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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 28, 2001

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.)

10,000 Wehrle Drive
Clarence, New York
14031

(Address of principal executive offices)

(716) 759-6901
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class:
Common Stock, Par Value $.001 Per Share

Name of Each Exchange on Which Registered:
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. Yes [X] No [ ]

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. [ ]

Aggregate market value of voting stock of Wilson Greatbatch Technologies, Inc. held by nonaffiliates as of March 27, 2002, based on the closing price of $26.40, as reported on the New York Stock Exchange: $417.9 million.

Shares of common stock outstanding on March 21, 2002: 20,872,150

Portions of the company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III.

PARTI

        We are a leading developer and manufacturer of power sources, feedthroughs and wet tantalum capacitors used in implantable medical devices. We also develop and manufacture other components used in implantable medical devices and we believe that we are a preferred supplier of power sources and components. We offer technologically advanced, highly reliable and long lasting products for implantable medical devices and enable our customers to introduce implantable medical devices that are progressively smaller, longer lasting, more efficient and more functional. We leverage our core competencies in technology and manufacturing to develop and produce power sources for commercial applications that demand high performance and reliability, including aerospace, oil and gas exploration and oceanographic equipment. Our customers utilize our specially designed proprietary power sources and components in their products. We believe that our proprietary technology, close customer relationships, market leadership and dedication to quality provide us with significant competitive advantages over our competitors and create a barrier to entry for potential market entrants.

        Mr. Wilson Greatbatch patented the implantable pacemaker in 1962. In 1970, Mr. Greatbatch founded Wilson Greatbatch Ltd., our predecessor. In July 1997, DLJ Merchant Banking led a leveraged buyout of Wilson Greatbatch Ltd. Our company was incorporated in connection with the 1997 leveraged buyout to acquire Wilson Greatbatch Ltd., which is now our wholly-owned subsidiary. We acquired Hittman Materials and Medical Components, Inc., now Greatbatch-Hittman, Inc., in August 1998 to expand and complement our product lines. Hittman, a medical components manufacturer, produces feedthroughs and electrode components for implantable medical devices. Feedthroughs are among the most critical components used in implantable medical devices and both feedthroughs and electrodes are key component technologies. We acquired the Sierra-KD Components Division of Maxwell Technologies, Inc., now called Greatbatch-Sierra, in June 2001 to broaden the product line we offer to include electromagnetic interference filters and capacitors for implantable medical devices. The addition of Greatbatch-Sierra's patented EMI filtering products and technology solidifies our position as a leading provider of enabling technologies to the manufacturers of implantable medical devices.

        An implantable medical device is an instrument that is surgically inserted into the body to provide diagnosis or therapy. The market for our implantable power sources and components benefits directly from the growth of the implantable medical device industry. The largest and fastest growing segment of the implantable medical device market is cardiac rhythm management, which includes devices such as pacemakers and ICDs. Pacemakers treat bradycardia, a condition that occurs when a patient has an abnormally slow heartbeat, by stimulating the heart with regular electrical pulses. ICDs treat tachycardia, a condition that occurs when a patient has a rapid and irregular heartbeat, by delivering concentrated and time electrical energy to the heart to restore a normal heart rate.

        The following table sets forth the main categories of battery-powered implantable medical devices and the principal illness or symptom treated by each device:

The implantable medical device industry is expected to grow primarily as a result of:

        Cardiovascular Device Update has predicted that ICD revenues will grow faster than pacemaker revenues in the next three to five years. The faster growth predicted for the ICD market is based on continued penetration of existing clinical indications and anticipated expansion into new indications.

        As a leading developer and manufacturer of power sources and other components for implantable medical devices, we believe that our company will continue to be well positioned to meet the requirements of manufacturers of these products.

        We design and manufacture a variety of power sources, capacitors, components, such as feedthroughs, electrodes and EMI filters, for implantable medical devices. Our commercial power sources are used in aerospace, oil and gas exploration and oceanographic equipment. We currently manufacture and market 23 models of pacemaker batteries and 19 models of ICD batteries as well as numerous other components for our customers in the implantable medical device industry. The following table provides information about our principal products:

        The power sources we produce are batteries. A battery is an electrochemical device that stores energy and releases it in the form of electricity. To generate an electrical current, electrons are first released from one part of the battery, called the anode or negative electrode. This flow of electrons, known as a current, travels to a load or device outside the battery. After powering the device, the electron flow reenters another part of the battery, called the cathode or positive electrode. As electrons flow from the anode to the device being powered by the battery, ions released from the anode cross through an electrolyte, which consists of one or more chemical compounds that facilitate the flow of ions to the cathode. The ions react with the cathode in order to complete the circuit. Separators are typically used inside the battery as electrical insulators to divide the anode and the cathode to prevent mechanical contact between them, which would result in the rapid depletion of the battery cell.

        From the late 1950s to the early 1970s, implantable medical devices, such as pacemakers, were powered by zinc/mercuric oxide batteries. These batteries typically lasted two to three years, often failed without warning, were large and bulky and generated hydrogen gas, making it impossible to seal the battery. In the early 1970s, we introduced lithium/iodine batteries as power sources for pacemakers. Lithium batteries manufactured by us and manufactured by others under license from us are now a principal power source for pacemakers. Pacemaker batteries utilizing our technology last approximately six years and provide high reliability and predictability. In the mid 1980s, we introduced lithium/silver vanadium oxide batteries for powering ICDs. These batteries provide the higher power levels required by an ICD with a high degree of reliability and at least a five year battery life. Our lithium/silver vanadium oxide batteries have become a principal power source of ICDs.

        In 1996, we introduced a lighter weight titanium-encased lithium/carbon monofluoride battery as a next generation pacemaker battery. These batteries offer improved pacemaker performance in several areas, including:

• pacemaker weight reduction of up to 25%;
   
• improved electrical performance, which is more suitable for use with the latest pacemaker microelectronics; and
   
• 10-15% longer battery life than comparable products.

        In 1996, we introduced a new process for cathode manufacturing that enabled the production of significantly thinner cathodes than previously possible. As a result of this new cathode manufacturing process and other design improvements, our newest generation of ICD batteries is the thinnest commercially available and is up to 50% thinner than many existing models. Over the past few years, the decrease in battery size has contributed significantly to decreases in the size of ICDs, making these devices easier to implant.

        Capacitors, which are used in ICDs, perform the critical function of storing electrical pulses before delivery to the heart. Historically, ICDs utilized two aluminum-based capacitors. In the fourth quarter of 1999, we introduced wet tantalum hybrid capacitors commercially for use in ICDs, which provide a number of advantages over aluminum-based capacitors. Our wet tantalum hybrid capacitors, which combine liquid electrolytes and ruthenium oxide cathode material with a tantalum anode component, provide a unique combination of high voltage and high energy storage capacity. This combination enables energy density not achievable with competing technologies. Our capacitors can be manufactured in many sizes and shapes to meet the specific needs of our customers.

        To produce our capacitors, we have licensed a key patent for the basic technology used in our defibrillator capacitors from the Evans Capacitor Company. We have also developed our own portfolio of patents and patent applications covering improvements that we have made to Evans' capacitor technology. We believe we are the only supplier of wet tantalum capacitors for the implantable medical device industry. In 1997, we entered into an agreement with a major ICD manufacturer to use our capacitor technology in its next generation of ICDs which was launched in the first quarter of 2000.

        Electromagnetic interference filters and capacitors for implantable medical devices limit or eliminate electromagnetic interference, or EMI, which is any undesirable emission or disturbance generated by products such as cell phones and two-way pagers. EMI may cause an undesirable response, malfunctioning or degradation in the performance of electronic equipment including medical devices.

        We offer EMI filtering products and technology to our customers through our Greatbatch-Sierra division which holds several key patents relative to its differentiated EMI filtering technology. Prior to our acquisition of Sierra in June 2001, Sierra was one of our component customers and we shared a similar medical device customer base. The vertical integration of Greatbatch-Sierra represents an opportunity to increase our importance to these customers and positions us to participate in the growing demand for EMI protection on medical devices. The U.S. Food and Drug Administration, or FDA, is focusing on issues created by EMI. Currently, labels for new pacemakers and ICDs must disclose the level of EMI protection. We expect that over time the majority of implantable electronic medical devices will possess EMI protection.

        In addition, Greatbatch-Sierra leverages its technology and manufacturing expertise to provide high quality, precision components for commercial applications that demand high performance and reliability, including aerospace, oil and gas exploration and telecommunications equipment.

        We manufacture feedthroughs, electrodes and other precision components that are utilized in implantable medical devices. Feedthroughs and electrodes are critical components of these devices that deliver electrical energy to the heart.

        FEEDTHROUGHS. Feedthroughs are components that transmit electrical signals from inside an implantable medical device to the electrodes that transmit the signals to the body. Feedthroughs consist of an outer metallic structure called a flange, an electrical insulator made of ceramic or glass material, and wire connectors called poles that carry electrical signals from within the device. Our feedthroughs use a ceramic to metal seal that is substantially more durable than a traditional glass to metal seal. We also manufacture a feedthrough that includes a filtering capacitor that can filter out electromagnetic interference, such as signals from cellular phones.

        We design and manufacture 45 types of feedthroughs. Each of our feedthroughs is designed specifically for a particular customer device. We are often the sole source of feedthroughs for our customers. In 2001, approximately 95% of our feedthroughs were used in pacemakers and ICDs, with the balance used primarily in left ventricular assist devices, hearing assist devices, drug pumps and neurostimulators. We are currently working with a number of medical device manufacturers to develop hermetic feedthroughs for the next generation of implantable medical devices and applications, including neurostimulators, middle ear devices, and muscle stimulation devices.

        ELECTRODES. Electrodes are components used in pacemakers and ICDs that deliver the electrical signal from the feedthrough to the heart to restore its normal rhythm. By coating the electrode with chemical compounds, we can enhance its electrical properties and therefore better deliver energy to the heart. Some electrode tips are designed to contain medication, such as steroids, to prevent scarring of the heart tissue following electrode implantation.

        We design and manufacture a variety of coated electrodes, some of which have tips that can contain medication. We believe that our experience with physical deposition processes, such as sputtering and powder metallurgic techniques, has enabled us to produce high quality coated surfaces utilizing almost any combination of biocompatible coating surfaces.

        PRECISION COMPONENTS. We design and manufacture miniature precision components and subassemblies primarily for pacemaker and ICD manufacturers. Our precision components are machined or molded to adhere to tolerances up to one ten-thousandth of an inch. To manufacture precision components, we typically use various alloys of stainless steel, platinum, titanium, aluminum and brass, as well as plastics and composites. Although our primary focus is to develop and manufacture precision components for implantable medical devices, we also serve the general medical equipment market and the aerospace industry.

        We have developed specialized power source technologies that are functional in high temperatures or under high shock and vibration. The majority of the commercial power sources that we sell are used in oil and gas exploration, including recovery equipment, pipeline inspection gauges, down-hole pressure measurement systems and seismic surveying equipment. We also supply power sources to NASA for its space shuttle program. In addition, our commercial power sources have been used for emergency position locating beacons and locator transmitters, classified governmental uses, electronic circuit breakers for industrial applications, weather balloon instrumentation, electricity transmission cable lighting detectors, wear monitors for train cables and scientific equipment used in Antarctica.

        RECHARGEABLE LITHIUM ION BATTERIES. We are currently developing a line of rechargeable lithium ion batteries that is expected to broaden and complement our current lines of lithium batteries. A number of new medical devices require rechargeable batteries, including:

• LEFT VENTRICULAR ASSIST DEVICES that are being developed to treat heart failure use external and internal batteries as power sources, both of which must be rechargeable. We are developing lithium ion rechargeable technology to produce lighter batteries with increased power and longer life.
   
• IMPLANTABLE HEARING ASSIST DEVICES that are used to treat patients who cannot use conventional hearing aids. These batteries are compact and are capable of providing low levels of current with infrequent recharging.
   
• NEUROSTIMULATORS AND DRUG PUMPS that are used for indications such as tremors, diabetes and chronic pain. Since these devices are sometimes implanted in young patients, the use of our rechargeable battery technology with extended device life should reduce the number of replacement implants needed throughout the life of the patient.

        IMPLANTABLE PUMP TECHNOLOGY. We have developed proprietary technology that has applications in implantable devices that are designed to deliver small quantities of drugs or other fluids to a patient. Several of our technologies are critical to these devices, including the power source, the feedthroughs and the pumping mechanism that moves the fluid. Currently, one of our customers has regulatory approval in Europe for a device that utilizes our implantable pump technology and has recently filed with the FDA for regulatory approval in the United States.

        Our position as a leading developer and manufacturer of power sources for implantable medical devices 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 maintain close relationships with leading research organizations, including Alfred University, Clarkson University, the Jet Propulsion Laboratory, the applied physics department of Johns Hopkins University, NASA, Sandia-National Laboratories, the State University of New York at Buffalo and Villanova University. These relationships include funding research efforts, licensing researchers' technology and assisting in building prototypes. Our research, development and engineering team is responsible for a number of pioneering developments in the implantable medical device industry including:

        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. At December 28, 2001, we had been granted 182 U.S. patents and 199 foreign patents. We also have 176 U.S. and 241 foreign pending patent applications at various stages of approval. During the past three years, we have received 61 new U.S. patents, of which 25 were received in 2001. Corresponding foreign patents have been issued or are expected to be issued in the near future. Often, a single product is protected by several patents covering various aspects of the design. We believe this provides broad protection of the concepts employed. The following table provides a breakdown of our patents as of December 28, 2001 by product type:

        The following table sets forth the expiration dates of our material patents as of December 28, 2001:

        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 third parties. We have also granted rights in our own patents to others under license agreements. We used three material patents that expired in January 2001 in connection with our production of pacemaker batteries. The primary impact on our business as a result of the expiration of these patents is the termination of the related royalties paid by Medtronic. Otherwise, we expect the impact of the expiration of these patents on our product line to be immaterial.

        We license the basic capacitor technology used in our defibrillator capacitors from Evans Capacitor Company. The license extends throughout the lives of the related patents, which expire in 2010, 2013 and 2014. The license can be cancelled if we default under the license agreement and fail to cure the default. A cancellation of the license would seriously impair our ability to produce our entire line of capacitors. We license the anode technology we use in our rechargeable lithium ion batteries from AT&T. The license extends throughout the lives of the related patents, one of which expired in 2000 and one of which will expire in 2002.

        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.

        Our principal manufacturing facilities are in Clarence, New York, Cheektowaga, New York, Carson City, Nevada, Canton, Massachusetts and Columbia, Maryland. Our three New York manufacturing facilities produce implantable power sources, capacitors, commercial power sources and components. Our Carson City, Nevada facility produces EMI filters and capacitors. Our Canton, Massachusetts facility produces commercial power sources. Our Columbia, Maryland facility produces feedthroughs, electrodes and other components. We test our implantable power sources at our Wheatfield, New York facility.

        In 2000 and 2001, we modernized our facilities and a number of our manufacturing lines, processes and equipment. These manufacturing improvements have enabled us to increase the quality and service life of our power sources and other components and increase our manufacturing capacity. Key resources that allow us to manufacture subassemblies include a full model shop, a precious metals machining area, injection molding equipment and a Class 10,000 clean room.

        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. Our New York, Massachusetts, and Nevada facilities are ISO-9001 certified, which requires compliance with regulations regarding quality systems of product design, supplier control, manufacturing processes and management review. This certification can only be achieved after completion of an audit conducted by an independent authority. Our New York facilities are audited by the British Standards Institute, our Massachusetts facility is audited by the National Standards Authority of Ireland, and our Nevada facility is audited by American Quality Assessors. Our Columbia, Maryland facility is ISO-9002 certified and is audited by TUV Rheinland of North America, an independent auditing firm that specializes in evaluating ISO quality standards. To maintain certification, all facilities must be reexamined every six months by their respective certifying bodies.

        We utilize a combination of direct and indirect sales methods, depending on the particular product. In 2001, approximately 68% of our products were sold in the United States.

        We market and sell our implantable power sources and capacitors directly to manufacturers of implantable medical devices. The majority of our implantable power source customers contract with us to develop custom batteries or capacitors 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 power source products and technologies at industry meetings and trade shows, including CardioStim and North American Society of Pacing and Electrophysiology, or NASPE.

        We sell feedthroughs, electrodes and other precision components directly to manufacturers. Two internal sales managers support all activity, and involve engineers and materials professionals in the sales process to address customer requests appropriately. As in the implantable power source and capacitor sales process, we have established relationships directly with leading manufacturers of implantable medical devices. We market our precision components, feedthroughs and electrodes by participating in trade shows and by producing printed and electronic marketing materials for distribution to prospective customers.

        We sell our commercial power sources 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 commercial power sources at various technical trade meetings. We also place print advertisements in relevant trade publications.

        Firm backlog orders at December 28, 2001 and December 29, 2000, were $46.3 million and $29.7 million, respectively. Most of these orders were expected to be shipped within one year. The $16.6 million increase was primarily due to backlog from the Sierra acquisition.

        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 products customers include leading implantable medical device manufacturers such as Guidant, St. Jude Medical, Medtronic and Biotronik. In 2001, Guidant and St. Jude Medical, our two largest customers, collectively accounted for approximately 66% of our revenues. Our commercial products customers are primarily companies involved in the aerospace, oil and gas exploration and oceanographic industries.

        In February 1999, we entered into a supply agreement with Guidant. Pursuant to the agreement, Guidant purchases batteries from us for use in its implantable medical devices. Guidant also separately purchases components from us for use in its implantable medical devices. Our supply agreement with Guidant expires on December 31, 2004 and can be renewed for additional one year periods upon mutual agreement.

        In April 1997, we entered into a supply agreement with St. Jude Medical. In accordance with this agreement, we are the primary supplier of many components used in their pacemakers and ICDs, except for microprocessors and capacitors. We will also be the exclusive supplier of batteries to St. Jude Medical through the expiration of the supply agreement on December 28, 2003, with the ability of St. Jude to extend the agreement for two (2) one-year extensions.

        Lithium, iodine, gallium and tantalum are the most significant raw materials that we use to manufacture our products. In the past, we have not experienced any significant interruptions or delays in obtaining raw materials. We seek to minimize inventory levels, which provides us with a reduced risk of obsolescence. Minimizing our inventory levels also enables us to stock materials based on firm order requirements, rather than forecasts and anticipated sales. However, we maintain minimum safety stock levels of critical raw materials. We improve our supply pricing by using bulk purchases, precious metal pool buys, blanket orders and by entering into long term contracts. Annual minimum purchase levels under these contracts have historically been well below our expected annual usage, and therefore present little risk of liability.

        We have long standing relationships with most of our significant suppliers and have conducted business with them for an average of 14 years. Our supply agreements typically have three year terms. Our significant suppliers of raw materials and components accounted for approximately 35% of our purchases in 2001. We believe that there are alternative suppliers or substitute products available for each of the materials we purchase, at competitive prices. Our material supply agreements may be terminated prior to their scheduled expiration dates if there is a material breach by us that remains uncured.

        We currently supply implantable power sources, capacitors, feedthroughs, electrodes and precision components to the implantable medical device market. Our existing or potential competitors include:

Medtronic produces power sources for use in implantable medical devices that it manufactures. However, to our knowledge Medtronic does not sell power sources to third parties. Biotronik has a captive subsidiary that makes lithium batteries that could be marketed to our customers. Our company, Medtronic and Biotronik are the major manufacturers of power sources for implantable medical devices. We also compete in the intensely competitive commercial power source market. Our principal competitors in this market are Eagle-Picher Industries and ECO-Tracer. While we believe that the industry perceives our products to be of the highest quality, there are suppliers whose products are perceived to be of comparable quality. Moreover, the commercial power sources market is subject to volatility in oil and gas exploration activity. When oil and gas exploration activity has slowed, a number of our competitors have historically reduced battery prices to maintain or gain market share. Quality and technology are the principal bases upon which we compete in both the implantable medical devices market and the commercial power sources market.

        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, including those federal, state and local environmental laws and regulations governing the emission, discharge, use, storage and disposal of hazardous materials and the remediation of contamination associated with the release of these materials at our facilities and at off-site disposal locations. Our research, development and engineering activities involve the controlled use of, and our products contain, small amounts of hazardous materials. Liabilities associated with hazardous material releases arise principally under the Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws which impose strict, joint and several liability on owners and operators of contaminated facilities and parties that arrange for the off-site disposal of hazardous materials. We are not aware of any material noncompliance with the environmental laws currently applicable to our business and we are not subject to any material claim for liability with respect to contamination at any company facility or any off-site location. We cannot assure you, however, that we will not be subject to such environmental liabilities in the future as a result of historic or current operations.

        As a component manufacturer, our products are not subject to FDA pre-market approval. However, the FDA and related state and foreign governmental agencies regulate many of our customers' products as medical devices. In many cases, the FDA must approve those products prior to commercialization. In addition, because some of the products produced by our engineered components division may be considered finished medical devices, some of the operations within that division are subject to FDA inspection and must comply with current good manufacturing practices (CGMP) requirements.

        We dedicate significant resources to our recruiting efforts. Our internal recruiting efforts primarily focus on supplying quality personnel to our business. We have established a number of programs that are designed to challenge and motivate our employees and we encourage our employees to be proactive in contributing ideas and regularly survey them to collect feedback on ways that our business and operations can be improved. We also seek to meet our hiring needs through outside sources.

        We provide an intensive training program to our new employees which is designed to educate them on safety, quality, our business strategy and the methodologies and technical competencies that are required for our business and our corporate culture. Our safety training programs focus on such areas as basic industrial safety practices and emergency response procedures to deal with fires or chemical spills. All of our employees are required to participate in a specialized training program that is designed to provide an understanding of our quality objectives. We also have formal, mandatory training for all of our employees in their core competencies on an annual basis. We offer our employees a tuition reimbursement program and encourage them to continue their education at local colleges. 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 work in a uniform and consistent manner and that best practices are effectively utilized.

        As of December 28, 2001, we had 1153 employees, including 216 research, development and engineering personnel, 576 manufacturing personnel and 361 support personnel. We also employ a number of temporary employees to assist us with various projects and service functions. Our employees are not represented by any union and, except for certain executive officers of our company and our subsidiaries, are retained on an at-will basis. We believe that we have a good relationship with our employees.

        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:

• future revenues, expenses and profitability;
   
• the future development and expected growth of our business and the implantable medical device industry;
   
• our ability to successfully execute our business model and our business strategy;
   
• our ability to identify trends within the industries for implantable medical devices, medical components and commercial power sources and to offer products and services that meet the changing needs of those markets;
   
• projected capital expenditures; and
   
• trends in government regulation.

        You can identify forward-looking statements by terminology such as "anticipate," "believes," "estimates," "expect," "intend," "may," "could," "possible," "potential," "continue," "plan," "project," "should," "will," "forecast" or the negative of these terms and similar words or expressions. 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 risk factors set forth below in addition to these forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. It is not possible to foresee or identify all factors affecting our forward-looking statements and you should not consider any list of such factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions.

        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 risk 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:

        WE DEPEND HEAVILY ON A LIMITED NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES.

        A substantial portion of our business in 2001 was conducted with a limited number of customers, including Guidant, St. Jude Medical, Medtronic and Biotronik. In 2001, Guidant and St. Jude Medical collectively accounted for approximately 66% of our revenues. As a result, we depend heavily on revenues from Guidant and St. Jude Medical. Our supply agreements, particularly with our large customers, might not be renewed after they expire, including our power source supply agreement with Guidant, which expires on December 31, 2004, and our supply agreement with St. Jude Medical, which expires on December 28, 2003. Our supply agreements with St. Jude Medical, Medtronic, Biotronik and Guidant do not require any minimum purchase levels. The loss of any large customer for any reason could harm the business, financial condition and results of operations of our company.

        IF WE DO NOT RESPOND TO CHANGES IN TECHNOLOGY, OUR PRODUCTS MAY BECOME OBSOLETE AND WE MAY EXPERIENCE REDUCED SALES AND A LOSS OF CUSTOMERS, WHICH WOULD NEGATIVELY AFFECT OUR 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. For example, in 1998, an industry-wide design change in ICDs occurred, resulting in new ICDs using one battery instead of two. Primarily as a result of this design change, our implantable power source revenues decreased 19% in 1999 compared to 1998. 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 number of our customers. In addition, other new products introduced by our customers may require fewer of our power sources or components. We dedicate a significant amount of resources to the development of our power sources and other 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 power sources and other products could cause our business to suffer. If this occurs, our revenues and operating results would suffer.

        IF WE ARE UNABLE TO SUCCESSFULLY MARKET OUR CURRENT OR FUTURE PRODUCTS, OUR BUSINESS WILL BE HARMED.

        The market for our power sources, components and other 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 and ICD 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.

        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, plastics, cases, lids, glass, screens, tantalum, platinum, ruthenium, gallium trichloride, tantalum pellets and vanadium pentoxide. Raw materials needed for our business are susceptible to fluctuations due to transportation, government regulations, price controls, economic climate or other unforeseen circumstances. In recent months, increasing global demand for some of the raw materials we need for our business, including platinum, gallium trichloride and tantalum, has caused the prices of these materials to increase significantly. In addition, there are a limited number of worldwide suppliers of the lithium needed to manufacture our products. 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. For example, we rely on FMC to supply us with lithium for our power sources and HC Starck to supply us with tantalum powder and wire for capacitors. 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.

        AMORTIZATION OF OUR INTANGIBLE ASSETS, WHICH REPRESENT A SIGNIFICANT PORTION OF OUR TOTAL ASSETS, WILL ADVERSELY IMPACT OUR NET INCOME AND WE MAY NEVER REALIZE THE FULL VALUE OF OUR INTANGIBLE ASSETS.

        As of December 28, 2001, we had $137.1 million of net intangible assets, representing 48% of our total assets and 73% of our stockholders' equity. These intangible assets consist primarily of goodwill, trademark, tradenames and patented technology, arising from our acquisitions. Under Statement of Financial Accounting Standard No. 142, adopted by us on December 29, 2001, goodwill and other intangible assets with indefinite lives will no longer be amortized in 2002. Intangible assets with definite lives, which represent $26.7 million of our net intangible assets at December 28, 2001, will continue to be amortized. We expect to incur amortization expenses relating to these intangible assets of $3.5 million in 2002 and $3.2 million in 2003. These expenses will reduce our future earnings or increase our future losses. 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.

        QUALITY PROBLEMS WITH OUR POWER SOURCES AND OTHER PRODUCTS COULD HARM OUR REPUTATION FOR PRODUCING HIGH QUALITY PRODUCTS AND ERODE OUR COMPETITIVE ADVANTAGE.

        Our power sources and other products are held to high quality standards. In the event that our power sources and other products fail to meet these standards, our reputation for producing high quality power sources and other products could be harmed, which would damage our competitive advantage.

        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:

• the fixed nature of a substantial percentage of our costs, which results in our operations being particularly sensitive to fluctuations in revenue;
   
• 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;
   
• timing of orders placed by our principal customers who account for a significant portion of our revenues; and
   
• increased costs of raw materials or supplies.

        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 28, 2001, we held 182 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.

        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 power sources 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 which compete with our products. 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.

        IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, OUR EARNINGS AND FINANCIAL CONDITION COULD SUFFER.

        The manufacture and sale of our products expose us to potential product liability claims and product recalls, including those which may arise from 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. 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 earnings and financial condition to suffer.

        We carry product liability insurance coverage which 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 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.

        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 power sources and other 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.

        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 that is used in manufacturing and producing power sources and other components for implantable medical devices. 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 in the future expect 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. However, implementation of our acquisition strategy entails a number of risks, including:

• inaccurate assessments of undisclosed liabilities;
   
• diversion of our management's attention from our core businesses;
   
• potential loss of key employees or customers of the acquired businesses;
   
• difficulties in integrating the operations and products of an acquired business or in realizing projected efficiencies and cost savings; and
   
• 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 FINANCIAL 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. For example, in August 1998, we acquired Hittman, a medical components manufacturer, in August 2000, we acquired Battery Engineering, Inc., or BEI, a small specialty battery manufacturer, and in June 2001 we acquired Sierra, a leading developer and manufacturer of EMI filters and capacitors for implantable medical devices. 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 financial results to suffer.

        WE MAY FACE COMPETITION FROM ONE OF OUR PRINCIPAL 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 power sources for implantable medical devices may intensify in the future. One or more of our customers that manufactures implantable medical devices may undertake additional vertical integration initiatives and begin to manufacture some or all of their power source needs. Although Medtronic manufactures its own lithium batteries for its pacemakers and ICDs, to date, to our knowledge, Medtronic has not sold batteries to third parties. If Medtronic were to begin selling power sources for implantable medical devices to third parties, our revenues could be harmed. As the implantable medical device industry continues to consolidate, this risk will intensify. Many of our potential implantable power source and component competitors, which include some of our customers, have greater name recognition, longer operating histories, larger customer bases, longer customer relationships and greater financial, technical, personnel and marketing resources than our company.

        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 and we have not experienced any serious accidents or deaths, 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.

        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 cannot assure you that we will be able to successfully manage expansion into new markets and products or that these efforts will not have an adverse impact on our business. 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.

        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.

        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 cannot assure you that we will 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.

        WE AND OUR CUSTOMERS ARE SUBJECT TO VARIOUS POLITICAL, ECONOMIC AND REGULATORY CHANGES IN THE HEALTHCARE INDUSTRY WHICH COULD FORCE US TO MAKE MODIFICATIONS TO 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 device products produced by our healthcare customers are subject to regulation by the FDA and similar international 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.

        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 power sources and hazardous chemicals and other materials used in and hazardous waste produced by the manufacturing of power sources and components. We cannot assure you that conditions relating to our historical operations which may require expenditures for clean-up will not arise in the future or that changes in environmental laws and regulations will not impose costly compliance requirements on us or otherwise subject us to future liabilities. We also cannot assure you that additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our power sources and components or restricting disposal of power sources will not 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 HAVE AN ADVERSE EFFECT ON OUR REVENUES AND RESULTS OF OPERATIONS.

        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 results of operations would suffer.

        OUR 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 COMMERCIAL POWER SOURCE REVENUES ARE DEPENDENT ON CONDITIONS IN THE OIL AND NATURAL GAS INDUSTRY, WHICH HISTORICALLY HAS BEEN VOLATILE.

        Sales of our commercial power sources 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 power sources to suffer.

        Our executive offices are located in Clarence, New York. The building that houses our executive offices also contains warehouse operations, a variety of support services and capacity for light manufacturing or laboratory space.

        The following table sets forth information about all of our principal manufacturing or testing facilities:

We believe these facilities are adequate for our current and foreseeable purposes and that additional space will be available when needed.

        We are involved in various lawsuits and claims incidental to our business. In the opinion of our management, the ultimate liabilities, if any, resulting from these lawsuits and claims will not materially affect our financial position or results of operations.

        None.

        The company's common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "GB." The common stock began trading on the NYSE on September 29, 2000 following our initial public offering. The following table sets forth, for the periods indicated, the high and low closing prices per share for the common stock as reported on the NYSE Composite Tape.

        As of March 22, 2002, there were 297 record holders of the company's common stock. Our Employee Stock Ownership Plan, or ESOP, is considered one record holder for the purposes of this calculation. There are approximately 1,300 participants in the ESOP.

        We do not intend to pay cash dividends in the foreseeable future. We currently intend to retain any earnings to further develop and grow our business and to reduce our indebtedness. We are a holding company and are dependent on distributions from our subsidiaries to meet our cash requirements. The terms of the credit agreement governing our credit facility restrict the ability of our subsidiaries to make distributions to us and, consequently, restrict our ability to pay dividends on our common stock.

        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, which have been audited by Deloitte & Touche LLP, independent auditors.

        YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.

        We are a leading developer and manufacturer of power sources, feedthroughs and wet tantalum capacitors used in implantable medical devices. We also develop and manufacture other precision-engineered components used in implantable medical devices. We leverage our core competencies in technology and manufacturing to develop and produce power sources for commercial applications that demand high performance and reliability. These applications include aerospace, oil and gas exploration and oceanographic equipment.

        In June 2001, we acquired substantially all of the assets of the Sierra-KD Components division of Maxwell Technologies, Inc. (Greatbatch-Sierra), a developer and manufacturer of electromagnetic interference filters and capacitors primarily for implantable medical devices, for $49.0 million in cash and certain assumed liabilities. The acquisition was accounted for as a purchase. The excess of the acquisition cost over the fair value of the net assets acquired was recorded as goodwill.

        In July 2001, we completed a stock offering of 7.8 million shares of common stock, comprised of 5.8 million shares sold by existing shareholders and 2.0 million newly issued shares. The Company received $43.6 million in net proceeds to be used for general corporate purposes, including acquisitions and debt reduction.

        We derive revenues from the sale of medical and commercial products. Our medical revenues consist of sales of implantable power sources, capacitors and components. Our commercial revenues consist of sales of commercial power sources.

        Our implantable power source revenues are derived from sales of batteries for pacemakers, implantable cardioverter defibrillators (ICDs) and other implantable medical devices. We also record royalties as implantable power source revenues for licenses we have granted to others for the manufacture of batteries using designs and processes patented by us. Our capacitor revenues are derived from sales of our wet tantalum capacitors, which we developed for use in ICDs. Our component revenues are derived from sales of feedthroughs, electrodes, electromagnetic interference (EMI) filters and other precision components principally used in pacemakers and ICDs. We also sell our components for use in other implantable medical devices. Our commercial power sources revenues are derived primarily from sales of batteries for use in oil and gas exploration. We also supply batteries to NASA for its space shuttle program and other similarly demanding commercial applications.

        A substantial part of our business is conducted with a limited number of customers. Our two largest customers accounted for approximately 66% of revenues in 2001. We have entered into long-term supply agreements with most of our large customers. For each of our products, we recognize revenue when the products are shipped and title passes. We do not give warranties to our customers for our products and to date, returns have been immaterial.

        Cost of goods sold includes materials, labor and other manufacturing costs associated with the products we sell. Selling, general, and administrative expenses include salaries, facility costs, professional service fees, and patent- related and other legal expenses. Research, development, and engineering costs include expenses associated with the design, development, testing, deployment and enhancement of our products. We record cost reimbursements received for research, development and engineering conducted on behalf of customers as an offset to research, development and engineering expenses.

        Our fiscal year ends on the closest Friday to December 31. Accordingly, our fiscal year will periodically contain more or less than 365 days. For example, fiscal 1999 ended on December 31, 1999, fiscal 2000 ended December 29, 2000 and fiscal 2001 ended on December 28, 2001. Our fiscal quarters are three-month periods that end on the Friday closest to the end of the applicable calendar quarter.

        The commentary that follows should be read in conjunction with our consolidated financial statements and related notes.

        Total revenues for 2001 were $135.6 million, a $37.8 million, or 39%, increase from $97.8 million for 2000.

        Medical. Total medical revenues for 2001 were $107.7 million, a $23.9 million, or 28%, increase from $83.8 million for 2000. Implantable power source revenues for 2001 were $46.9 million, a $5.6 million, or 13%, increase from $41.3 million for 2000. This increase was primarily due to higher demand for our ICD batteries from our customers, both foreign and domestic. This increase was partially offset due to the expiration of implantable power source patents in 2001 on which we had been receiving royalty fees. Capacitor revenues for 2001 were $20.3 million, a $7.7 million or 61% increase from $12.6 million for 2000. This increase was primarily due to market acceptance and demand for the ICDs using our capacitor, which was first introduced in the fourth quarter of 1999. Medical component revenues for 2001 were $40.5 million, a $10.6 million, or 36%, increase from $29.9 million for 2000. This increase was primarily due to the acquisition of Greatbatch-Sierra in June 2001, whose primary product line of EMI filters for implantable devices complements our other component lines well.

        Commercial. Commercial power sources revenues increased 99% to $27.9 million compared to $14.0 million for 2000. The higher revenues were primarily related to the inclusion of revenues for a full year from our Battery Engineering, Inc. (BEI) acquisition that was completed in August 2000. This acquisition, combined with our pre-existing commercial business, allowed us to participate strongly in the increased demand for products used in oil and gas exploration activity, which was up sharply in 2001.

        Gross profit for 2001 was $60.9 million, an $18.5 million, or 44%, increase from $42.3 million for 2000. As a percentage of total revenues, gross profit for 2001 improved to 45% from 43% for 2000. This increase was primarily due to increased efficiencies and cost leveraging based on the higher production volumes in 2001 over 2000. In addition, the absence in 2001 of significant start-up costs that accompanied the ramp-up of capacitors to production volumes in 2000 further aided the comparison.

        Selling, general and administrative expenses for 2001 were $18.2 million, a $6.7 million, or 58%, increase from $11.5 million in 2000. The increase in selling, general and administrative expenses was due to the inclusion of such expenses from Greatbatch-Sierra since its acquisition in June 2001, a full year of expenses from BEI in 2001 versus only five months in 2000, a full year of "public company" expenses (annual stock listing and registrar fees, investor relation expenses, etc), and increased training costs in support of our adoption of a Six Sigma quality initiative. As a percentage of total revenues, selling, general and administrative expenses were 13% and 12% in 2001 and 2000, respectively.

        Research, development and engineering costs for 2001 were $12.6 million, a $2.6 million, or 26%, increase from $9.9 million in 2000. Payments received from customers for the development of proprietary products are recorded as an offset to research, development and engineering costs. Such payments totaled $2.5 million and $3.2 million in 2001 and 2000, respectively. The increase in net costs reflects our acquisitions of Greatbatch-Sierra and BEI as discussed above, as well as our ongoing commitment to invest in the development of new products and enhancing the performance of our existing products. As a percentage of total revenues, research, development and engineering costs (before development payments received from customers) were 11% in 2001, as compared to 13% in 2000. This decrease was primarily due to the rapid growth in capacitor and commercial revenues in 2001, and not to any decrease in our research and development initiatives.

        Intangible amortization was $7.7 million for 2001, an increase of $1.2 million, or 18% from $6.5 million in 2000. This increase primarily reflects the amortization of intangible assets that were recorded as part of our acquisition of Greatbatch-Sierra.

        Net interest expense for 2001 was $3.6 million, a decrease of $9.4 million, or 72%, from $13.0 million for 2000. Gross interest expense in 2001 was $4.0 million, a decrease of $9.2 million, or 70%, from $13.2 million in 2000. Proceeds from our fall 2000 initial public offering were used to prepay $84.0 million of our senior debt in October 2000. The remaining debt was refinanced during the first quarter of 2001 at more favorable terms. An additional $47.0 million was borrowed in June 2001 to finance our acquisition of Greatbatch-Sierra. Net interest expense included interest income of $0.4 million in 2001, an increase of $0.1 million, or 33% from interest income of $0.3 million in 2000. This increase reflected incremental income earned on the investment of proceeds from our secondary stock offering in July 2001.

        Other expense of $0.3 million in 2001 compares with other income of $0.2 million in 2000. Losses on disposition of assets and additions to our allowance for doubtful accounts comprise the majority of the balance in 2001. These recurring items were offset in 2000, when we sold, for a gain, interest rate cap agreements which were no longer needed due to the prepayment of our senior debt.

        Our effective tax rate decreased slightly to 37.4% for 2001 from 37.5% for 2000. Our rate includes the effect of all state taxes and available credits.

        As discussed above, the senior debt and subordinated debt that remained outstanding at year end 2000 was refinanced in the first quarter 2001. This transaction resulted in an extraordinary charge, net of tax, of $3.0 million. The charge related to the call premium and write-off of fees and other expenses incurred to establish the original debt financing. The extraordinary charge, net of tax, recorded in 2000 as a result of that year's prepayment of debt with proceeds from our initial public offering totaled $1.6 million.

        Our net income for 2001 amounted to $8.6 million, up from a net loss of $(0.5) million in 2000. This improvement was primarily due to the decrease in interest expense and the increase in gross profit. The net earnings per share was $0.43 for 2001, assuming dilution, as compared with a loss per share of $(0.04) for 2000.

FISCAL 2000 COMPARED TO FISCAL 1999

        Total revenues for 2000 were $97.8 million, an $18.6 million, or 23%, increase from $79.2 million for 1999. The growth in revenues was primarily due to sales of our line of wet tantalum capacitors, which were launched commercially in the fourth quarter of 1999, and the inclusion of revenues from BEI since its acquisition in August 2000.

        Medical. Total medical revenues for 2000 were $83.8 million, a $14.6 million, or 21%, increase from $69.2 million for 1999. Implantable power source revenues for 2000 were $41.3 million, a $0.8 million, or 2%, increase from $40.5 million for 1999. This increase was primarily due to higher pacemaker battery sales as a result of an increase in pacemaker device sales by our customers, both foreign and domestic. This increase was partially offset due to an industry-wide design change in ICDs that resulted in ICDs using one battery instead of two. This conversion began in mid-1999 and was substantially complete by the third quarter of 2000. Capacitor revenues for 2000 were $12.6 million, a $10.3 million increase from $2.3 million for 1999. This increase was primarily due to initial commercial sales of our new wet tantalum capacitors beginning in the fourth quarter of 1999. Medical components revenues for 2000 were $29.9 million, a $3.5 million, or 13%, increase from $26.4 million for 1999. This increase was primarily due to the sale of a greater number of implantable medical devices by our customers, as well as our sales of a broader range of components in 2000 when compared with 1999.

        Commercial. Commercial power sources revenues increased 40% to $14.0 million compared to $10.0 million for 1999. The higher revenues were primarily related to the inclusion of revenues from the BEI acquisition that was completed in August 2000.

        Gross profit for 2000 was $42.3 million, a $4.2 million, or 11%, increase from $38.2 million for 1999. As a percentage of total revenues, gross profit for 2000 declined to 43% from 48% for 1999. This decrease was primarily due to a lower percentage of total revenues from established product lines such as implantable power sources, with no accompanying start-up costs, versus a higher percentage of total revenues from newer products, with accompanying high start-up costs, such as capacitors. In addition, sales of lower margin products, such as medical components and commercial power sources, have increased at a faster rate than have sales of historically higher margin implantable power sources.

        Selling, general and administrative expenses for 2000 were $11.5 million, a $1.6 million, or 16%, increase from $9.9 million in 1999. The increase in selling, general and administrative expenses is primarily due to the inclusion of such expenses from BEI since its acquisition in August 2000, wage increases in 2000 as compared to wage decreases in 1999 and the accrual of incentive compensation in 2000 whereas there were no such accruals in 1999. As a percentage of total revenues, selling, general and administrative expenses were 12% and 13% in 2000 and 1999, respectively. The increase in total revenues mitigated the increase in selling, general and administrative expenses as a percentage of revenues.

        Research, development and engineering expenses for 2000 were $9.9 million, a $0.6 million, or 6%, increase from $9.3 million for 1999. Payments received from customers for the development of proprietary battery models are recorded as an offset to research, development and engineering expenses. Such payments totaled $3.2 million and $2.5 million in 2000 and 1999, respectively. As a percentage of total revenues, research, development and engineering expenses before such payments for 2000 declined to 13% from 15% for 1999. This decrease was primarily due to the rapid growth in capacitor sales and the growth in revenues of products that historically have not required significant research, development and engineering expenses, such as medical components and commercial power sources.

        Intangible amortization was $6.5 million for 2000 and 1999. Interest expense for 2000 was $13.0 million, a decrease of $0.5 million, or 3%, from $13.4 million for 1999. This decrease was due to the use of net proceeds from our initial public offering to prepay $84.0 million of our senior debt. Miscellaneous income of $0.2 million in 2000 compares with miscellaneous expense of $1.3 million in 1999. In 2000, we sold interest rate cap agreements, which were no longer needed due to the prepayment of our senior debt, for a gain of $0.2 million. In 1999, we wrote down by $0.9 million the carrying value of our investment in an unaffiliated company.

        Our effective tax rate increased to 37.5% for 2000 from 26.1% for 1999. This increase was primarily due to the decrease in state tax credits available to us for 2000 as compared with 1999.

        In addition to the $84.0 million prepayment of our senior debt with the net proceeds of our initial public offering, we redeemed a portion of our subordinated debt. These two transactions resulted in an extraordinary charge, net of tax, of $1.6 million in 2000. The charge relates to the write-off of fees and other expenses incurred to establish the original debt financing.

        Our net loss for 2000 narrowed to $(0.5) million from a net loss of $(2.3) million in 1999. The reduction in net loss was primarily due to an increase in gross profit. The net loss per share was $(0.04) for 2000, assuming dilution, and $(0.18) for 1999.

        The refinancing of our then remaining senior and subordinated debt in 2001 at more favorable terms and the receipt of $43.6 million in net proceeds from our secondary offering of stock in July 2001 have furthered strengthened our financial position. Total assets at December 28, 2001 grew to $283.5 million, reflecting the common stock proceeds and our acquisition of the net assets of Greatbatch-Sierra.

        As of December 28, 2001, we had $43.3 million in cash and cash equivalents. This amount primarily reflected the proceeds from our secondary offering of common stock in July 2001, and remains available for general corporate purposes, which may include debt reduction or acquisitions. Cashflow from operations was adequate to cover all required debt servicing, capital expenditures and normal operational costs. In addition, we have a $20.0 million line of credit facility, all of which was available at year-end.

        Cash provided by operating activities in 2001 was $21.5 million compared to $18.2 million and $9.0 million in 2000 and 1999, respectively. The increase in cash provided by operating activities in 2001 when compared to both prior years was primarily due to an increase in operating income, which largely reflected improved gross profit and decreased interest expense. This improvement was somewhat tempered by increases in accounts receivable and inventories, driven by an increased volume of business.

        Cash provided by operating activities improved in 2000 from 1999 levels primarily due to an increase in operating income, the receipt of refunds from state tax credits and previously-paid income taxes and a reduction in net operating assets.

        Cash used in investing activities was $59.4 million, $3.4 million and $8.8 million for 2001, 2000 and 1999, respectively. Our acquisition of Greatbatch-Sierra was the most significant item in 2001, accounting for $46.9 million of the $59.4 million. Capital expenditures were $9.7 million, $4.5 million and $8.5 million for 2001, 2000 and 1999, respectively.

        Cash provided by financing activities was $81.2 million in 2001, compared with cash used in financing activities of $18.6 million and $0.4 million in 2000 and 1999, respectively. In January 2001, we consummated a $40.0 million term loan to pay off the remaining senior and subordinated debt outstanding at that time, including a call premium. An additional $47.0 million was borrowed in June 2001 to finance the acquisition of Greatbatch-Sierra. In July 2001, we received $43.6 million in net proceeds from an offering of our common stock. In 2000, we used the proceeds from our initial public offering and cash generated by operating activities to prepay or make regularly scheduled payments of $94.8 million on our senior debt, including our revolving line of credit. We redeemed $5.0 million of our 13% subordinated notes and purchased $2.0 million of common stock from the holder of the redeemed notes. In 2000, we also sold $3.0 million of our stock to the previous owner of BEI and used these proceeds to pay off the $2.7 million in debt we assumed in the BEI acquisition. Cash used in financing activities in 1999 was primarily the result of ongoing operational debt and equity transactions, and an earnout payment related to our acquisition of Greatbatch-Hittman.

        We believe that cash generated from operations, combined with our available cash and cash equivalents, will be sufficient to meet our working capital needs and planned capital expenditures for the near term. Capital expenditures for 2002 are expected to increase from historical levels, as we invest in increased production capacity and product development opportunities. These investments include completion of an expansion to our research and development facilities, which began in 2001. Should other suitable investment opportunities arise during fiscal 2002, including acquisitions, we believe that our earnings, cash flows and balance sheet will permit us to obtain additional debt or equity capital, if necessary. There can be no assurance, however, that additional financing will be available to us or, if available, that it can be obtained on a timely basis or on terms acceptable to us.

        Our capital structure consists of interest-bearing debt and equity. Interest-bearing debt as a percentage of our total capitalization increased to 28% at December 28, 2001 compared with 20% at December 29, 2000, primarily due to the additional debt incurred to finance the acquisition of Greatbatch-Sierra. The December 28, 2001 percentage of debt net of cash as a percentage of total capitalization was 12%. Our long-term debt at December 28, 2001 consisted of a term loan. There was also a $20.0 million revolving line of credit available, none of which was outstanding at year-end.

        In January 2001, we consummated a $60.0 million credit facility that consisted of a $40.0 million term loan and a $20.0 million revolving line of credit. Both the term loan and the revolving line of credit had a term of five years and would have matured on January 1, 2006. We used the proceeds from this term loan to pay off the remaining senior debt and the senior subordinated notes that were outstanding as of December 29, 2000, plus accrued interest and a call premium. At that date, there was $18.3 million net amount outstanding under our 13% senior subordinated notes, $6.2 million outstanding under our Term A loan facility and $9.0 million outstanding under our Term B loan facility. There were no amounts outstanding under our revolving line of credit. At December 29, 2000, the weighted average interest rate for our Term A loans was 10.3% and the weighted averaged interest rate for our Term B loans was 10.5%.

        In June 2001, in conjunction with the acquisition of Greatbatch-Sierra, we amended our credit facility with a consortium of banks by increasing the total size of the facility to $100.0 million. The amended facility consisted of an $80.0 million term loan and a $20.0 million revolving line of credit. Both the term loan and the revolving line of credit have a term of five years, maturing in July 2006. This credit agreement is secured by our accounts receivable and inventories and requires us to comply with various quarterly financial covenants related to earnings before interest, taxes, depreciation and amortization, or EBITDA, as it is defined in the credit agreement, and ratios of leverage, interest and fixed charges as they relate to EBITDA. Both the term loan and the revolving line of credit bear interest at a rate that varies with our level of leverage. At December 28, 2001 leverage levels, the applicable interest rates for both the term loan and revolving line of credit were prime less 0.75%, or the London Interbank Offered Rate, or LIBOR, plus 1.25%, at our option. At March 1, 2002, the weighted average interest rate for the term loan was 4.1%, and there were no amounts outstanding under the revolving line of credit.

        We do not believe that inflation has had a significant effect on our operations.

        In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16, "Business Combinations." Effective July 1, 2001, all business combinations in the scope of this new Statement are to be accounted for using one method, the purchase method. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, "Intangible Assets." It changes the accounting for goodwill and other intangible assets with an indefinite life from an amortization method to an impairment-only approach. We adopted SFAS No. 142 effective December 29, 2001, which was the first day of fiscal 2002, and will cease the amortization of goodwill and any other intangible assets with an indefinite life which were recorded in past business combinations. Total amortization expense of all intangible assets was $7.7 million ($0.39 before tax, per diluted share) for the year ended December 28, 2001 and $6.5 million ($0.45 before tax, per diluted share) for the year ended December 29, 2000. Of these amounts, $3.5 million and $3.0 million in 2001 and 2000, respectively, represented amortization of goodwill and other intangible assets with indefinite lives that would not have been amortized if SFAS No. 142 had been in effect for those years. SFAS No. 142 also requires the Company, in the year of adoption and for each year thereafter, to analyze all intangible assets for possible impairment, and to write such assets down to fair market value. The Company continues to evaluate the impact of SFAS No. 142 on its financial position and results of operations; however, based on the transitional goodwill impairment test, no impairment of goodwill and other intangible assets is anticipated.

        Under the credit facility consummated in June 2001, both the term loan and any borrowings under the line of credit bear interest at fluctuating market rates. An analysis of the impact on the company's interest rate sensitive financial instruments of a hypothetical 10% change in short-term interest rates shows an impact on expected 2002 earnings of less than $0.3 million of higher or lower earnings, depending on whether short-term rates rise or fall by the 10%. The discussion and the estimated amounts referred to above include forward-looking statements of market risk, which involve certain assumptions as to market interest rates. Actual future market conditions may differ materially from such assumptions. Accordingly, the forward-looking statements should not be considered projections of future events by our company.

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 subsidiary (the "Company") as of December 28, 2001 and December 29, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wilson Greatbatch Technologies, Inc. and subsidiary as of December 28, 2001 and December 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 1999, the Company changed its method of accounting for costs of start-up activities.

/s/ Deloitte & Touche LLP

Buffalo, New York
January 25, 2002

WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Property, plant and equipment consisted of the following:

        Accrued liabilities consisted of the following (dollars in thousands):

        Long-term obligations consisted of the following:

On January 12, 2001, the Company consummated a new, $60.0 million credit facility, which consisted of a $40.0 million term loan and a $20.0 million revolving line of credit. In June 2001, in conjunction with the acquisition of Sierra, the Company amended this $60.0 million credit facility with a consortium of banks by increasing the total size of the facility to $100.0 million. The amended facility consists of an $80.0 million term loan and a $20.0 million revolving line of credit. Both the term loan and the revolving line of credit have a term of five years, maturing in July 2006. The new credit agreement is secured by the Company's accounts receivable and inventories and requires the Company to comply with various quarterly financial covenants related to net earnings or loss before interest expense, income taxes, depreciation and amortization ("EBITDA"), as it is defined in the credit agreement, and ratios of leverage, interest and fixed charges as they relate to EBITDA. Both the term loan and the revolving line of credit bear interest at a rate that varies with the Company's degree of leverage. At December 28, 2001 leverage levels, the applicable interest rates for both the term loan and revolving line of credit are prime less 0.75% or the London Interbank Offered Rate, or LIBOR, plus 1.25%, at the Company's option. At December 28, 2001 there was no amount outstanding under the revolving line of credit.

The proceeds from the January 2001 term loan were used to pay off the remaining senior debt (Term A and Term B) and the senior subordinated notes that were outstanding as of December 29, 2000. As a result of this debt restructuring, there was an extraordinary loss of $3.0 million, net of taxes. The loss was associated with the restructuring of our long-term debt and the related write-off of deferred financing fees and loan discounts associated with the previous long-term debt. Also included in the loss was the payment of $1.7 million, before taxes, as a call premium to the holders of our senior subordinated notes. At that date, there was $18.3 million net amount outstanding under the Company's 13% senior subordinated notes, $6.2 million outstanding under the Term A loan facility and $9.0 million outstanding under the Term B loan facility.

In October 2000, using the net proceeds from its Initial Public Offering, the Company prepaid $34.4 million of its Term A Facility and $49.6 million of its Term B Facility. Also in October 2000, the Company repurchased $5.0 million of its Senior Subordinated Notes and purchased for its Treasury 127,532 shares of common stock from the noteholder. As a result of the prepayment and repurchase transactions, an extraordinary loss for the extinguishment of debt was recorded in the fourth quarter of 2000 in the amount of $1.6 million, net of tax.

Maturities of long-term obligations subsequent to December 28, 2001 (dollars in thousands):

Net revenues by geographic area are presented by attributing revenues from external customers based on where the products are sold. All dollars are in thousands.

Two customers accounted for approximately 66%, 65% and 64% of sales for 2001, 2000 and 1999, respectively. Two customers accounted for approximately 52% and 52% of the outstanding accounts receivable as of December 28, 2001 and December 29, 2000, respectively.

        None.

Reference is made to the information responsive to the Items comprising this Part III that is contained in our definitive proxy statement for our 2002 Annual Meeting of Stockholders, which is incorporated by reference herein.

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

            (1)    FINANCIAL STATEMENTS

        (2)     FINANCIAL STATEMENT SCHEDULES

        (1)    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

(b)    REPORTS ON FORM 8-K

        None.

        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.

        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.