Integer Holdings Corp (ITGR) 2007 Q4 法說會逐字稿

Welcome, everyone, to the fourth quarter Greatbatch Incorporated earnings conference call. Before we begin, I would like to read the the Safe Harbor statement. This presentation and our press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involves a number of risk and uncertainties. These risk and uncertainties are described in the Company's annual report and Form 10-K. The statements are based upon Greatbatch Incorporated's current expectations and actual results could differ materially from those stated or implied. The Company assumes no obligation to update forward-looking information included in this conference call to reflect change assumptions, the occurrence of unanticipated events or change in future operating results, financial conditions, or prospects. I'd now like to turn the call over to today's host Treasurer and Director of Investor Relations, Tony Borowicz.

Thank you. Welcome, everybody, to the fourth quarter and year-end Greatbatch earnings conference call. On the call today are Thomas J. Hook, President and Chief Executive Officer; and Thomas J. Mazza, Senior Vice President and Chief Financial Officer.

In terms of today's agenda, Tom Hook will start by reviewing the 2007 strategic imperatives. Next he will provide an overview of the two orthopedic acquisitions that were recently completed. Tom will then conclude his remarks by providing summary comments on our outlook for 2008. Next, Tom Mazza will review our Q4 results and provide commentary on our 2008 guidance. As we've done in the past we are including slide visuals that will go along with this presentation which you can access on our website. Let me now turn the call over to Tom Hook.

Thank you, Tony. Over the past year we have focused our efforts on creating a platform that will support our growth initiatives. Our vision is to be the leader in the comprehensive design and manufacture of custom product technologies for the implantable medical and commercial markets. As a result of these efforts, we are in opposition to expand our business through organic growth, innovation, and strategic acquisitions that further our technology and competitive positions in the marketplace.

2008 was an extraordinary year in many respects and difficult in others. Before Tom Mazza reviews our financial results, I'll take a few minutes to review the six corporatewide strategic imperatives by which we measure our progress. The first imperative we define is protecting the core business. Looking back at 2007, we achieved organic sales growth of 8% and adjusted net income growth of 17%, which represents solid performance given the underlying cardiac rhythm management and commercial markets. Our second imperative is to obtain critical mass. Over the past 10 months, we have successfully completed 7 acquisitions. These transactions have transformed us from a one market, three customer medical components Company to one that is more diverse customer based, with expanded markets and product offerings. In addition to our cardiac rhythm management and commercial businesses, we have added critical mass in both orthopaedics and vascular markets. Additionally we have enhanced our commercial business by adding rechargeable battery and wireless sensing capabilities. For 2008, we anticipate having revenues of approximately 490 million to $530 million, with a target market mix of approximately 50% for cardiac rhythm management, 23% for orthopedic, 10% for vascular, and neuromodulation, and 14% for commercial.

Our third imperative is to improve operating profitability. As noted in the tables we distributed with our press release, adjusted operating income grew by approximately 11% on a year-over-year basis. We believe that this represents solid performance given the soft cardiac rhythm management in commercial markets and also our high level of mergers and acquisitions activity. In addition, our results were impacted by the delay in the closure of our Columbia facility due to customer qualification issues. We now expect this facility will close mid 2008. I would like to add that we are not satisfied with our operating profitability. We plan to focus our 2008 initiatives in this area to drive improvements.

Our fourth imperative is to fill technology gaps. During 2007, we made significant progress under this imperative. Through the acquisition of BIOMEC, obtained design and engineering capabilities for medical devices. This will enable us to provide design and component integration capabilities for early stage and established customers. With the acquisition of IntelliSensing, we obtained wireless sensing capabilities that will allow us to cross-sell to our commercial customers, in particular our customers in the oil and gas industry. The EAC acquisition added rechargeable battery capability and entered us into the external medical market. Through the acquisitions of BIOMEC, Quan Emerteq, Precimed, and Enpath, we have greatly expanded our clinical relationships as well as our regulatory capabilities.

Our fifth imperative is to invest in customers. Over the past two years, we have acquired several minority ownership positions in development stage companies including Interpulse, Emerteq and Chambers Medical. We will continue to pursue these types of investments where we can provide them with enabling technology as well as design and manufacturing capabilities. During 2007, you will also note that we signed two long term agreements with our major cardiac rhythm management customers.

Our sixth imperative is to enhance associate performance. As a result of our acquisitions and internal development initiatives we have a team that is ready for the next phase. During 2007, we have been able to place internally approximately 50% of our open professional positions, including several key plant operational roles as well as functional positions in finance and human resources. In summary, we have been successful in our plan to expand beyond the cardiac rhythm management market. We expect a concentration in our top three customers to decline from 67 to 50% in 2008. However, these major customers continue to be our primary focus and we have established potential cross-selling opportunities with them in the four markets we serve.

I would now like to spend a few minutes highlighting the two orthopaedic acquisitions that the we completed in January and February of this year. The acquisitions of Precimed and the DePuy Chaumont, France manufacturing facility support our strategic vision of being a key global supplier to the medical device industry. Precimed has broad production capabilities, technology, and relationships with orthopaedic OEMs. The Precimed transaction serves as our entree into the attractive orthopaedic market segment. This market is a $20 billion plus device industry growing at approximately 10% annually, with the outsourcing market expected to grow even faster. This transaction provides us with significant market, geographic, and customer diversification. The Chaumont, France transaction includes a four year supply agreement with DePuy, a Johnson & Johnson Company, which enhances our strategic relationship with one of the largest orthopaedic companies in the world. This transaction further extends our offerings to a full range of orthopaedic implants, notably for the hip and shoulder markets. The Chaumont facility has approximately 200 highly skilled employees with large scale manufacturing expertise.

The Precimed business model is very similar to that of Greatbatch. The strategy is to integrate closer to the customer with broad product offerings of proprietary specialty components. Precimed product offerings include a full complement of instruments, tools, implants, and delivery systems, which encompass over 90 patents. With the completion of these two transactions we anticipate that the orthopaedic market will represent approximately 23% of our total revenue base. We intend to further strengthen the Precimed business by applying our lean manufacturing expertise across all of their manufacturing operations.

As we look forward to 2008, we see a strong focus on integration and creating operational efficiency. Although we anticipate the pace of acquisitions to slow drastically in 2008, there may be targeted opportunities. We will look at these to fill specific technology or product offering gaps. Our plan is to drive operating performance and our operating margin through lean manufacturing initiatives, leveraging top line growth, and product offerings that are based on our technologies currently under development. As previously indicated, we will also finish our current relocation projects, including the Columbia Manufacturing Facility, our corporate headquarters, and our commercial facility. We will maintain the same six strategic imperatives in 2008 and have a serious focus on integration and lean activities. I consider the impact of our growth has had on our customers to be a major accomplishment. With new vertical markets and expanded product offerings in CRM and commercial, we're able to acquire new customers as well as to offer current customers a more in depth product portfolio. Our acquisitions have brought many new faces to Greatbatch over the past year, and have helped to reposition the responsibilities of many longstanding associates. Our organization restructuring has led to the the creation of a strong management team, one that will be responsible for leading Greatbatch 2008 and beyond.

With a platform focused on integration, our business leaders will not only work to strengthen their businesses but together, work to improve the overall strength of Greatbatch. Tom Mazza, Tim McEvoy and Barb Davis will lead Finance, Legal, and Human Resources respectively and act as a driving force in the integration process. Susan Campbell will lead our Global Manufacturing and Supply Chain organization. Muricio Arellano will steer the cardiac rhythm management and neuromodulation business. And Sue Bratton will continue her leadership of the commercial business. Through the acquisition of Quan Emerteq I'm pleased to announce that Rich Farrell and John Farrell have joined our executive development team. Rich will head our business development group with a major focus on driving growth. John will lead the therapy delivery business which includes the Quan Emerteq and En path organization. Also new to our team from the Precimed transaction are Patrick Berdoz who will lead the orthopaedics business and John Ayliffe who will, in addition to Patrick run the orthopaedics business and concentrate on coordinating our European business development. This new expanded executive leadership team is experienced and highly motivated to drive the Greatbatch business going forward. I'll now turn the call over to Tom Mazza to review our financial results.

Thanks, Tom. Good afternoon. For the fourth quarter we reported sales of $84.4 million, an increase of 30% over the fourth quarter of 2006. For the full year, sales were $319 million, an increase of 18% over last year. The fourth quarter and full year results included $15 million and $26 million respectively in sales attributable to the acquisitions completed in 2007. Adjusting for the impact of the 2007 acquisitions, sales increased by 10% for the quarter and 8% for the year.

Gross profit increased 19% to $26.6 million; however our gross margin decreased by 4% to 31.5%. This decrease is primarily attributable -- due to the inclusion of the new acquisitions which included increased amortization of intangible assets and the purchase accounting inventory step up write-offs in the period.

Turning to G&A expense, costs increased by $2 million, due to additional amortization expense primarily customer relationships and non-compete agreements and increased personnel from the acquired companies. On a percentage of sales basis SG&A expense declined approximately 2%. RD&E expenses of $8.1 million although up from last year to the inclusion of the acquired Company as a percentage of sales were consistent with last year's percentage. This spending is in line with our continued committment to invest in technology. Earnings per share for the quarter on a GAAP basis were $0.12 per share diluted on an adjusted basis, EPS was $0.21 per share.

Let me now turn the discussion to the 2008 financial guidance. We expect sales to be in the range of 490 million to $530 million. This is based on pro forma growth rates of 5% in the combined CRM neuromodulation business, 7% in our commercial business and 10 to 12% in the orthopaedic and therapy delivery businesses. U.S. GAAP EPS will be given later in the year after we have completed the purchase accounting valuations of the orthopaedic companies we acquired in January and February. Our guidance for adjusted operating income is that it will be in the range of 11 to 13% of sales and that our adjusted EBITDA guidance will be in the range of 21% to 23% of sales. We estimate that interest expense will be approximately $15 million and that the capital expenditures will be 50 million to $55 million. Based on the above information, we estimate our EPS guidance to be between $1.20 and $1.50 per share. Let me now turn the call back over to the moderator to take Q&A.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Keay Nakae with Collins Stewart. Please proceed with your question.

Yes, good afternoon. Tom, on the revenue guidance, it's a little lower than what you had previously given a couple of months ago. Can you talk about where those declines are coming from?

It's really just due to the timing of when we closed the acquisitions in the orthopaedic side, we initially had kind of given a preliminary indication in November that was predicated on us getting all of the acquisitions closed before the end of 2007. With the Precimed and the DePuy deals not closing until early '08 we made a small adjustment there but still bullish and confident on the business growth.

Okay and in terms of the combined aggregate acquisitions, what the are you looking at in terms of additional amortization expense? Can you give us a little more color there?

I'll let Tom Mazza break out the deals that we have, but two of the deals on the orthopaedics deals specifically in Precimed and DePuy we have not finished the acquisition accounting adjustments there, so it's just the ones, the five deals in '07 that we finished.

Yes, an estimate is approximately -- purchase accounting amortization is probably about $7.5 million in total that we'll be adding to the analysis. We have to really, that is including the two new ones but really those are really rough estimates at this point in time.

Okay, and thus far, you haven't talked a lot about future cost savings, consolidation efforts, things of that nature. Without giving a lot of specifics, directionally, is there anything there?

It's a great question. We have aggressively since putting the new executive leadership team together outlined a series of plans and initiatives the next week we're going to be reviewing what our Board of Directors who have been highly supportive of these initiatives in the past. We look forward to finalizing those plans and gaining approval for them to implement starting in 2008, and providing more color as to the individual plans and the individual initiatives and over the course of the second quarter, we'll be providing more color on those outside the Company. But there's a lot of work to be done internally to get those plans finalized and communicated to the various businesses within Greatbatch, so it will be a couple more months before we actually give a lot of color on those but it's a long list and we're quite optimistic for the impact on the Company.

Okay, and one final question, if I may.. Given the look that you've had now, at the acquisitions compared to what was more cursory before, have you found anything positive or negative that was unexpected?

Positive wise, a lot of opportunities to cross-sell between our major customers. We've picked up a lot of smart people in the deals and they have been able to make improvements in our base business, and also, we found areas where Greatbatch can make improvements in their businesses, so we're leveraging the skills across the Company. It was one of the pieces that led to the reorganization to align manufacturing globally which will give us a lot of nice opportunities. The other thing is that we have a lot to learn in each of the product technology areas in terms of investment priorities so it's going to be a full year of doing assessments on technologies, where to make investments, so I see a lot of positive coming out of it but a long action items list for the leadership team. So a challenging but would be a rewarding year.

Okay, very good, thanks.

Thanks.

Your next question comes from the line of Jason Mills with Canaccord Adams. Please proceed with your question.

Thanks, guys, for taking the question. Just Tom, with respect to operating margins, you held your guidance for 2008 it looks like, but missing from the press release was the assertion you made back I believe in November at an investor conference with respect to your goals and plans for expanding margins as we move forward. Could you sort of address that issue briefly? Is that an omission that means that you're sort of backing off from expecting a couple hundred basis points or maybe -- just I'll stop there and let you answer, sorry.

Sure, no, no problem, Jason. No, we're still aggressive in being able to improve our operating margin performance, so not going to back off on being able to drive improvement to a couple hundred basis points per year.

Okay.

I want to be able to -- that was a very kind of general indication in the early winter time frame. We want to get to the the second quarter and give more granularity as to where we're going to get those improvements, communicate what we're doing over the '08 and '09 time period by project and by initiative to give you a little bit more granularity and I think that way, rather than it being just a kind of general undesignated initiative, while we're still comfortable in saying it, we want to just back it up with more specifics so that each of you contract each initiative on a quarterly basis and we'll report its progress both in spend as well as in savings impact. And that will give more of a tangible nature to that couple hundred basis points improvement each year and then you'll be able to give us a scorecard where we stand up against it and we just want to get our plans flushed out and approved before we go out and kind of give that walk so to speak, kind of in the second quarter time frame.

Okay, and to Keay's question with respect to potential cost synergies, just to follow-up on that, Tom, you had a lot of success over the last three or four years since you came on Board as Chief Operating Officer, with the strategy of consolidating plants and increasing automation. Would the same game plan apply to sort of the next three years as you try to drive cost synergies and integrate these seven acquisitions?

It's an excellent question. We have 19 facilities now within Greatbatch and we have real subject matter expertise and Sue Campbell's team in doing lean manufacturing, Operator process control, plant floor initiatives, consolidations, et cetera and I take the teams accomplishments at Greatbatch over the past three years as proof that we can do this again. We have a lot to learn in the new businesses and the new operating leaders that the have come to the Company in orthopaedics and therapy delivery are going to help us be successful but we're going to work with them to do these initiatives, and I feel that the same skills and abilities that have allowed us to be successful in the CRM as well as commercial businesses to this point will also allow us to be successful in the same fashion going forward but we're going to do that working as a team with the new business leaders just like we have in the core business. So quite confident there.

Fair enough. One quick final question and I'll get back in queue. With respect to the intangibles amortization, Tom you mentioned an additional 7 million to $7.5 million. Correct me if I'm wrong but I'm estimating that is in addition to around that much that exists currently on your P&L, so would that imply somewhere in the range of 14 million to $15 million in total intangibles amortization that's built into your operating margin guidance at this point?

That's a little high what we have currently but -- because some of that is interest expense but yes, that's close.

Okay, so for the $14 million is maybe is a little high but close?

Correct.

Okay, great. Thank you very much, guys. I'll get back in queue.

Okay.

Your next question comes from Bob Hopkins with Lehman Brothers. Please proceed with your question.

Hi, thank you. The range, the EPS guidance ranges you gave of $1.20 to $1.50 is -- so I assume obviously the amortization of around $14 million applies to both the high and the low end of the range or is there any variability in the amortization calculation as you go forward, and get a better sense for GAAP numbers?

Yes. Bob, yes. Very much so on the two acquisitions we just completed. We have preliminary valuations on the three that we finished in December and we're in the process of getting the valuations, the purchase accounting allocations done for the two new ones. We'll not have a better handle on that for probably about a month or so, so it is a guess on those two so it is subject to change on those. I think everybody understands that with all the accounting literature, there is pressure to put more into amortizing intangible as opposed to leaving it in goodwill so there is pressure to increase those numbers.

So in your guidance, is there a different amortization assumption in $1.20 versus $1.50? Or are there just other--?

No, no.

It's the same, Bob.

Its the same.

We have one assumption in there and it's held constant.

Okay. And when did you say you'll have a better handle on all of the calculations in another couple months?

Exactly, a couple months. The last one was just closed in the middle of February, so by the time we get our outside experts to go through it, it will take at least a month or two.

And kind of the first quarter conference call in the late April, or early May time frame is when we will provide the color on that, Bob.

Okay, and then again on that range of $1.20 to $1.50, I assume the bottom end is your 490 and the high end is your 530 on the revenue side, but could you just talk a little bit about some of the other variables that would drive you to the high end versus the low end there?

The revenue is the primary one, and on how fast we can get the cost initiatives to start going through to get to the upper end of the 13.

And then Tom, what was the reason for the delayed close on you were saying now more like mid year? I'm sorry, your plant closure?

Oh, the plant closure. It really is each, as we've said before, and each of these plants is each individual product line has to receive a separate customer approval, FDA approval, and we just have one product line can prevent it from going down, we've been proportionalizing the Columbia operations in terms of their scope, but there's still product lines there that customers have made the FDA filings, but the FDA has not finalized their approval and for risk mitigation purposes, we continue to manufacture there, but just those product lines we're waiting for those approvals on, and in that we both made features and coded electrodes and there's obviously been some issues in the market with regards to the electrodes pieces, really leads, it doesn't have anything to do with us. It's made some of the approval timelines longer. And then the difference between the bottom end of your revenue guidance for '08 being 490 versus 500 is entirely the orthopaedic acquisitions and the timing of the close there? It's just really the timing of the close being mid January for Precimed, mid February for the DePuy piece so we just adjusted it instead of saying pro forma 500, we thought it would be better to call out the actual revenue which would be 490.

Okay, thank you very much.

Your next question comes from the line of [Stan Mann], with [Mann Investments]. Please proceed with your question.

Gentlemen, I have a question. I'm trying to compare your guidance for 2008 with your Table C EPS of 1.46. Can you give a little bit of detail on whether they're fully comparable, the 1.20 to 1.50? Is it on the same basis as the 1.46 or do we need to make some adjustments?

Yes, Stan this is Tom. There are some adjustments that need to be made. There was about $0.11 investment gain originally included that we spoke about awhile ago in there, as to the $1.46 so that the is definitely a differential and there was a--.

Wait a minute, you mean the extinguishment of debt? I'm getting confused.

Let's start over again. The extinguishment of debt is out of the--.

Right, it's 1.46. So how do we compare the 1.46 to the 1.20 to 1.50? Please.

The 1.46 has a one-time gain of approximately $011 due to a gain on, one-time gain on the sale of investment that was in the second quarter I believe.

Okay, second question. The second question on the same basis, the 2008 guidance from your just recent discussion does not have any of the cost savings programs in there, these new programs that you'll identify for us in quarter two?

That's correct. We'll provide some, we have some initiatives and obviously every year we have some initiatives in our base plan, but the initiatives tend to be the ones that are ongoing that we've already provided information on before. New initiatives that we were implementing around what basically is a rescoping of our strategic initiatives based on having the seven acquisitions closing. Those new sets of initiatives are the ones that we have not talked to yet.

So that would be upside in 2008 and of course you haven't done 2009, but there would be some upside on savings in the 1.20 to 1.50?

I think it's fair to say that consistent with other consolidation and initiatives that we've had before, there is definitely some investments that would be required on these programs, but yes, the investments tend to be one-time, the savings tend to be reoccurring on an annual basis and as always, we would break not only any of the investments we would make out, we would also break out the annualized cost savings and the times that we expect those cost savings to kick in, and we provided a lot of clarity on that historically and we'll continue to do that.

And you'll do that the when you get your programs detail?

That's correct.

But it is upside. Next, what about your operating margin? Does it have 123 R in there?

Yes.

The 1.20 to 1.50 is with or without the 123 option expense?

All the option expenses in there.

Is in, so we can add it back if we want it and that's approximately?

We're estimating the share base cost to be approximately $11 million per annum.

11 million divided by 24, okay. Next question on D&A for 2008, what the should we use?

I'm not willing to give that number because we haven't done the final valuation, Stan.

We'll give it out in the first quarter conference call, when we're finished finishing the valuations on each of the orthopaedics deals and then we'll issue the combined number.

All right, can you give us kind of a hint on the balance sheet as it stands now? As far as the debt and the cash, what the balance sheet currently looks like for our modeling?

Yes. The balance sheet is, I think from our press releases you can determine that we borrowed about $120 million in order to do the transactions. That's the only really--.

Of convertible?

No, not of convertible. Off the credit line.

Straight debt?

Correct.

Straight debt.

Okay, thank you. Good job and hopefully everything will come together.

Thank you.

Thanks, Stan.

(OPERATOR INSTRUCTIONS) Your next question is a follow-up question from the line of Jason Mills with Canaccord Adams. Please proceed with your question.

Thanks, Tom for taking a follow-up question here. Tom Mazza, on the gross margin line, you mentioned some of the offsets in the quarter versus last year. As we look into 2008, what would you expect the product gross margin run rate to be and gauging that throughout the year as well as I would assume some of the intangible amortization is baked into the gross profit from expectation for the Company as well, so just what should we use for overall gross margin expectations as we build down to that 11 to 13% op margin expectation?

Really have a difficult time giving you that, Jason. Especially because of the valuations not being done, but yes , you're correct. A large part of the amortization goes into the cost of goods sold as well as into the selling and general and administrative expense so the break out of that could really do some fairly large swings here, so we're comfortable with the operating margin but unwilling to give the gross margin at the current point in time, but it will be less this year, obviously the mix of companies is different but that's as far as I think we can can go at this point in

Okay, on the revenue model, you gave good detail with respect to the mix in your business, Tom. The component sort of I guess organic Greatbatch if you will on the medical component side, sort of implies in 250 million to $260 million range. If we could delve into that a little further and I know you probably don't want to too much but specifically on the ICD front or the Cardiac Rhythm Management front, capacitors met our expectations for the back half of the year but obviously that part of the business declined as 2007 went on. On the flip side, ICD batteries were looking for deterioration here in the fourth quarter that didn't happen so perhaps you could talk about the dynamics at play as we move into 2008 with respect to sort of the 20,000 foot view, i.e. the market and where sort of you're modeling your business to come in and sort of with respect to your individual customers, while you won't talk about them, it feels like most of us are expecting one of your customers to go a different direction with one of their products, so is that built into your expectations or how should we think about I guess cardiac rhythm management in your model based on your guidance?

Certainly. Where I'm thinking of Cardiac Rhythm Management is that our objective is to grow faster than the market, and certainly, we're acutely aware of the challenges that have affected the industry over the last several years, and we've been focusing on doing very good work for our customers and winning opportunities. We will not win 100% of the time. We haven't won 100% of the time historically, but despite having some losses we've had a lot of wins and those are wins because we really focused on doing a good job for customers across-the-board, by their product lines, by component, and by technology.

We've had some nice opportunities to pick up one-time gains like we highlighted in the capacitor, the high energy capacitors last year, and in general, we always have to be cognizant of the business tends to be a little lumpy quarter to quarter as everybody makes inventory adjustments and they really continue even over the year-end points as well. They tend to be up and down, so in general, from a 20,000 foot level, my expectations are we'll grow faster than the Cardiac Rhythm Management marketplace and we'll do that by serving our customers well, and if there's an area where we're going to see pressure from a particular customer on a particular component, then we're going to redouble our efforts to show them more value and more technology at a more cost competitive rate and we're going to use our technology areas of protecting our intellectual property to provide the market with differentiatable alternatives.

We think the technologies we have are tough to beat and we can work very hard to be the benchmark and the gold standard for a lot of these areas but obviously, we will not win 100% of the time. We had losses over the past couple of years, I expect that we'll have some losses going forward, but I'm also confident that we can cover those in other areas of growth and that's why from a guidance perspective, we've indicated that we can take Cardiac Rhythm Management and grow it a little bit faster than what the we think the market is.

Sorry to interrupt you. That's very helpful and clearly, your results have proven out you really executed in line with those comments you just made; however obviously we know the market at least the market that what I'm talking about the Stock Market, investors tend to be a little sticky when it comes to quarter to quarter so I'm really trying to get a sense for are within the implantable medical components business you do have lumpiness and ICD capacitors you actually had a really good year, '07 over '06 and certainly we wouldn't expect a $10 million delta probably '08 over '07 unless you're expecting the ICD market to explode which I don't think anyone is. So what I'm trying to get a sense for, if we just apply year-over-year growth rates in line with kind of what we're expecting the ICD market to grow, then once again in '08, the first half of the year would be heavily weighted in the back half of the year versus the back half of the year and that probably isn't the the way it's going to go so perhaps you could help us with sort of gaining our expectations for the parts of your business that are exposed to CRM so that the we have a better sense for and probably better model the business so that we're not completely exposing ourselves to a quarter that could actually be good but looks like it's not good relative to our expectations because we've mismodeled it?

I think it's fair as the capacitors will definitely follow more of a continuation on the second half year than what occurred in the first half of '07 because the one-time effect is in the first half so that stretched a little bit into the third quarter but we also have in the high energy capacitors area some product launches. We have three customers, we ship against now, we've been qualifying more models for those capacitors. Of course, we always offer some price volume curve in the overall structure of a negotiated agreement with a customer as they drive volume, we tend to be able to drive productivity in a manufacturing environment and pass those savings on to them, so we always embody that, so from a high energy capacitor standpoint, as we're confident for 2008 to see some continued growth in that area. We have been making very good technology. We're on the cusp of qualifying our high energy density capacitor technology in this year, it's been very interesting to a lot of customers and of course we've continued development in the high voltage area so I think high energy capacitors from a market perspective because we have such low market penetration there, the opportunities tend to be even larger and more opportunities for work for us to do than in other areas that we have more capitated opportunities because our percentage share is higher and we put a lot of investment dollars in there and have focused on that and have done a good job for our customers, but the operating teams needed to be able to deliver those program qualifications for customers and we need to be able to deliver the product to get the revenue and I think we can be -- our opportunities are greater than what the market can provide in that area, just because I think from a technology and a share perspective, we've got a lot of room to grow. I don't think we'll cover the one-time opportunity we had in '07, but certainly we'll do better than the second half of '07 run rate in that product area.

Okay, so the 26.5 million included remind me how much of sort of one-time and then I suppose we back that out and grow whatever we think the IC market grows out you'd be comfortable with that?

We had called it around $4 million plus or so, and again, we require a little bit of guesstimating on that but that's about where we had pegged it.

Okay, and let me ask one quick question since this is a follow-up and I'll get back in queue if there's anyone else. Tom, what does your guidance assume with respect to the effective tax rate to get to the the 1.20 to 1.50, and Tom Hook, on the other revenue businesses, could you help us with the quarterly, I would assume the first half for orthopaedics would be much lower than the second half, and then on therapy delivery, sort of the three part question, what the would the full quarter, fourth quarter look like had Quan Emerteq been involved with Greatbatch the entire quarter and sort of how should we think about sequentially that business into the first quarter? Thank you, guys.

Okay, I'll go first. Because mine is easy. We've assumed 35%, Jason. We probably have been conservative there, but we've got the foreign operations for the first time and we've got to figure out where all of the assets and where we're allocating the asset bases to, so we've been conservative there and saying it's going to be at 35%, we're hoping we can work on that until we get that better.

Okay. And with respect to the gaining orthopaedics and therapy delivery and then the Quan Emerteq question.

Yes, we tried to, when we provided some color on each of the deals that we had done last year provide kind of a revenue size range for the Company. That way, everybody could kind of determine from a quarterly and annual basis. Certainly for both orthopaedics and therapy delivery, we feel we can grow faster than the market, low double digit rates which is what we provided the information on. We said 10 to 12%, so both those organizations we feel throughout the course of the year will continue to build momentum. That represents four acquisitions for us, Enpath, Quan Emerteq, the DePuy plant as well as the Precimed Orthopaedics trays, tools, and instruments so each one of those areas we have a lot of opportunity for revenue growth, certainly have a lot of product and customer qualifications to do, so obviously, the growth rate will come as we finish up those qualifications that have been well in progress at those companies. I'm not really prepared to kind of provide a real granular break out in the individual product lines because there's so many underpinning projects for them. There's no doubt that as the year goes on we're going to highlight individual businesses, have the business leaders here in the room and provide more color and answer more questions on the dynamics that we're seeing in those individual segments and then that way, we'll help answer some more of the specific questions and of course, when we get around for investor visits as well as the conferences we'll be bringing those business leaders with us to make sure that they have an opportunity to meet with investors and answer more granular questions on it.

Okay, that's great. Thanks, guys.

Your next question comes from the line of [Dan Piper] with [Magnitar].

Hi, guys, thanks for taking the question. Can you tell us what the inventory step up costs were from the acquisitions in the quarter?

It's about $400,000.

And is that included in that $950,000, the acquisition charges in the reconciliation tables?

Yes.

Okay, and I know it changes a lot with the acquisitions but can you comment a little bit about the increase in the accounts receivable balance and what the DSO's were trending for the quarter?

I don't want to go to that level of detail, but it's slightly worse than we were before, but still good by any account.

Okay. All right, and then on the bank debt, the interest rate, are you paying a floating rate?

Yes.

And what the rate are you assuming in the $15 million guidance number?

It's about approximately 5 to 6.

All right, thanks very much.

Your next question is a follow-up question from Keay Nakae with Collins Stewart. Please proceed with your question.

Yes, Tom? When we look at the I'll call it the Legacy CRM business at this point, where do you expect to see customer wins? Which product categories?

I kind of already highlighted high energy capacitor so kind of leaves that one as it is. One of the universal opportunities we have across the historic Greatbatch business is to continue to drive more integrated business with current customers. We've done a lot of investment down at our Tijuana facility, we have moved a lot of business down there, we have a thriving and active business that does partial assemblies . That's an active capability we can provide to a lot of customers and that kind of does, I like t focus on the business that way because it not only brings us closer to the the customer in terms of servicing them. It also gives us opportunities on new products to provide new components to them, and I think clearly, when we look at the areas of see through and filtering, we have a core capability there that I think we can provide more product technology to customers, that's only being enhanced by the MRI filtering technology that we've developed to do additional work for customers. When we look just in general at the battery business, we obviously have very mature business there, the opportunities are somewhat less, but because there's a lot of technology being pushed into that area, the product technology tends to generationally mature to higher energy density power systems which also provide us additional growth opportunities.

When we look beyond that to what I would call the components business, machining, molding, the coating, parts for metalized coatings on electrodes as well as enclosures, that tends to be hard manufacturing disciplines we've driven a lot of improvements in for the year and we tend to have in some of those areas high market shares, in other areas very low market shares and in some of the acquisitions, we picked up with Quan Emerteq we picked up better capabilities in terms of our ability to machine and that's going to offer us some nice revenue opportunities that are grouped in the other revenue category for us. So, there's no area that I think is devoid of growth turns. I just think some of the ones like high energy capacitors, filtering, and that other revenue line with the collection of technologies in it just drive better opportunities for us in that the core historic Greatbatch

Okay, and let me just push you a little bit, on one of your comments. Initially, your assembly work down in Mexico was for a customer and it was sort of supposed to be on a tit for tat basis. You're doing the assembly work but you never got the follow through order on filter feed through. Is that the something that the you're still optimistic about capturing or what are your thoughts there?

I'm not really comfortable in kind of talking about specific deals but just in general, kind of that agreement kind of precedes me here so I don't know the history of the understanding at the time. Our job is to do a good job in assembly for our customers. It's also to do a good job of showing how our technology is value driven so that it drives value specifically for our customers. When we do that, we're going to get opportunities and clearly, when we look at our revenue growth over the past several years in those core product lines we definitely have delivered on that growth, so there's certainly, call it a low light where we have not performed yet and the pressure is on me and the teams to perform for that customer. So there's definitely areas which we don't highlight for confidentiality reasons where we definitely have delivered for customers and it has resulted in some nice revenue growth but you're very fair in pointing out that there's areas and specific examples where we haven't completed the job yet and that's an opportunity for us in '08 and beyond and I'm putting the right amount of focus on that the to deliver those gains for those customers and talk to upper management as well as their project management as well as their procurement organizations to give us an opportunity to be able to do that for them.

Okay, and then finally, with respect to future acquisitions, obviously you have a lot on your plate now, a lot to work through, are you done there for now or what are your thoughts?

I think that's very fair that there may be a targeted one this year, late or early next year. We're focused on driving operating profitability. I came to the business in 2004, I worked with the Board of Directors and Ed Voboril to drive improvements in this area and the base Greatbatch business. The team did a great job doing that through a series of initiatives that investors were very patient with us implementing. That's the mode we're back in. We're back in that '05, '06 mode where we are going to focus on profitability and customers and driving growth in the businesses that we have now, with and including the seven acquisitions, and where there's a targeted opportunity to make a small investment and potentially an acquisition of a technology we would like to have, the bolus of merger and acquisition activity has been done and we're very happy we've been able to complete it in a tight time frame so we could really focus the majority of our times on acquisition and integration and driving synergy so that's the mode we're in. There's no deal announcements coming.

Okay, great. Thanks.

Your next question is a follow-up question from Stan Mann , with Mann

Tom, you now have a footprint overseas with the Precimed, et cetera. Do you plan to move any or take advantage of moving any of the U.S. capabilities into that area and manufacture in that area, spread the footprint at this point?

Yes, Stan. I think -- I don't like to think of it in terms of moving facilities or product lines, but there's definitely capability that we have in Greatbatch to operationally improve the footprint we have in Europe, and there's definitely capabilities in Europe that we're going to bring to Greatbatch to improve the capabilities here in the U.S. There is no doubt with 19 facilities globally right now, we have them from Europe to Asia all throughout the United States as well as Latin America, we have the ability to drive some consolidation of those facilities and to drive some cost synergies. It is going to require some investments but historically, we've made very sharp investments and they've paid off in the cost reduction projects. What those will be, we're not, willing, we haven't finished the planning on them but there's no doubt there will be some that are going to be done in the U.S. And there will be certainly the potential for doing them in Europe and Asia and we're going to look at it individually, we're going to break out the plans for maximum benefit, and then we're going to kind of April/May time frame provide more color on them but right now we're in the preparatory phase, I believe we have five facilities in Europe that are located in a tight geographic area and there's no doubt there's opportunities for additional investment there but we want to be smart about it.

Okay, you never talk about the more rapid growth overseas than U.S. in our presentations. Can you kind of give us a profile of outside U.S. growth in these markets and it's, I assume substantially higher including CRM versus inside? I think most of the questions on the call seem to be U.S. based from what I can sense, and have been.

That's fair, Stan as I think it's very difficult for us to do this, while we have several very significant European customers in both the historic markets like Cardiac Rhythm Management we obviously have complemented that now with some very significant customers in orthopaedics but if I just focus on what I think is the source of your question on Cardiac Rhythm Management, yes, overseas growth has been healthy. The challenge for us is wide, we can get a little bit more of a break down on that from our European customers, it's very hard on domestic customers where we ship our products to. They don't really give us a break down in terms of where they're shipping their end devices so largely, we use the end market data available from the investment community to kind of gauge what those market growth rates are which is kind of retrospective look, and I agree with your statement, those markets especially in the implantable defibrillators continue to be healthy, just like the neuromodulation business both domestically and internationally has continued to be healthy and although the numbers in the neuromodulation business are definitely much lower than they are in the Cardiac Rhythm Management market, we tend to have been able to look at that as still a healthy market that's been unaffected by some of the malaise domestically in defibrillation.

Last question, your commercial battery facility that comes on in the fourth quarter do you plan on shipping product from that the facility and ramping up your sales in that market where you're limited now?

That's correct. In the fourth quarter we are going to do a start up. We're going to kind of do what we call a sluice, we're going to phase out our Canton facility, move it into the (inaudible) facility kind of product lines at a time that eventually we'll phase out, clean up and sell the Canton facility when the (inaudible) facility the is fully online and I'll remind you that (inaudible), that facility also has factory automation so it's not just the facility landscape that the provides us capacity improvements, it also is the ability for some automated assembly, semi-automation assembly as well of that product and then we also have additional floor space opportunities that we can use to continue to drive organic growth in that business.

But do you plan to ship added product over your current limitations in the fourth quarter?

It would be tough. I don't want, I don't want to get ahead of ourselves for 2008. Plant start ups are very complicated. Just don't want to get too bullish on '08. We're focused on getting the plant started up and not generating a lot of scrap in the process.

But '09 that would double our capacity?

It's -- doubling is definitely fair and that means what we want to do is time the market and being able to do out as we are right know with our current customers and new customers and obviously we have new product lines as well and we want to get aggressive in the market so that the we can pick up some momentum in 2009 with that new facility.

But there is business available to double that -- our business potential?

I think it's doubtful, what we have to do is we have to win the business just like we focused on in '05/'06. We were aggressive and we have to now with our new facility go out with the sales and marketing teams and be aggressive.

So you would start that in the second half of this year on qualifications?

We want to be careful, as the qualification windows are different by product lines. Some we could start mid 2008 but some we'll have to wait until customers can actually get products off, the new facility, get them qualified and approved. It's a shorter time frame than we see in the FDA area, it's certainly an opportunity for us for '09, less for '08 more for '09.

Thank you.

You're welcome, thank you.

That the does conclude today's question and answer session. I'd like to turn the call back over to Tony Borowicz for any closing remarks.

Thank you. Very good questions. Again, I'd just like to remind everybody that both the audio portion of this call and the slide visuals will be on our website at Greatbatch.Com for the next 90 days, again thanks everyone for joining us today.

Thank you for your participation. That does conclude today's conference.