CRM/Neuromodulation revenue growth of 5%

Orthopaedic and Electrochem revenue negatively impacted by market slowdown

GAAP operating results include impact of $34.5 million Electrochem litigation charge

Cash flows from operations of $29 million

Consolidation initiatives remain on track

Annual operating margin guidance maintained on reduced full year revenue expectations

 (Dollars in thousands, except share data)     20093rd Qtr.    20083rd Qtr.    %Change   20092nd Qtr.    %Change 
 Revenue                                       $  121,470      $  136,242      -11  %    $  134,725      -10  %  
 GAAP Operating Income (Loss)                  $  (23,933  )   $  15,714       NA        $  12,469       NA      
 GAAP Operating Income (Loss) as % of Sales*      -19.7    %      11.5     %                9.3      %           
 Adjusted Operating Income*                    $  13,646       $  19,279       -29  %    $  14,893       -8   %  
 Adjusted Operating Income as % of Sales          11.2     %      14.2     %                11.1     %           
 GAAP Diluted EPS                              $  (0.90    )   $  0.28         NA        $  0.28         NA      
 Adjusted Diluted EPS*                         $  0.32         $  0.44         -27  %    $  0.40         -20  %  


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* See Tables A and B at the end of this release for reconciliation of adjusted amounts to GAAP.

"Our CRM, Neuromodulation, Vascular Access and Electrochem product line revenue were generally in line with initial expectations," stated Thomas J. Hook, Greatbatch's President & Chief Executive Officer. "However, our Orthopaedic sales have been impacted by reduced spending on elective procedures and increased emphasis on inventory management programs from customers amid an uncertain regulatory and economic environment, which is consistent with other orthopaedic OEM suppliers. We are pleased with the progress we have made on our consolidation and operational efficiency initiatives, which have helped mitigate the impact of this lower revenue. Our operating results continue to be positively impacted despite the reduced demand for our orthopaedic products. We remain excited about the long-term prospects for our business and will continue to focus on diversifying our revenues, deepening relationships with both current and new customers, improving operational efficiencies and continuing to invest in the development of new technologies to support future growth."

Third Quarter Results

Consolidated sales in the third quarter of 2009 were $121.5 million compared to $136.2 million in the comparable 2008 period and $134.7 million for the second quarter of 2009. As expected, Cardiac Rhythm Management ("CRM") and Neuromodulation organic revenue growth moderated during the quarter while Orthopaedic and Electrochem revenue continued to be impacted by an overall market slowdown.

Gross profit as a percentage of revenue for the 2009 third quarter improved to 32.2%, compared to 30.6% for the third quarter 2008. This improvement was due to a higher mix of CRM/Neuromodulation revenue in the current quarter as well as the impact of consolidation initiatives completed over the past year.

Selling, general and administrative expenses of $15.8 million for the third quarter of 2009 were consistent with the same period of 2008 as normal inflationary cost increases were offset by savings from our various consolidation initiatives and lower performance based compensation.

Net research, development and engineering costs for the 2009 third quarter were $9.7 million which, as expected, were up from $6.8 million in the 2008 third quarter. This increase was due to the strategic decision in 2009 to further invest resources in the development of new technologies in order to provide solutions for our customers and ultimately create long-term growth opportunities.

GAAP operating loss for the third quarter of 2009 was $23.9 million compared to income of $15.7 million in the third quarter of 2008 and income of $12.5 million in the second quarter 2009. GAAP operating results for the current quarter include a $34.5 million litigation charge related to the previously disclosed jury verdict in the Electrochem litigation, which includes interest on the award and estimated attorneys' fees and costs.

Adjusted operating income was $13.6 million, or 11.2% of sales, in the third quarter 2009, compared to $19.3 million, or 14.2% of sales, for the comparable 2008 period and $14.9 million or 11.1% of sales in the second quarter 2009. This decrease is primarily due to the decrease in revenue and increase in R&D investment as discussed above. Adjusted amounts presented in this release exclude the impact of acquisition-related charges, as well as facility consolidation, manufacturing transfer, system integration expenses and litigation charges.

The adjusted and GAAP effective tax rates for the third quarter 2009 were 30.2% and 27.9%, respectively, compared to 36.5% and 41.3%, respectively, for the third quarter in 2008. The 2009 third quarter adjusted and GAAP effective tax rates include the favorable impact of the resolution of tax audits and the lapse of statutes of limitation on certain tax items during the quarter.

GAAP EPS decreased to a $0.90 loss per share in the third quarter 2009, compared to income of $0.28 per share for both the third quarter 2008 and second quarter 2009. Adjusted EPS decreased to $0.32 per share in the third quarter 2009 from $0.44 per share in the third quarter 2008 and $0.40 for the second quarter of 2009. Prior year amounts have been retroactively adjusted, as required by GAAP, to reflect the change in accounting related to convertible debentures adopted in 2009.

Cash flows from operations for the third quarter of 2009 of approximately $29 million were used to support normal capital expenditures and to pay down our line of credit by $14 million, or 12% of the outstanding balance. For the first nine months of 2009, cash flows from operations were approximately $50 million and the Company has repaid $25 million, or 19% of its line of credit balance. As of October 2, 2009, the Company had $29.5 million of cash and cash equivalents and $128 million of availability under its revolving line of credit.

"During this economic downturn and challenging health care market environment, we continue to focus on the variables that are within our control," commented Thomas J. Mazza, Senior Vice President & Chief Financial Officer. "In the third quarter we continued to take cost cutting measures to help offset the impact of our reduced revenue, continued to consolidate our Teterboro NJ facility into our Raynham MA facility, which is on schedule for completion in the fourth quarter, and converted two facilities to our ERP platform to further streamline operations. Additionally, we continued to invest in the development of new technologies as evidenced by the increase in gross RD&E to 9% of sales. We remain confident that our continued focus on these initiatives coupled with our strong cash generation will provide significant growth opportunities once the markets recover."

Product Lines

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

 Product Lines              20093rd Qtr.   20083rd Qtr.   %Change   20092nd Qtr.   %Change 
 Greatbatch Medical                                                                        
 CRM/Neuromodulation        $  74,094      $  70,540      5    %    $  78,026      -5   %  
 Vascular Access               8,375          8,840       -5   %       9,152       -8   %  
 Orthopaedic                   23,190         37,940      -39  %       31,389      -26  %  
 Total Greatbatch Medical      105,659        117,320     -10  %       118,567     -11  %  
 Electrochem                   15,811         18,922      -16  %       16,158      -2   %  
 Total Sales                $  121,470     $  136,242     -11  %    $  134,725     -10  %  


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Greatbatch Medical

Compared to the prior year and consistent with our expectations, CRM and Neuromodulation revenue growth moderated to 5% during the third quarter compared to the same period of 2008 and is now more in line with market growth rates compared to the above-market growth rates experienced over the last several quarters. More specifically, increased growth in medical batteries due to market growth and customer market share shifts was partially offset by a decrease in capacitor sales due to inventory adjustments made by OEM customers during the quarter. In comparison to the second quarter of 2009, CRM and Neuromodulation revenue declined 5% due to the timing of customer product launches. CRM and Neuromodulation revenue can vary significantly from quarter to quarter based upon the timing of customer product launches, customer outsourcing decisions, changes in customer market share mix and customer inventory adjustments, as well as marketplace field actions.

Third quarter revenues for the Vascular Access product line were $8.4 million, compared to the prior year quarter revenues of $8.8 million and sequential quarter revenue of $9.2 million. These decreases were primarily due to lower introducer sales as a result of customer inventory adjustments.

Orthopaedic product line revenues were $23.2 million for the quarter, compared to $37.9 million for third quarter 2008 and $31.4 million for the 2009 second quarter.