual models is determined by Option "A" Pricing Tables shown below 4. Once the Baseline Minimum volume is established, additional quantities may be ordered at a unit price that corresponds to the annual Baseline Minimum volume commitment made by GDT 5. Additional unit orders beyond initial Baseline Minimum can only be ordered in increments of * units. Additional orders must be secured by a firm non-cancelable purchase order provided by GDT to WG 6. A minimum order quantity of * units per model is required 7. Orders must be * weeks firm 8. Lead time per order as follows: a. * weeks for increases up to * of annual Baseline Minimum b. * weeks for increases> * of annual Baseline Minimum 9. Volume indicated on all firm purchase orders must be delivered and invoiced to GDT before 31 December 2005 10. Price premium will apply for non-standard termination or packaging WGT/GDT 2005 Capacitor Pricing Proposal 290CT04 Page 1 of 3 RCR 11/04/04 Option "A" Pricing - Secured Baseline Volume Commitment - ---------------------------------------------------------------------------------------------------------------------- Option "A" Unit Pricing for Models * - ---------------------------------------------------------------------------------------------------------------------- Initial Purchase Order * Initial Purchase Order * Minimum Weekly Pull Rate * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Unit price for Initial P.O. $* Subsequent Purchase Orders Subsequent Purchase Orders Minimum Unit Minimum Unit Quantity Price Quantity Price -------- ----- -------- ----- * $* * $* * $* * $* * $* * $* * $* * $* * $* * $* - ---------------------------------------------------- ------------------------------------------------- - ---------------------------------------------------- ------------------------------------------------- Initial Purchase Order * Initial Purchase Order * Minimum Weekly Pull Rate * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Unit price for Initial P.O. $* Subsequent Purchase Orders Subsequent Purchase Orders Minimum Unit Minimum Unit Quantity Price Quantity Price -------- ----- -------- ----- * $* * $* * $* * $*` * $* * $* * $* * $* * $* * $* - ---------------------------------------------------- ------------------------------------------------- - ---------------------------------------------------- ------------------------------------------------- Initial Purchase Order * Initial Purchase Order * Minimum Weekly Pull Rate * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Unit price for Initial P.O. $* Subsequent Purchase Orders Subsequent Purchase Orders Minimum Unit Minimum Unit Quantity Price Quantity Price -------- ----- -------- ----- * $* * $* * $* * $* * $* * $* * $* * $* * $* * $* - ---------------------------------------------------- ------------------------------------------------- - ---------------------------------------------------- ------------------------------------------------- Initial Purchase Order * Initial Purchase Order * Minimum Weekly Pull Rate * Minimum Weekly Pull Rate * Unit price for Initial P.O. $* Unit price for Initial P.O. $* Subsequent Purchase Orders Subsequent Purchase Orders Minimum Unit Minimum Unit Quantity Price Quantity Price -------- ----- -------- ----- * $* * $* * $* * $* * $* * $* * $* * $* * $* * $* - ---------------------------------------------------- ------------------------------------------------- WGT/GDT 2005 Capacitor Pricing Proposal 290CT04 Page 2 of 3 RCR 11/04/04
- ---------------------------------------------------------------------------------------------------------------------- Option "A" Unit Pricing for Models * - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Baseline Unit price for Models Unit price for Model Minimum Units per Year * * ---------------------- - - * minimum at * per week $* $* * minimum at * per week $* $* * minimum at * per week $* $* * minimum at * per week $* $* * minimum at * per week $* $* * minimum at * per week $* $* - ----------------------------------------------------------------------------------------------------------------------
IV. Option "B" Terms - Purchase Order-to-Purchase Order Pricing for individual models is determined by total order volume for all models indicated on a firm non-cancelable purchase order provided by GDT to WG (Units per Purchase Order). 1. Pricing for all volumes of individual models is determined by Pricing Table shown below 2. Minimum order volume quantity per purchase order is set at * units 3. A minimum order quantity of * units per model is required 4. Orders must be * weeks firm. Changes requested by GDT and accepted by WG within the *-week firm period will be subject to a * price premium per capacitor 5. Lead time per order is * weeks and is dependent upon size of order 6. Volume indicated on all firm purchase orders must be delivered and invoiced to GDT before 31 December 2005 7. Price premium will apply for non-standard termination or packaging Option "B" Pricing - Unsecured Annual Volume Commitment - ---------------------------- ------------------------------- ---------------------------- ---------------------------- Minimum Units per Unit price for Models Unit price for Models Unit price for Model Purchase Order * * * -------------- - - - * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* * $* $* $* - ---------------------------- ------------------------------- ---------------------------- ---------------------------- WGT/GDT 2005 Capacitor Pricing Proposal 290CT04 Page 3 of 3 RCR 11/04/04
G U I D A N T Purchase Order PO Number * Date 12/17/2004 Page 1 of 5 - ---------------------------------------------------------------------------------------------------------------------------------- Supplier Number: * Bill to: Buyer: Janine Seils WILSON GREATBATCH LTD. CPI Telephone: 651/582-4014 FAX: 651/582-6424 10000 WEHRLE DR 4100 Hamline Avenue North, Suite #100 CLARENCE NY 14031 St. Paul, MN 55112-5798 U.S.A Authorized/Confirmed by: Date: Telephone: 716 759-6901 For prompt payment, please include the PO number FAX: 7167592562 with all shipping/billing documenation. ------------------------------------ Supplier - Please confirm receipt of PO with buyer (contact buyer for acceptable/preferred method of communication) Currency: USD SHIP TO: Terms of payment: * SEE BELOW Terms of delivery: FOB ORIGIN Unless noted otherwise (at line Item) SHIP VIA: UPS Ground - ---------------------------------------------------------------------------------------------------------------------------------- DROP SHIP ALL CAPS ON THIS PO TO *. CAPS ON THIS PO ARE PER LETTER OF INTENT DATED DEC 6, 2005, BASED ON WET TANTALUM CAPACITOR PRICING PROPOSAL DATED NOV 4, 2004 AND NOV 8, 2004. EXECUTED PRICING/SUPPLY AGREEMENT TO FOLLOW. THIS PO INCLUDES * WEEKS FIRM ORDERS WITH RELEASES TO FOLLOW. - ---------------------------------------------------------------------------------------------------------------------------------- Item Material Revision Description Order qty. Unit Price PerUnit - ---------------------------------------------------------------------------------------------------------------------------------- 001 * S CAP TANT * * EA * 1 EA for a Net Value (this item) of * For RESALE ED BUILDS. Remaining quantity split over the following delivery dates: Qty. Unit Deliv. date * Each 01/03/2005 * Each 01/10/2005 * Each 01/17/2005 * Each 01/24/2005 * Each 01/31/2005 * Each 02/07/2005 * Each 06/27/2005
G U I D A N T Purchase Order PO Number * Date 12/17/2004 Page 2 of 5 - --------------------------------------------------------------------------------------- --------------------------- ------ ------- Item Material Revision Description Order qty. Unit Price Per Unit - --------------------------------------------------------------------------------------- --------------------------- ------ ------- 002 * M CAP TANT * * EA * 1 EA for a Net Value (this item) of * NON-Taxable Remaining quantity split over the following delivery dates: Qty. Unit Deliv. date * Each 01/03/2005 * Each 01/10/2005 * Each 01/17/2005 * Each 01/24/2005 * Each 01/31/2005 * Each 02/07/2005 * Each 06/27/2005 - --------------------------------------------------------------------------------------- --------------------------- ------ ------- Item Material Revision Description Order qty. Unit Price Per Unit - --------------------------------------------------------------------------------------- --------------------------- ------ ------- 003 * M CAP TANT * * EA * 1 EA for a Net Value (this item) of * For RESALE Remaining quantity split over the following delivery dates: Qty. Unit Deliv. date * Each 01/03/2005 * Each 01/10/2005 * Each 01/17/2005 * Each 01/24/2005 * Each 01/31/2005 * Each 02/07/2005 * Each 06/27/2005 - --------------------------------------------------------------------------------------- --------------------------- ------ ------- Item Material Revision Description Order qty. Unit Price Per Unit - --------------------------------------------------------------------------------------- --------------------------- ------ ------- 004 * M CAP TANT * * EA * 1 EA for a Net Value (this item) of * For RESALE
G U I D A N T Purchase Order PO Number * Date 12/17/2004 Page 3 of 5 - ---------------------------------------------------------------------------------------------------------------------------------- Remaining quantity split over the following delivery dates: Qty. Unit Deliv. date * Each 01/03/2005 * Each 01/10/2005 * Each 01/17/2005 * Each 01/24/2005 * Each 01/31/2005 * Each 02/07/2005 * Each 06/27/2005 --------------------------------------------------------------------------------------------------------------------------------- Guidant's Supplier Development must be formally notified of all changes to the manufacturing process or design prior to implementation. Guidant, in conjunction with the supplier, shall determine the effect on form, fit, function and reliability before the change can be approved in writing by Guidant and implemented at the supplier. --------------------------------------------------------------------------------------------------------------------------------- Total Net Value excluding tax USD *
G U I D A N T Purchase Order PO Number * Date 12/17/2004 Page 1 of 4 - ------------------------------ -------------------------------------------------- ------------------------------------------ ------- Supplier Number: * Bill to: Buyer: Janine Seils WILSON GREATBATCH LTD. CPI Telephone: 651/582-4014 FAX: 651/582-6424 10000 WEHRLE DR 4100 Hamline Avenue North, Suite #100 CLARENCE NY 14031 St. Paul, MN 55112-5798 U.S.A Authorized/Confirmed by: Date: Telephone: 716 759-6901 For prompt payment, please include the PO number --------------------------- ------- FAX: 7167592562 with all shipping/billing documenation. Supplier - Please confirm receipt of PO with buyer (contact buyer for acceptable/preferred method of communication) Currency: USD SHIP TO: Terms of payment: * SEE BELOW Terms of delivery: FOB ORIGIN Unless noted otherwise (at line Item) SHIP VIA: SURFACE - --------------------------------------------------------------------------------- ------------------------------------------ ------- DROP SHIP ALL CAPS ON THIS PO TO *. CAPS ON THIS PO ARE PER LETTER OF INTENT DATED DEC 6, 2005, BASED ON WET TANTALUM CAPACITOR PRICING PROPOSAL DATED NOV 4, 2004 AND NOV 8, 2004. EXECUTED PRICING/SUPPLY AGREEMENT TO FOLLOW. THE MODEL MIX FOR CAPS ON THIS PO ARE ESTIMATES ONLY AND WILL BE SCHEDULED BEFORE FIRST DELIVERY, WHICH WILL BE THE FIRST WEEK IN JULY, 2005. - ------------------------------------------------------------------------------------- ---------------------------- --------- ------- Item Material Revision Description Order qty. Unit Price Per Unit - ------------------------------------------------------------------------------------- ---------------------------- --------- ------- 001 * S CAP TANT * * EA * 1 EA for a Net Value (this item) of * For RESALE Due on Dock: 12/31/2005 ED BUILDS. - ------------------------------------------------------------------------------------- ---------------------------- --------- ------- Item Material Revision Description Order qty. Unit Price Per Unit - ------------------------------------------------------------------------------------- ---------------------------- --------- ------- 002 * M CAP TANT * * EA * 1 EA for a Net Value (this item) of * NON-Taxable Due on Dock: 12/31/2005 G U I D A N T Purchase Order PO Number * Date 12/17/2004 Page 2 of 4
EX-10.17 5 a4842884ex1017.txt EXHIBIT 10.17 EXHIBIT 10.17 WG(R) WILSON GREATBATCH TECHNOLOGIES, Inc. THE POWER TO DO GREAT THINGS(TM) TO: Ed Voboril FROM: Larry DeAngelo DATE: March 31, 2003 SUBJECT: Severance Payments ================================================================================ Thank you for agreeing to consider providing a Severance Payment Benefit to me consistent with the benefit currently in place for the other members of the Office of the Chairman. The language should read as follows: Larry T. DeAngelo, Senior Vice President Administration and Secretary, Wilson Greatbatch Technologies, Inc. (WGT) will be granted a minimum of one year of severance payments should his employment be involuntarily terminated by WGT. WGT will not be obligated to provide severance pay should Mr. DeAngelo voluntarily terminate his employment, voluntarily retire, be discharged for cause or terminate due to disability or death. Voluntary separation may be triggered for "good reason" as defined in the Change of Control Agreement, however, excluding those provisions of that definition requiring a Change of Control event. /s/ Edward F. Voboril ---------------------------- Approved: Edward F. Voboril Chairman, President & C.E.O. EX-10.18 6 a4842884ex1018.txt EXHIBIT 10.18 EXHIBIT 10.18 WG(R) WILSON GREATBATCH TECHNOLOGIES, INC. 10,000 Wehrle Dr., Clarence, NY 14031-2033 USA Phone 716/769-8901 Fax 716/799-8579 May 29, 2002 Mr. Lawrence P. Reinhold 3207 Plantation Court Naperville, IL 60564 Dear Larry: We are pleased to provide the revised offer to be come the Executive Vice President and Chief Financial Officer for Wilson Greatbatch Technologies, Inc. (WGT). In this position you will report directly to Edward Voboril, Chairman, President and Chief Executive Officer, and be designated a member of the WGT Office of the Chairman. The agreed upon employment start date is June 10, 2002. Your starting salary will be $275,000 per year, paid bi-weekly at a rate of $10,576.92. You will be entitled to the company provided benefits as outlined on the enclosed summary sheet. You will be granted one full month (160 hours) of vacation each year, beginning with the start of your employment. You will be extended coverage under our standard relocation assistance program (as per attached). You will also be eligible for the following: o A company provided automobile; o Participation in the WGT Key Management Physical Examination Program; o Executive Financial Planning; o Coverage Under the WGT Change of Control Program (see attached); o Dependent (child) College Tuition Reimbursement (fully vested), in accordance with the policy (see attached). You will be granted one year of severance payments should your employment be involuntarily terminated by WGT. WGT will not be obligated to provide severance pay should you voluntarily terminate your employment, voluntarily retire, be discharged for cause or terminate due to disability or death. You will be eligible to participate (pro-rata) in the 2002 Key Management Incentive Plan (KMIP). KMIP is an executive bonus plan for selected key managers that will target you for a 50% bonus based on WGT's performance and attainment of 2002 goals. Lawrence P. Reinhold Page 2 May 29, 2002 Resolutions will be submitted on your behalf to the Board of Directors at the July 2002 meeting for their acceptance of the following: o Participation in the 1998 WGT (ISO) Stock Option Plan with a grant equal to 75,000 performance vesting stock option shares at a strike price to be determined by the Board of Directors. o Nomination to participate (pro-rata) in the 2002 WGT Long Term Incentive Compensation Program (LTIP). o Nomination as a WGT Corporate Officer and member of the Executive Committee. This offer is contingent upon successful completion of a pre-employment physical and a negative result on your drug test. Barbara Davis, Director, Human Resources & Organizational Development will contact you to set up an appointment. Sincerely, /s/ Larry DeAngelo Larry T. DeAngelo Senior Vice President, Administration and Secretary LTD/mc Enclosures WG(R) WILSON GREATBATCH TECHNOLOGIES, Inc. THE POWER TO DO GREAT THINGS(TM) TO: Lawrence Reinhold FROM: Barbara Davis DATE: June 7, 2002 SUBJECT: Revised Addendum dated May 29, 2002 CC: Larry DeAngelo ================================================================================ Following are agreed upon clarification to the revised offer of employment letter dated May 29, 2002. 1. Voluntary separation may be triggered for "good reason" as defined in the Change of Control Agreement, however, excluding those provisions of that definition requiring a Change of Control event. 2. The relocation provision is to include: a. Separate net of tax reimbursement for reasonable house hunting trips for the employee's family; reasonable commuting, lodging and transportation until relocation to the Buffalo area; trips back to current home in Chicago as appropriate but at a minimum bi-weekly. b. Moving of household goods will include "executive" level packing and unpacking of household goods. EX-10.19 7 a4842884ex1019.txt EXHIBIT 10.19 EXHIBIT 10.19 WG(R) WILSON GREATBATCH TECHNOLOGIES, INC. LARRY T. DeANGELO Senior Vice President Administration and Secretary August 9, 2004 Mr. Thomas J. Hook 11615 Laneborough Way Apartment 607 Knoxville, TN 37922 Dear Tom: We are pleased to provide the offer to become the Executive Vice President and Chief Operating Officer for Wilson Greatbatch Technologies, Inc. (WGT). In this position you will report directly to Edward Voboril, Chairman, President and Chief Executive Officer, and be designated a member of the WGT Office of the Chairman. The agreed upon employment start date will be confirmed upon receipt of this letter by you. Your starting salary will be $325,000 per year, paid bi-weekly at a rate of $12,500.00. You will be entitled to the company provided benefits as outlined on the enclosed summary sheet. You will be granted one full month (160 hours) of vacation each year, beginning with the start of your employment. You will be extended coverage under our standard relocation assistance program (as per attached). You will also be eligible for the following: o A company provided automobile; o Participation in the WGT Key Management Physical Examination Program; o Executive Financial Planning; o Coverage Under the WGT Change of Control Program (see attached); o Dependent (child) College Tuition Reimbursement (fully vested), in accordance with the policy (see attached). You will be granted one year of severance payments should your employment be involuntarily terminated by WGT. WGT will not be obligated to provide severance pay should you voluntarily terminate your employment, voluntarily retire, be discharged for cause or terminate due to disability or death. 10,000 Wehrle Dr., Clarence, N.Y. 14031 Phone 716/759-6901 Fax 716/759-8579 Thomas J. Hook Page 2 August 9, 2004 You will be eligible to participate in the 2005 Key Management Incentive Plan (KMIP). KMIP is an executive bonus plan for selected key managers that is currently under review by our compensation consultant but has targeted an 85% bonus based on WGT's performance and attainment of 2005 goals. A signing bonus in the amount of $75,000 will be provided to you and will be payable in the first full pay period check of 2005, assuming you remain actively employed at WGT. Resolutions will be submitted on your behalf to the Board of Directors at the October 2004 meeting for their acceptance of the following: o Participation in the 1998 WGT (ISO) Stock Option Plan with a grant equal to 50,000 performance vesting stock option shares at a strike price per share of WGT (GB) common stock fixed at the close of business at the NYSE on August 31, 2004. o A one-time WGT Restricted Stock award of 12,000 shares in accordance with the 2002 Restricted Stock Plan. o Nomination to participate in the 2005 WGT Long Term Incentive Compensation Program (LTIP) and the WGT Restricted Stock Program. o Nomination as a WGT Corporate Officer and member of the Operating Committee. This offer is contingent upon successful completion of reference checks, a pre-employment physical and a negative result on your drug test, Barbara Davis, Vice President, Human Resources & Organizational Development will contact you to set up an appointment. Sincerely, /s/ Larry Larry T. DeAngelo Senior Vice President, Administration and Secretary LTD/mc Enclosures EX-10.20 8 a4842884ex1020.txt EXHIBIT 10.20 EXHIBIT 10.20 Wilson Greatbatch Technologies, Inc. Directors' Compensation Policy ------------------------------ Each member of the Board of Directors who is not a full-time employee of Wilson Greatbatch Technologies, Inc. ("Outside Directors") shall receive compensation made up of cash and/or common stock as follows: Annual Retainers - ---------------- The annual retainer payable to each Outside Director for service on the Wilson Greatbatch Technologies, Inc. ("WGT") Company's Board shall be paid in full shares of WGT stock closest to the value of $10,000 (the "Annual Retainer") except for the Lead Independent Director whose annual retainer shall be paid in full shares of WGT stock closest to the value of $20,000. The Annual Retainer will be paid in the month of January based upon completion of the prior year of service and based upon the price of WGT stock recorded as of the close of business on the last trading day of the calendar year. Partial year appointments will receive a pro-rata annual retainer based upon the number of months of service in the appointment year. All shares of Common Stock received shall be issued from Wilson Greatbatch Technologies, Inc. treasury stock, which is subject to Rule 144 requirements. Therefore, all such stock must be held by the Outside Director for a minimum of one year after receipt thereof. Board and Committee Meeting Fees - -------------------------------- The fee payable to Outside Directors for each Board meeting attended in person shall be $3,000 and $1,000 if attended telephonically. For full Board of Directors meetings, the Lead Independent Director will be eligible for an additional $4,000 meeting fee if attended in person and $2,000 if attended telephonically. The fee payable to Outside Directors (including the Lead Independent Director) for each assigned Committee meeting attended in person shall be $2,000 and $1,000 if attended telephonically. In the case of a Committee Chairperson, the fee payable to Outside Directors (including the Lead Independent Director) shall be $4,000 if attended in person and $2,000 if attended telephonically. Voluntary attendance by any non-assigned outside Director (including the Lead Independent Director) at Committee meetings, while encouraged, is not subject to compensation. Effective: 01 August 2000 Revised: 21 November 2002 Revised: 06 January 2004 Revised: 03 March 2004 Revised: 10 January 2005 Revised: 21 January 2005 Revised: 11 February 2005 1 Non-Employee Director Stock Incentive Plan - ------------------------------------------ On the date each Outside Director first becomes a member of the Board during the term of the Plan, each Outside Director shall be granted, automatically, a non-qualified stock option to purchase five thousand (5,000) shares of common stock, subject to the terms set forth in the Plan. Each Outside Director will be eligible for an annual grant of stock options in addition to the grant awarded on the date when each Outside Director first becomes a member of the Board. The annual grant of stock options shall be awarded effective at the first full Board meeting in each new fiscal year. The size of the award shall be determined by company performance with 2,500 nonqualified stock options granted for years when overall company on target performance is achieved. At achievement of minimum threshold, the award will be set at 50% of the on target award. In years when the target award level is exceeded, award levels will match the formula in use to determine the short-term incentive plan awards (STIP) to members of the executive payroll. Travel Expense Reimbursement - ---------------------------- All Directors will be reimbursed for reasonable travel expenses incurred at the Director's discretion in connection with attendance at meetings of the Company's Board of Directors and its committees. Director's Liability - -------------------- A director of the Company shall not be personally liable either to the Company or to any stockholder for monetary damages for breach of fiduciary duty as a director, except to the extent set forth in the Company's Amended and Restated Certificate of Incorporation, as amended from time to time, or as required by applicable law. The Company shall indemnify Directors as and to the extent set forth in the Company's Amended and Restated Certificate of Incorporation, as amended from time to time, or as required by applicable law. The company currently has and does maintain Directors and Officers liability insurance coverage with a $20,000,000 policy limit. Insurance Coverages - ------------------- 1. General liability protection against third-party lawsuits against Directors, Officers and employees and automobile liability insurance protection against liability lawsuits arising from the operation and use of WGT owned vehicles and your own vehicle on authorized WGT business. Please note that in the event you use your own vehicle this insurance applies to excess of the vehicle's insurance. Effective: 01 August 2000 Revised: 21 November 2002 Revised: 06 January 2004 Revised: 03 March 2004 Revised: 10 January 2005 Revised: 21 January 2005 Revised: 11 February 2005 2 The Directors are afforded coverage under the general liability and automobile liability insurance of the Company. The current policy for General Liability limitation is $1,000,000 per occurrence with an additional $74,000,000 of excess coverage and $1,000,000 combined single limit (CSL) for any applicable individual coverage for their personal automobile. The excess coverage applies above the $1,000,000 CSL. 2. Fiduciary liability insurance with a $3,000,000 limit. 3. Employment practices liability with a $5,000,000 limit. 4. Crime insurance with a $1,000,000 limit. 5. Kidnap, ransom and extortion protection (coverage does not apply to former spouses) to a $1,000,000 limit. Effective: 01 August 2000 Revised: 21 November 2002 Revised: 06 January 2004 Revised: 03 March 2004 Revised: 10 January 2005 Revised: 21 January 2005 Revised: 11 February 2005 EX-12.1 9 a4842884ex121.txt EXHIBIT 12.1 EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Fiscal Year Ended December 31, 2004 2003 2002 2001 2000 -------------------------------------------------------- Earnings: Income before income taxes $ 23,732 $ 33,316 $ 20,965 $ 13,778 $ (876) Pretax charges (credits) -- (94) (28) -- -- Fixed Charges: Interest expense 3,857 3,523 3,265 3,699 12,305 Capitalized interest -- 99 30 -- -- Deferred financing fees 678 578 487 312 907 Interest portion of rental expense 354 319 275 300 306 -------------------------------------------------------- $ 28,621 $ 37,741 $ 24,994 $ 18,089 $ 12,642 ======================================================== Fixed Charges: Interest expense 3,857 3,523 3,265 3,699 12,305 Capitalized interest -- 99 30 -- -- Deferred financing fees 678 578 487 312 907 Interest portion of rental expense 354 319 275 300 306 -------------------------------------------------------- $ 4,889 $ 4,519 $ 4,057 $ 4,311 $ 13,518 ======================================================== Ratio of Earnings to Fixed Charges 5.9 8.4 6.2 4.2 0.9 ========================================================
1 EX-21.1 10 a4842884ex211.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF WILSON GREATBATCH TECHNOLOGIES, INC.
Subsidiary Incorporated - ---------- ------------ WGL Intermediate Holdings, Inc. Delaware (direct subsidiary of Wilson Greatbatch Technologies, Inc.) Wilson Greatbatch Ltd. New York (direct subsidiary of WGL Intermediate Holdings, Inc.) Greatbatch LLC Delaware (direct subsidiary of Wilson Greatbatch Ltd.) Greatbatch Technologias de Mexico, S. de C.V. Mexico (owned 99% by Greatbatch LLC & 1% by WGL Intermediate Holdings, Inc.) Greatbatch-Hittman, Inc. Delaware (direct subsidiary of Wilson Greatbatch Ltd.) Greatbatch-Sierra, Inc. Delaware (direct subsidiary of Greatbatch-Hittman, Inc.) Battery Engineering, Inc. Massachusetts (direct subsidiary of Wilson Greatbatch Ltd.) Greatbatch-Globe Tool, Inc. Minnesota (direct subsidiary of Wilson Greatbatch Ltd.) Greatbatch Technologies Advanced Research Laboratories, Inc. Delaware (direct subsidiary of Wilson Greatbatch Ltd.)
1 EX-23.1 11 a4842884ex231.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No's. 333-61476 and 333-97209 of Wilson Greatbatch Technologies, Inc. on Form S-8 and Registration Statement No. 333-107667 of Wilson Greatbatch Technologies, Inc. on Form S-3 of our reports dated March 15, 2005, relating to the financial statements and financial statement schedule of Wilson Greatbatch Technologies, Inc., and management's report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of Wilson Greatbatch Technologies, Inc., for the year ended December 31, 2004. /s/ Deloitte & Touche LLP Buffalo, New York March 15, 2005 1 EX-31.1 12 a4842884ex311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION ------------- I, Edward F. Voboril, certify that: 1. I have reviewed this report on Form 10-K for the fiscal year ended December 31, 2004 of Wilson Greatbatch Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 1 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2005 /s/ Edward F. Voboril -------------------------------- Edward F. Voboril Chairman of the Board, President and Chief Executive Officer 2 EX-31.2 13 a4842884ex312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION ------------- I, Lawrence P. Reinhold, certify that: 1. I have reviewed this report on Form 10-K for the fiscal year ended December 31, 2004 of Wilson Greatbatch Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 1 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2005 /s/ Lawrence P. Reinhold --------------------------- Lawrence P. Reinhold Executive Vice President and Chief Financial Officer 2 EX-32.1 14 a4842884ex321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION ------------- Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Wilson Greatbatch Technologies, Inc. (the "Company"), does hereby certify, to such officer's knowledge, that: The Annual Report on Form 10-K for the year ended December 31, 2004 (the "Form 10-K") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 15, 2005 /s/ Edward F. Voboril ------------------------------------- Edward F. Voboril President and Chief Executive Officer and Chairman of the Board Dated: March 15, 2005 /s/ Lawrence P. Reinhold ------------------------------------- Lawrence P. Reinhold Executive Vice President and Chief Financial Officer This certification is being furnished solely to accompany this Form 10-K pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise, and is not to be incorporated by reference into any filing of the Company unless such incorporation is expressly referenced within. 1 EX-99.1 15 a4842884ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 FACTORS POSSIBLY AFFECTING FUTURE OPERATING RESULTS From time to time, Wilson Greatbatch Technologies, Inc. (the Company) publishes forward-looking statements relating to anticipated financial performance, business development (including mergers, acquisitions, and other commercial arrangements), product development and regulatory approval timelines, intellectual property matters, market developments and similar matters. A variety of factors could cause the company's actual results and experience to differ materially from those projected, including the following: Risks Related To Our Business We depend heavily on a limited number of customers, and if we lose any of them or they reduce their business with us, we would lose a substantial portion of our revenues. A substantial portion of our business is conducted with a limited number of customers, including Guidant, St. Jude Medical, Medtronic, Sorin / ELA, Biotronik and Halliburton. In 2004, Guidant, St. Jude Medical, and Medtronic collectively accounted for approximately 70% of our revenues. Our supply agreements might not be renewed. Furthermore, our supply agreements do not all contain minimum purchase level requirements and therefore there is no guaranteed source of revenue that we can depend upon under these agreements. The loss of any large customer or a reduction of business with that customer for any reason would harm our business, financial condition and results of operations. If we do not respond to changes in technology, our products may become obsolete and we may experience a loss of customers and lower revenues. We sell our products to customers in several industries that are characterized by rapid technological changes, frequent new product introductions and evolving industry standards. Without the timely introduction of new products and enhancements, our products and services will likely become technologically obsolete over time and we may lose a significant number of our customers. In addition, other new products introduced by our customers may require fewer of our batteries or components. We dedicate a significant amount of resources to the development of our products and technologies and we would be harmed if we did not meet customer requirements and expectations. Our inability, for technological or other reasons, to successfully develop and introduce new and innovative products could result in a loss of customers and lower revenues. If we are unable to successfully market our current or future products, our business will be harmed and our revenues and operating results will be reduced. The market for our medical products has been growing in recent years. If the market for our products does not grow as rapidly as forecasted by industry experts, our revenues could be less than expected. In addition, it is difficult to predict the rate at which the market for our products will grow or at which new and increased competition will result in market saturation. Slower growth in the pacemaker, ICD and CRT markets in particular would negatively impact our revenues. In addition, we face the risk that our products will lose widespread market acceptance. We cannot assure you that our customers will continue to utilize the products we offer or that a market will develop for our future products. We may at times determine that it is not technically or economically feasible for us to continue to manufacture certain products and we may not be successful in developing or marketing them. Additionally, new technologies that we develop may not be rapidly accepted because of industry-specific factors, including the need for regulatory clearance, entrenched patterns of clinical practice and uncertainty over third party reimbursement. If this occurs, our business will be harmed and our revenues and operating results will be negatively affected. 1 We are subject to pricing pressures from customers, which could harm our operating results. We have made price concessions to some of our large customers in recent years and we expect customer pressure for pricing concessions will continue. Further, price concessions or reductions may cause our operating results to suffer. In addition, any delay or failure by a large customer to make payments due to us also could harm our operating results or financial condition. We rely on third party suppliers for raw materials, key products and subcomponents and if we are unable to obtain these materials, products and subcomponents on a timely basis or on terms acceptable to us, our ability to manufacture products will suffer. Our business depends on a continuous supply of raw materials. The principal raw materials used in our business include lithium, iodine, tantalum, platinum, ruthenium, gallium trichloride, tantalum pellets, vanadium pentoxide, iridium, and titanium. Raw materials needed for our business are susceptible to fluctuations due to transportation, government regulations, price controls, economic climate or other unforeseen circumstances. Increasing global demand for some of the raw materials we need for our business, including platinum, iridium, gallium trichloride, tantalum and titanium, has caused the prices of these materials to increase significantly. In addition, there are a limited number of worldwide suppliers of several raw materials needed to manufacture our products, including lithium gallium trichloride, carbon monofluoride, and tantalum. We cannot assure you that we will be able to continue to procure raw materials critical to our business or to procure them at acceptable price levels. We rely on third party manufacturers to supply many of our raw materials. Manufacturing problems may occur with these and other outside sources, as a supplier may fail to develop and supply products and subcomponents to us on a timely basis, or may supply us with products and subcomponents that do not meet our quality, quantity and cost requirements. If any of these problems occur, we may be unable to obtain substitute sources of these products and subcomponents on a timely basis or on terms acceptable to us, which could harm our ability to manufacture our own products and components profitably or on time. In addition, to the extent the processes that our suppliers use to manufacture products and subcomponents are proprietary, we may be unable to obtain comparable subcomponents from alternative suppliers. 2 We may never realize the full value of our intangible assets, which represent a significant portion of our total assets. At December 31, 2004, we had $220.8 million of intangible assets, representing 46% of our total assets. These intangible assets consist primarily of goodwill, trademarks, tradenames and patented technology arising from our acquisitions. Goodwill and other intangible assets with indefinite lives are no longer amortized, they are tested annually or upon the occurrence of certain events to determine if impairment is indicated. We may not receive the recorded value for our intangible assets if we sell or liquidate our business or assets. In addition, the material concentration of intangible assets increases the risk of a large charge to earnings in the event that the recoverability of these intangible assets is impaired, and in the event of such a charge to earnings, the market price of our common stock could be adversely affected. In addition, intangible assets with definite lives, which represent $64.0 million of our net intangible assets at December 31, 2004, will continue to be amortized. We incurred total amortization expenses relating to these intangible assets of $4.0 million in 2004. These expenses will reduce our future earnings or increase our future losses. Quality problems with our products could harm our reputation for producing high quality products, erode our competitive advantage and result in claims against us. Our products are held to high quality standards. In the event that our products fail to meet these standards, our reputation for producing high quality products could be harmed, which would damage our competitive advantage and could result in lower revenues. From time to time quality or performance issues have arisen regarding our products. Product quality or performance issues, however, may arise in the future that could have a significant adverse impact on us, either because they harm our reputation for high quality, result in a product liability or other legal claim against us, harm our reputation with our customers or result in a decline in our stock price. If we become subject to product liability claims, our operating results and financial condition could suffer. The manufacture and sale of our products expose us to potential product liability claims and product recalls, including those that may arise from failure to meet product specifications, misuse or malfunction of, or design flaws in, our products, or use of our products with components or systems not manufactured or sold by us. Many of our products are components and function in interaction with our customers' medical devices. For example, our batteries are produced to meet various electrical performance, longevity and other specifications, but the actual performance of those products is dependent on how they are in fact utilized as part of the customers' devices over the lifetime of the products. Product performance and device interaction from time to time have been, and may in the future be, different than expected for a number of reasons. Consequently, it is possible that customers may experience problems with their medical devices that could require device recall or other corrective action, where our batteries met the specification at delivery, and for reasons that are not related primarily or at all to any failure by our product to perform in accordance with specifications. It is possible that customers (or patients) may in the future assert that our products caused or contributed to device failure where our product was not the primary cause of the device performance issue. Even if such assertions do not lead to product liability or contract claims, they could harm our reputation and our customer relationships. 3 Provisions contained in our agreements with key customers attempting to limit our damages, including provisions to limit damages to liability for gross negligence, may not be enforceable in all instances or may otherwise fail to protect us from liability for damages. Product liability claims or product recalls, regardless of their ultimate outcome, could require us to spend significant time and money in litigation or require us to pay significant damages. The occurrence of product liability claims or product recalls could cause our operating results and financial condition to suffer. We carry product liability insurance coverage that is limited in scope and amount. Our management believes that our insurance coverage is adequate given the risks we face. We cannot assure you that we will be able to maintain this insurance or to do so at a reasonable cost and on reasonable terms. We also cannot assure you that this insurance will be adequate to protect us against a product liability claim that arises in the future. Our operating results may fluctuate, which may make it difficult to forecast our future performance and may result in volatility in our stock price. Our operating results have fluctuated in the past and are likely to fluctuate significantly from quarter to quarter due to a variety of factors, including: o the fixed nature of a substantial percentage of our costs, which results in our operations being particularly sensitive to fluctuations in revenue; o changes in the relative portion of our revenue represented by our various products and customers, which could result in reductions in our profits if the relative portion of our revenue represented by lower margin products increases; o timing of orders placed by our principal customers who account for a significant portion of our revenues; and o increased costs of raw materials or supplies. 4 If we are unable to protect our intellectual property and proprietary rights, our business could be adversely affected. 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, 2004, we held 246 active U.S. patents. We cannot guarantee that the steps we have taken or will take to protect our proprietary rights will be adequate to deter misappropriation of our intellectual property. In addition to seeking formal patent protection whenever possible, we attempt to protect our proprietary rights and trade secrets by entering into confidentiality and non-compete agreements with employees, consultants and third parties with which we do business. However, these agreements can be breached and, if they are, there may not be an adequate remedy available to us and we may be unable to prevent the unauthorized disclosure or use of our technical knowledge, practices or procedures. If our trade secrets become known, we may lose our competitive advantages. In addition, we may not be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. If third parties infringe or misappropriate our patents or other proprietary rights, our business could be seriously harmed. We may be required to spend significant resources to monitor our intellectual property rights, we may not be able to detect infringement of these rights and may lose our competitive advantages associated with our intellectual property rights before we do so. In addition, competitors may design around our technology or develop competing technologies that do not infringe on our proprietary rights. 5 We may be subject to intellectual property claims, which could be costly and time consuming and could divert our management and key personnel from our business operations. In producing our batteries and other components for implantable medical devices, third parties may claim that we are infringing their intellectual property rights, and we may be found to have infringed those intellectual property rights. While we do not believe that any of our products infringe the intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may be used in our technology and products. In addition, third parties may claim that our patents have been improperly granted and may seek to invalidate our existing or future patents. Although we do not believe that any of our active patents should be subject to invalidation, if any claim for invalidation prevailed, the result could be greatly expanded opportunities for third parties to manufacture and sell products that compete with our products and our revenues from any related license agreements would decrease accordingly. We also typically do not receive significant indemnification from parties which license technology to us against third party claims of intellectual property infringement. Any litigation or other challenges regarding our patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved in producing our power sources and other components for implantable medical devices, and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of our products. Infringement claims, even if not substantiated, could result in significant legal and other costs and may be a distraction to management. We are dependent upon our senior management team and key personnel and the loss of any of them could significantly harm us. Our future performance depends to a significant degree upon the continued contributions of our senior management team and key technical personnel. Our products are highly technical in nature. In general, only highly qualified and trained scientists have the necessary skills to develop our products. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. We face intense competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team and key technical personnel would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our company and to develop our products and technology. We cannot assure you that we would be able to locate or employ such qualified personnel on acceptable terms. We may not be able to attract, train and retain a sufficient number of qualified professionals to maintain and grow our business. 6 Our success will depend in large part upon our ability to attract, train, retain and motivate highly skilled employees and management. There is currently aggressive competition for employees who have experience in technology and engineering. We compete intensely with other companies to recruit and hire from this limited pool. The industries in which we compete for employees are characterized by high levels of employee attrition. Although we believe we offer competitive salaries and benefits, we may have to increase spending in order to retain personnel. We may make acquisitions that could subject us to a number of operational risks and we may not be successful in integrating companies we acquire into our existing operations. We have made and expect to make in the future selective acquisitions that complement our core competencies in technology and manufacturing to enable us to manufacture and sell additional products to our existing customers and to expand our business into related markets. However, implementation of our acquisition strategy entails a number of risks, including: o inaccurate assessments of undisclosed liabilities; o diversion of our management's attention from our core businesses; o potential loss of key employees or customers of the acquired businesses; o difficulties in integrating the operations and products of an acquired business or in realizing projected efficiencies and cost savings; and o increases in our indebtedness and a limitation in our ability to access additional capital when needed. If we are not successful in making acquisitions to expand and develop our business, our operating results may suffer. A component of our strategy is to make selective acquisitions that complement our core competencies in technology and manufacturing to enable us to manufacture and sell additional products to our existing customers and to expand our business into related markets. Our continued growth will depend on our ability to identify and acquire companies that complement or enhance our business on acceptable terms. We may not be able to identify or complete future acquisitions. Some of the risks that we may encounter include expenses associated with and difficulties in identifying potential targets, the costs associated with incomplete acquisitions, and higher prices for acquired companies because of competition for attractive acquisition targets. Our failure to acquire additional companies could cause our operating results to suffer. 7 We may face competition from our principal medical customers that could harm our business and we may be unable to compete successfully against new entrants and established companies with greater resources. Competition in connection with the manufacturing of products may intensify in the future. One or more of our customers may undertake additional vertical integration initiatives and begin to manufacture some or all of their components. The market for commercial power sources is competitive, fragmented and subject to rapid technological change. Many other commercial power source suppliers are larger and have greater financial, operational, personnel, sales, technical and marketing resources than our company. These and other companies may develop products that are superior to ours, which could cause our results of operations to suffer. Accidents at one of our facilities could delay production and adversely affect our operations. Our business involves complex manufacturing processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities. Any accident, such as a chemical spill, could result in significant manufacturing delays or claims for damages resulting from injuries, which would harm our operations and financial condition. The potential liability resulting from any such accident or death, to the extent not covered by insurance, could cause our business to suffer. Any disruption of operations at any of our facilities could harm our business. We intend to expand into new markets and our proposed expansion plans may not be successful, which could harm our operating results. We intend to expand into new markets through the development of new product applications based on our existing component technologies. These efforts have required, and will continue to require us to make substantial investments, including significant research, development and engineering expenditures and capital expenditures for new, expanded or improved manufacturing facilities. We may not be able to successfully manage expansion into new markets and products and these efforts may harm our operating results. Specific risks in connection with expanding into new markets include the inability to transfer our quality standards into new products, the failure of customers in new markets to accept our products and price competition. 8 Our failure to obtain licenses from third parties for new technologies or the loss of these licenses could impair our ability to design and manufacture new products and harm our revenues. We occasionally license technologies from third parties rather than depending exclusively on our own proprietary technology and developments. For example, we license a capacitor patent from the Evans Capacitor Company. Our ability to license new technologies from third parties is and will continue to be critical to our ability to offer new and improved products. We may not be able to continue to identify new technologies developed by others and even if we are able to identify new technologies, we may not be able to negotiate licenses on favorable terms, or at all. Additionally, we could lose rights granted under licenses for reasons beyond our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent. Our failure to timely or properly implement our new information systems could adversely affect our business. We are in the process of implementation of new information systems. Any failures, difficulties or significant delays in implementing these new information systems could result in material adverse consequences to our business, including disruption of operations, loss of information and unanticipated increases in costs. Risks Related To Our Industries We and our customers are subject to various political, economic and regulatory changes in the healthcare industry which could force us to modify how we develop and price our products. The healthcare industry is highly regulated and is influenced by changing political, economic and regulatory factors. Several of our product lines are subject to international, federal, state and local health and safety, packaging and product content regulations. In addition, implantable medical devices produced by our medical customers are subject to regulation by the U.S. Food and Drug Administration and similar governmental agencies. These regulations govern a wide variety of product activities from design and development to labeling, manufacturing, promotion, sales and distribution. Compliance with these regulations may be time consuming, burdensome and expensive and could negatively affect our customers' abilities to sell their products, which in turn would adversely affect our ability to sell our products. This may result in higher than anticipated costs or lower than anticipated revenues. These regulations are also complex, change frequently and have tended to become more stringent over time. Federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state levels. In addition, these regulations may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. We may be required to incur significant expenses to comply with these regulations or remedy past violations of these regulations. Any failure by our company to comply with applicable government regulations could also result in cessation of portions or all of our operations, impositions of fines and restrictions on our ability to carry on or expand our operations. In addition, because many of our products are sold into regulated industries, we must comply with additional regulations in marketing our products. 9 Our business is subject to environmental regulations that could be costly for our company to comply with. Federal, state and local regulations impose various environmental controls on the manufacturing, transportation, storage, use and disposal of batteries and hazardous chemicals and other materials used in, and hazardous waste produced by, the manufacturing of power sources and components. Conditions relating to our historical operations may require expenditures for clean-up in the future and changes in environmental laws and regulations may impose costly compliance requirements on us or otherwise subject us to future liabilities. Additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our batteries and components or restricting disposal of batteries may be imposed. In addition, we cannot predict the effect that additional or modified regulations may have on us or our customers. Consolidation in the healthcare industry could result in greater competition and reduce our medical component revenues and harm our business. Many healthcare industry companies are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants will become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions for our products. If we are forced to reduce our prices because of consolidation in the healthcare industry, our revenues would decrease and our operating results would suffer. Our medical business is indirectly subject to healthcare industry cost containment measures that could result in reduced sales of our products. Our healthcare customers rely on third party payors, such as government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which our products are used. The continuing efforts of government, insurance companies and other payors of healthcare costs to contain or reduce those costs could lead to patients being unable to obtain approval for payment from these third party payors. If that occurred, sales of implantable medical devices may decline significantly, and our customers may reduce or eliminate purchases of our products. The cost containment measures that healthcare providers are instituting, both in the United States and internationally, could harm our ability to operate profitably. Our non-medical power source revenues are dependent on conditions in the oil and natural gas industry, which historically have been volatile. 10 Sales of our commercial products depend to a great extent upon the condition of the oil and gas industry and, specifically, the exploration and production expenditures of oil and gas companies. In the past, oil and natural gas prices have been volatile and the oil and gas exploration and production industry has been cyclical, and it is likely that oil and natural gas prices will continue to fluctuate in the future. The current and anticipated prices of oil and natural gas influence the oil and gas exploration and production business and are affected by a variety of political and economic factors beyond our control, including worldwide demand for oil and natural gas, worldwide and domestic supplies of oil and natural gas, the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels and pricing, the level of production of non-OPEC countries, the price and availability of alternative fuels, political stability in oil producing regions and the policies of the various governments regarding exploration and development of their oil and natural gas reserves. An adverse change in the oil and gas exploration and production industry or a reduction in the exploration and production expenditures of oil and gas companies could cause our revenues from commercial products to suffer. 11 -----END PRIVACY-ENHANCED MESSAGE-----