Business Highlights

Reported sales of $139.8 million for the first quarter, a 14% increase over the first quarter of 2008.

GAAP EPS of $0.28 per share and Adjusted EPS of $0.41 per share for the quarter.

Operating Margin improved to 10.6% on a GAAP basis and 12.6% on an adjusted basis.

"This was another solid quarter for Greatbatch, as we continued the positive momentum with which we finished 2008," began Thomas J. Hook, Greatbatch's President & Chief Executive Officer. "Our revenue growth was driven by the strong performance seen in our Greatbatch Medical division, and is a testament to the execution we have made on our strategic goals. The integration of our acquisitions continues to benefit the Company, including higher growth in new markets and cross selling opportunities across a broader customer base. Additionally, we launched a new branding initiative to unify our existing businesses under a common vision and consolidated our medical entities under a single brand ” "Greatbatch Medical."

"While we certainly are not immune to the impact of the strained economic environment, particularly as evidenced by the pressure on our Electrochem business, our performance demonstrates the success of our balanced approach to diversifying our revenue base, continuously generating value through operating performance improvements, and delivering innovative new products to our customers."

First Quarter Results

Consolidated sales in the first quarter of 2009 were $139.8 million, an increase of 14% over the comparable 2008 period. This growth was driven by Cardiac Rhythm Management ("CRM") and Neuromodulation revenue and the benefit of a full quarter of Orthopaedic operations ($8 million) as compared to the first quarter 2008. Partially offsetting these increases were lower Electrochem revenue due to a slow-down in the energy markets and approximately $3 million of foreign currency impact on our Orthopaedic sales. Organic constant currency growth for the quarter was approximately 10%.

Cost of sales as a percentage of revenue for the quarter was 68.4%, compared to 78.1% for the first quarter 2008. This improvement was driven by higher production volume as well as the impact of consolidation initiatives completed over the past year. Additionally, first quarter 2008 cost of sales included $6.4 million, or 5.3% of sales, of acquisition related inventory step-up amortization.

Selling, general and administrative expenses as a percentage of sales decreased 160 basis points to 13.4% compared to the first quarter 2008. This improvement reflects the various cost cutting and integration initiatives implemented over the last twelve months.

Net research, development and engineering costs ("RD&E") for the 2009 first quarter were $7.9 million which, as expected, were lower as a percentage of sales versus first quarter 2008 due to the realignment of these operations in 2008. We expect RD&E to increase as a percentage of sales for the remainder of 2009 as we continue to invest resources in the development of new technologies in order to provide solutions to our customers and ultimately drive long-term growth.

As a result of the above, operating income stated in accordance with generally accepted accounting principles ("GAAP") for the first quarter of 2009 was $14.8 million, compared to a loss of $4.1 million in 2008. Similarly, adjusted operating income was $17.6 million in the first quarter 2009, compared to $5.6 million for the first quarter 2008. Adjusted amounts exclude the impact of acquisition-related charges (in-process research and development ("IPR&D"), inventory step-up amortization), as well as facility consolidation, manufacturing transfer, and system integration expenses. (See Table A for reconciliations of adjusted amounts to GAAP).

Effective in the first quarter of 2009, the Company adopted FASB Staff Position ("FSP") APB 14-1, "Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion." This FSP requires issuers of convertible debt to recognize interest cost at their nonconvertible debt borrowing rate. The impact of the adoption of this statement was to increase the Company's non-cash interest expense by $1.8 million for the first quarter of 2009, or $0.05 per diluted share. Additionally, FSP APB 14-1 requires the restatement of prior year financial statements when presented. As a result, 2008 interest expense has been restated to include $1.6 million ($1.1 million after-tax) related to this FSP, or $0.05 per diluted share.

The effective tax rate for the first quarter 2009 was 31.5%, compared to 39.6% for the same period in 2008. The 2009 first quarter effective tax rate includes the favorable impact of a Swiss tax holiday and federal research and development tax credits. Additionally, the 2008 first quarter effective rate included the impact of $2.2 million of IPR&D, which was not deductible for tax purposes. The effective tax rate for 2009 is expected to be approximately 32%.

The net impact of items described above resulted in earnings per diluted share on a GAAP basis of $0.28 per share in the quarter, compared to a loss of $0.20 per share in first quarter of 2008. Adjusted earnings per diluted share were $0.41 per share in the quarter, an increase from $0.16 per share in the first quarter 2008. (See Table B for reconciliations of adjusted amounts to GAAP)

Consistent with our expectations, cash flows from operations for the first quarter of 2009 were approximately break-even compared to $3.1 million for the 2008 first quarter. This decrease was primarily due to a one-time contractual raw material inventory purchase related to the acquisition of our Chaumont France facility.

"We delivered strong operating margins this quarter, which is attributable to various cost cutting and consolidation initiatives and implementation of the Greatbatch operating model across all of our business lines. In addition, we continued to make progress with the on-going consolidation of our Blaine and Exton facilities, and have accelerated the Teterboro consolidation into our Raynham facility for more efficient capacity utilization," commented Thomas J. Mazza, Senior Vice President & Chief Financial Officer. "Despite the uncertainty in the macroeconomic environment, we remain confident in our ability to deliver solid revenue and operating performance throughout 2009 while continuing to invest in new technologies to support our long term growth initiatives and increase value for our shareholders."

Product Lines

The following table summarizes the Company's sales by major product lines for the first quarters of 2009 and 2008 (in thousands):

                                                                                                   2009        2008        %        Business Unit/Product Lines     1st Qtr.    1st Qtr.    Change   Greatbatch Medical                                               CRM/Neuromodulation             $77,267     $65,164     19%      Vascular Access                 10,733      9,567       12%      Orthopaedic                     34,083      27,786      23%      Total Greatbatch Medical        122,083     102,517     19%      Electrochem                     17,735      19,637      -10%     Total Sales                     $139,818    $122,154    14%                                                                        -------------------------------------------------------------------------------  

Greatbatch Medical

CRM and Neuromodulation revenue of $77.3 million for the quarter increased 19% over the prior year quarter. The first quarter's results benefited from strong feedthrough, coated component and medical battery revenue that was partially offset by lower capacitor sales. We continue to work with our customers to provide them cost effective technological advantages to enable them to bring solutions to market, which ultimately will drive our revenue growth.