Greatbatch, Inc. (Greatbatch), a US based medical devices company, has reported sales of $546.6 million for the full year of 2008, compared with the sales of $318.7 million in the previous year-end. It has also reported a net income of $18.6 million, or $0.81 per diluted share, for the full year of 2008, compared with the net income of $15.1 million, or $0.67loss per diluted share, in the previous year-end.
Record sales of $146.6 million for the fourth quarter and $546.6 million for the full year 2008.
GAAP EPS of $0.36 per share and Adjusted EPS of $0.50 per share for the quarter.
GAAP EPS of $0.81 per share and Adjusted EPS of $1.40 per share for the year.
Cash flow from operations of $10.1 million for the fourth quarter, $57.1 million for the year.
“Our 2008 results reflect the continued successful execution of our strategic plan. Despite the turmoil in the broader economy, our diversification strategy and focus on delivering innovative solutions for our customers enabled us to drive improved operating performance,” stated Thomas J. Hook, president & chief executive officer of Greatbatch. “We are satisfied with the progress we have made on the integration of our acquisitions. In addition, we remain committed to ongoing improvements in our operating performance through further leveraging our diversified revenue base, continued facility consolidation, and product development activities. I believe we have set a solid foundation to further strengthen and expand our position in the marketplace and we remain confident in Greatbatch’s future growth opportunities.”
Fourth Quarter Results
Consolidated sales in the fourth quarter were $146.6 million, up 74% over the comparable 2007 period. This increase was driven by about $45.4 million of incremental revenue from our acquisitions as well as 10% organic growth. Additionally, 2008 fourth quarter sales benefited from an additional week of operations resulting from our fiscal year end falling in 2009 (closest Friday to December 31st). Compared to the third quarter 2008, revenue increased 8%, primarily due to the additional week of sales.
Cost of sales as a percentage of revenue for the quarter improved to 68.1% against 68.5% for fourth quarter 2007 and 69.4% in the sequential quarter. These improvements were driven by higher production volume, the impact of consolidation initiatives completed during the current year and a favorable change in product mix. Fourth quarter 2007 cost of sales includes $0.4 million of acquisition related inventory step-up amortization.
Selling, general and administrative expenses as a percentage of sales down to 13.6% versus 14.9% for fourth quarter 2007, which reflects the various cost cutting initiatives implemented in 2008. This percentage increased against the third quarter 2008 of 11.5%, primarily due to the timing of expenditures.
Net research, development and engineering costs for the fourth quarter were $7.7 million, which as expected, were lower as a percentage of sales versus fourth quarter 2007 due to the realignment of these operations in 2008. Net research, development and engineering costs as a percentage of sales were consistent with third quarter 2008.
As a result of the above, GAAP operating income for the quarter up $12.0 million from $5.4 million in 2007, but decreased from the sequential quarter of $15.7 million. Similarly, adjusted operating income was $19.1 million in fourth quarter 2008 against $6.9 million for fourth quarter 2007 and $19.3 million for third quarter 2008. Adjusted amounts exclude the impact of debt extinguishment gains, acquisition-related charges (in-process research and development, inventory step-up amortization), as well as facility consolidation, manufacturing transfer, and system integration expenses. (See Tables A and B for reconciliations of adjusted amounts to GAAP).
As a result of the enactment of the research and development tax credit in October 2008, the effective tax rate for fourth quarter 2008 was 29.3% against 45.4% for the same period of 2007 and 40.5% for the sequential quarter.
Earnings per diluted share on a GAAP basis were $0.36 per share in the quarter, against $0.12 per share in fourth quarter 2007 and $0.33 per share in third quarter 2008. GAAP earnings per share for fourth quarter 2008 include the impact of the gain on extinguishment of debt during the quarter of $3.2 million or $0.09 per share. Adjusted earnings per diluted share were $0.50 in the quarter, an increase from $0.20 in the fourth quarter 2007 and $0.44 in the sequential quarter.
Significant actions for the quarter included the closure of our Saignelegier, Switzerland facility as well as the initiation of the consolidation of our Blaine, Minnesota, Exton, Pennsylvania and Teterboro, New Jersey facilities into existing facilities with excess capacity. During the quarter the Company also took advantage of an opportunity caused by the market unrest and retired $22 million of long-term debt at a 15% discount, which would have otherwise been due in June of 2010 at par. This transaction resulted in a $3.2 million gain, or $0.09 per share, and had a return on capital of nearly 20%.
Thomas J. Mazza, senior vice president & chief financial officer, stated, “We have worked hard to implement an efficient operating model while making the necessary investments to ensure growth across our various product lines. Despite an unprecedented economic environment, our strong financial position, the resiliency of our core markets as well as the benefits of a more diverse revenue stream, allowed us to achieve our financial goals for the year. Overall cost reduction initiatives are on track and, along with our revenue growth, enabled us to significantly improve our operating margins throughout 2008. In addition, we believe our strong cash generation, financial discipline and effective cost structure will enable us to strengthen our platform for future growth and increase shareholder value.”
At this time, 2009 annual revenue is expected to be in the range of $550 million to $600 million. Additionally, adjusted operating income is expected to increase from 10.6% in 2008 to between 11.0% and 13.0% in 2009. Adjusted operating income excludes non-recurring costs associated with plant consolidations and integration of acquisitions of about $10 million to $13 million.