UNITED STATES
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

GREATBATCH, INC.

(Exact name of Registrant as specified in its charter)

Delaware		16-1531026
(State of Incorporation)		(I.R.S. Employer Identification No.)

10000 Wehrle Drive
Clarence, New York 14031
(Address of principal executive offices)

(716) 759-5600
(Registrant’s telephone number, including area code)

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

Title of Each Class:		Name of Each Exchange on Which Registered:
Common Stock, Par Value $0.001 Per Share		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non- accelerated filer o		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of common stock of Greatbatch, Inc. held by non-affiliates as of July 2, 2010 (last business day of most recently completed second fiscal quarter), based on the last sale price of $22.00, as reported on the New York Stock Exchange: $501.8 million. Solely for the purpose of this calculation, shares held by directors and officers and 10 percent shareholders of the Registrant have been excluded. Such exclusion should not be deemed a determination by or an admission by the Registrant that these individuals are, in fact, affiliates of the Registrant. Shares of common stock outstanding on March 1, 2011: 23,342,941

DOCUMENTS INCORPORATED BY REFERENCE

The following document is specifically incorporated by reference into the indicated portions of this report:

Document		Part
Proxy Statement for the 2011 Annual Meeting of Stockholders		Part III, Item 10 “Directors, Executive Officers and Corporate Governance”
		Part III, Item 11 “Executive Compensation”
		Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”
		Part III, Item 13 “Certain Relationships and Related Transactions, and Director Independence”
		Part III, Item 14 “Principal Accounting Fees and Services”

 

 

TABLE OF CONTENTS

ITEM		PAGE
NUMBER		NUMBER
PART I
1 Business			3
1A Risk Factors			18
1B Unresolved Staff Comments			27
2 Properties			27
3 Legal Proceedings			27
4 (Removed and Reserved)			27
PART II
5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			28
6 Selected Financial Data			29
7 Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
7A Quantitative and Qualitative Disclosures About Market Risk			52
8 Financial Statements and Supplementary Data			54
9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			100
9A Controls and Procedures			100
9B Other Information			100
PART III
10 Directors, Executive Officers and Corporate Governance			101
11 Executive Compensation			101
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			101
13 Certain Relationships and Related Transactions, and Director Independence			101
14 Principal Accounting Fees and Services			101
PART IV
15 Exhibits and Financial Statement Schedules			101
Signatures			102
Exhibit 12.1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I

ITEM 1. BUSINESS

OVERVIEW

Wilson Greatbatch, co-inventor of the first successful implanted pacemaker, founded Greatbatch in 1970 to develop long-lived primary batteries to fuel pacemakers. Mr. Greatbatch’s passion for reliability and innovation is the foundation for our portfolio of capabilities and offerings. Every day, we support and empower our customers in their pursuit of revolutionary technology solutions by providing innovative technologies to industries that depend on reliable, long-lasting performance. We believe that our innovation, proprietary technology, close customer relationships, multiple product offerings, market leadership and dedication to quality provide us with competitive advantages and create a barrier to entry for potential market entrants. When used in this report, the terms “Greatbatch,” “we,” “us,” “our” and the “Company” mean Greatbatch, Inc. and its subsidiaries.

We operate our business in two reportable segments — Greatbatch Medical and Electrochem Solutions (“Electrochem”). The Greatbatch Medical segment designs and manufactures systems, components and devices for the Cardiac Rhythm Management (“CRM”), Neuromodulation, Vascular Access and Orthopaedic markets. Our Greatbatch Medical customers include large multi-national original equipment manufacturers (“OEMs”). Greatbatch Medical products include: 1) batteries, capacitors, filtered and unfiltered feedthroughs, engineered components and enclosures used in implantable medical devices (“IMDs”); 2) instruments and delivery systems used in hip and knee replacement, trauma and spine surgeries as well as hip, knee and shoulder implants; and 3) introducers, catheters, steerable sheaths and implantable stimulation leads. Additionally, Greatbatch Medical offers value-added assembly and design engineering services for medical systems and devices within the markets in which it operates.

Electrochem is a leader in technology solutions for critical industrial applications, including customized battery power and wireless sensing systems. Originating from the lithium cell invented for the implantable pacemaker by Wilson Greatbatch, our technology and superior quality and reliability is utilized in markets world-wide.

Greatbatch, Inc. is a Delaware corporation that was incorporated in 1997 and since that time has completed the following acquisitions:

Acquisition Date		Acquired Company		Business at Time of Acquisition
July 1997		Wilson Greatbatch Ltd.		Founded in 1970, designed and manufactured batteries for IMDs and commercial applications.
August 1998		Hittman Materials and Medical Components, Inc.		Founded in 1962, designed and manufactured ceramic and glass feedthroughs and specialized porous coatings for electrodes used in IMDs.
August 2000		Battery Engineering, Inc.		Founded in 1983, designed and manufactured high-energy density batteries for industrial, commercial, military and medical applications.

Acquisition Date		Acquired Company		Business at Time of Acquisition
June 2001		Sierra-KD Components division of Maxwell Technologies, Inc.		Founded in 1986, designed and manufactured ceramic electromagnetic filtering capacitors and integrated them with wire feedthroughs for use in IMDs as well as military, aerospace and commercial applications.
July 2002		Globe Tool and Manufacturing Company, Inc.		Founded in 1954, designed and manufactured precision enclosures used in IMDs and commercial products used in the aerospace, electronics and automotive sectors.
March 2004		NanoGram Devices Corporation		Founded in 1996, developed nanoscale materials for battery and medical device applications.
April 2007		BIOMEC, Inc.		Established in 1998, provided medical device design and component integration to early-stage and established customers.
June 2007		Enpath Medical, Inc.		Founded in 1981, designed, developed, and manufactured venous introducers and dilators, implantable leadwires, steerable sheaths and steerable catheters.
October 2007		IntelliSensing LLC		Founded in 2005, designed and manufactured battery-powered wireless sensing solutions for commercial applications.
November 2007		Quan Emerteq LLC		Founded in 1998, designed, developed, and manufactured catheters, stimulation leadwires, microcomponents and assemblies.
November 2007		Engineered Assemblies Corporation		Founded in 1984, designed and integrated custom battery solutions and electronics focused on rechargeable systems.
January 2008		P Medical Holding SA		Founded in 1994, designed, manufactured and supplied delivery systems, instruments and implants for the orthopaedic industry.
February 2008		DePuy Orthopaedics’ Chaumont, France manufacturing facility		Manufactured hip and shoulder implants for DePuy Orthopaedics.

FINANCIAL STATEMENT YEAR END

We utilize a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31^st. Fiscal years 2010, 2009 and 2008 ended on December 31, 2010, January 1, 2010 and January 2, 2009, respectively. Fiscal years 2010 and 2009 contained fifty-two weeks while fiscal year 2008 contained fifty-three weeks.

SEGMENT INFORMATION

We operate our business in two reportable segments — Greatbatch Medical and Electrochem. Segment information including sales from external customers, profit or loss, and assets by segment as well as sales from external customers and long-lived assets by geographic area are set forth at Note 14 “Business Segment Information” of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

GREATBATCH MEDICAL

CRM and Neuromodulation — An IMD is an instrument that is surgically inserted into the body to provide diagnosis and/or therapy. One sector of the IMD market is CRM, which is comprised of devices such as implantable pacemakers, implantable cardioverter defibrillators (“ICDs”), cardiac resynchronization therapy (“CRT”) devices, and cardiac resynchronization therapy with backup defibrillation devices (“CRT-D”). Another sector of the IMD market is neuromodulation, which is comprised of pacemaker-type devices that stimulate nerves for the treatment of various conditions. Beyond approved therapies of pain control, incontinence, Parkinson’s disease and epilepsy, nerve stimulation for the treatment of other disabilities such as migraines, obesity and depression has shown promising results.

The following table sets forth the main categories of battery-powered IMDs and the principal illness or symptoms treated by each device:

Device		Principal Illness or Symptom
Pacemakers		Abnormally slow heartbeat (Bradycardia)
ICDs		Rapid and irregular heartbeat (Tachycardia)
CRT/CRT-Ds		Congestive heart failure
Neurostimulators		Chronic pain, movement disorders, epilepsy, obesity or depression
Drug pumps		Diabetes or chronic pain

IMD systems generally include an implantable pulse generator (“IPG”) and one or more leads. An IPG is a battery powered device that produces electrical pulses. The lead then carries this electrical pulse from the IPG to the heart, spinal cord or other location in the body. Greatbatch Medical’s portfolio of proprietary technologies, products and capabilities has been built to provide our CRM and Neuromodulation customers with a single source for the vast majority of the components and subassemblies required to manufacture an IPG or lead, as well as complete lead systems. Our investments in research and development have generated proprietary products such as the Q_HR^® and Q_MR^® battery lines, which have enabled our OEM partners to make improvements in their system offerings in terms of device size, longevity and power.

We believe that the CRM and Neuromodulation markets continue to exhibit fundamentals that position Greatbatch Medical for growth. Increased demand for Greatbatch Medical technologies is being driven by the following factors:

•

Advances in medical technology — New therapies will allow physicians to use IMDs to treat a wider range of patients with various heart diseases.

•

Increasing device complexity — Device manufacturers are developing new devices with additional features (such as RF telemetry and MRI conditional capabilities) that will require increased energy, power and filtering capabilities. These new features make Greatbatch Medical technologies and innovations more relevant than ever.

•

Expanding patient population — The patient groups that are eligible for CRM devices are increasing and the number of people in the U.S. that are over age 50 is expected to double in the next 10 years. Additionally, recent studies may lead to updated guidelines on clinical indications for CRT—increasing the number of patients who may qualify for these devices. Fast growing emerging markets, especially in Asia and Latin America, are getting significant attention from IMD manufacturers given their large population size, under-penetration, expanding purchasing power and increasing expenditure in medical infrastructure and training. These markets represent another growth driver for the Company.

•

Growth within neuromodulation — Neuromodulation applications are growing at a faster pace than traditional markets, and are expected to expand as new therapeutic applications are identified. Many CRM OEM companies, which are strategic partners of Greatbatch Medical, are also OEMs in the neuromodulation market, which positions us to capitalize on this market growth.

Vascular Access — Includes introducers, coatings and catheters that deliver therapies for many end-user markets including coronary and neurovascular disease, peripheral vascular disease, interventional radiology, vascular access, atrial fibrillation, and interventional cardiology, as well as products for medical imaging and drug and pharmaceutical delivery. Introducers enable physicians to create a conduit through which they can insert infusion catheters, implantable ports, pacemaker leads and other therapeutic devices into a blood vessel. A catheter is a tube that can be inserted into a blood vessel to allow drainage, injection of fluids, or access by surgical instruments.

Our products seek to capitalize on the growth in the cardiac, neurology and vascular markets, especially since many of the large CRM OEMs are also in the vascular markets. This gives us an opportunity to develop close strategic partnerships that can be leveraged across markets. In addition to those factors that are driving the CRM and neuromodulation markets, increased demand is also being driven by continued focus on minimally invasive procedures. Patients and health care providers are looking for minimally invasive technologies to treat disease. They are expanding the use of catheter based procedures and associated vascular therapies. We also continue to see strong growth in the vascular markets because of peripheral-vascular disease therapies and new indications for tissue extraction or ablation.

Orthopaedic — Orthopaedic implants are used in reconstructive surgeries to replace or repair hips, knees and other joints, such as shoulders, ankles and elbows that have deteriorated as a result of disease or injury. Trauma implant systems are used primarily to reattach or stabilize damaged bone or tissue while the body heals. Spinal implant systems are used by orthopaedic surgeons and neurosurgeons in the treatment of degenerative diseases, deformities and injuries in various regions of the spine.

Each implant system typically has an associated instrument set that is used in the surgical procedure to insert that specific implant system. Instruments included in a set vary by implant system. Usually, instrument sets are sterilized after each use and then reused, however, recent trends are moving towards disposable instrumentation. Cases are used to store, transport and arrange implant systems and other medical devices and related surgical instruments. Cases are generally designed to allow for sterilization and re-use after an implant or other surgical procedure is performed. The majority of cases are tailored for specific implant procedures so that the instruments, implants and other devices are arranged within the case to match the order of use in the procedure and are securely held in clearly labeled, custom-formed pockets.

Many of the factors affecting the orthopaedic market segment are similar to the CRM and Vascular Access markets. These factors include aging population, new implant and surgical technology, rising rates of obesity, a growing replacements market and emerging affluence in developing nations. As a result, we believe that the orthopaedic market has strong growth fundamentals.

The following table summarizes information about our Greatbatch Medical products:

Product		Description		Principal Product Attributes
Batteries		Power sources include:
		•    Lithium iodine (“Li Iodine”)		High reliability and predictability
		•    Lithium silver vanadium oxide (“Li SVO”)		Long service life
		•    Lithium carbon monoflouride (“Li CFx”)		Customized configuration
		•    Lithium ion rechargeable (“Li Ion”)		Light weight
		•    Lithium SVO/CFx (“QHR” & “QMR”)		Compact and less intrusive
Capacitors		Storage for energy generated by a battery before delivery to the heart. Used in ICDs and CRT-Ds.		Stores more energy per unit volume (energy density) than other existing technologies Customized configuration
EMI filters		Filters electromagnetic interference to limit undesirable response, malfunctioning or degradation in the performance of electronic equipment		High reliability attenuation of EMI RF over wide frequency ranges Customized design
Feedthroughs		Allow electrical signals to be brought from inside hermetically sealed IMD to an electrode		Ceramic to metal seal is substantially more durable than traditional seals Multifunctional
Coated electrodes		Deliver electric signal from the feedthrough to a body part undergoing stimulation		High quality coated surface Flexible in utilizing any combination of biocompatible coating surfaces Customized offering of surfaces and tips
Precision components		•    Machined		High level of manufacturing precision
		•    Molded and over molded products		Broad manufacturing flexibility
Enclosures and		•    Titanium		Precision manufacturing, flexibility in
related components		•    Stainless steel		configurations and materials
Value-added assemblies		Combination of multiple components in a single package/unit		Leveraging products and capabilities to provide subassemblies and assemblies Provides synergies in component technology and procurement systems
Leads		Cardiac, neuro and hearing restoration stimulation leads		Custom and unique configurations that increase therapy effectiveness, provide finished device design and manufacturing
Introducers		Creates a conduit to insert infusion catheters, guidewires, implantable ports, pacemaker leads and other therapeutic devices into a blood vessel		Variety of sizes and materials that facilitate problem-free access in a variety of clinical applications
Catheters		Delivers therapeutic devices to specific sites in the body		Enable safe, simple delivery of therapeutic and diagnostic devices, soft tip and steerability Provide regulatory clearance and finished device
Cases and trays		Delivery systems for cleaning and sterilizing orthopaedic instruments and implants		Deliver turn-key full service kits
Implants		Orthopaedic implants for reconstructive hip, knee, shoulder, trauma and spine procedures		Precision manufacturing, leveraging capabilities and products Complete processes including sterile packaging and coatings
Instruments		Orthopaedic instruments for reconstructive and trauma procedures		Designed to improve surgical techniques, reduce surgery time, increase surgical precision and decrease risk of contamination

A majority of the products Greatbatch Medical sells incorporate proprietary technologies. These proprietary technologies provide an entry barrier for new competitors, and further limit existing competitors from duplicating our products. In addition to these proprietary technologies, our proprietary “know-how” in the manufacture of these products provides further barriers to our competition.

ELECTROCHEM

Electrochem provides product solutions where safety, reliability, quality and durability are of the utmost importance. Our customized rechargeable and non-rechargeable battery solutions are used in a number of demanding industrial markets such as energy, military, portable medical, environmental monitoring and more. Applications in these product lines cover a number of highly-customized battery-powered systems, including downhole drilling tools, hand-held military communications, automated external defibrillators, and more. Electrochem’s primary and rechargeable power solutions, and wireless sensing solutions are used in markets where failure is not an option, often operating in extreme or remote environments.

Our primary batteries operate reliably and safely at extremely high and low temperatures and when subjected to high shock and vibration. Electrochem’s product designs incorporate protective circuitry, glass-to-metal hermetic seals, fuses and diodes to help ensure safe, reliable power as devices are subjected to harsh conditions.

Our secondary, or rechargeable, power solutions include a number of chemistries including lithium, nickel and lead acid, and incorporate advanced electronics, monitoring and security features and other capabilities. We provide value-added solutions to complement our secondary power systems such as engineering design expertise, charging systems and battery management.

Electrochem’s unique wireless sensing systems are a complete solution for process industries, incorporating advanced sensors measuring temperature, pressure and flow, intelligent gateways and customized software. Electrochem’s wireless sensing solutions are used in markets where wired sensors are difficult to use — industrial environments that are dirty, have extreme internal or external environmental conditions, or where multiple moving parts or laying of cable make wired sensors impractical. Electrochem’s patented system utilizes our own batteries and offers control and monitoring for applications in existing markets such as energy, and new markets such as computer numerical control machining and process control.

The following table summarizes information about our Electrochem products:

Product		Description		Principal Product Attributes
Cells		•   Low-rate		Optimized rate capability, shock and vibration resistant, high and low temperature tolerant, high energy density
		•   Moderate-rate
		•   Spiral (high rate)
Primary and rechargeable battery packs		Highly-customized pack solutions		Diverse portfolio of cells in various sizes, temperature ranges, and rate capabilities, custom-designed into battery packs for critical applications
Wireless sensors		Complete, customized end-to-end wireless sensing solutions measuring temperature, pressure and flow remotely		Wireless sensors and interactive gateway which can withstand the most extreme internal and external industrial environments, provide critical, real-time data delivered directly to a desktop or laptop

RESEARCH AND DEVELOPMENT

Our position as a leading developer and manufacturer of components for IMDs and Electrochem batteries 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 also engage outside research institutions for unique technology projects.

In 2009, the Company formed the QiG Group, LLC (“QiG”). QiG facilitates the introduction of new and improved technologies in medical device markets by investing in the development of innovations. This includes passive investments in startup companies, as well as long-term systems and device projects which leverage Greatbatch Medical’s proprietary components. These investments support the development of ideas and technologies that can be used to better serve our OEM customers and typically have longer development times than our core Greatbatch Medical products.

As a result of the investments we have made over the last three years, we are now able to provide our customers with full systems and device solutions. This includes development and regulatory submissions, as well as manufacturing and supporting worldwide distribution. These systems and devices are full product solutions that complement our OEM customers’ products and utilize our component expertise and capabilities.

In 2010, Greatbatch Medical received clearance from the U.S. Food and Drug Administration for its OptiSeal Valved Peelable Introducer. We also received approval in Canada and CE Marking for distribution in Europe. OptiSeal is significant in that it represents the first 510(k) regulatory clearance received under the Greatbatch Medical brand and is the first product commercialized in connection with our systems and device strategy.

We expect to make additional system and device product announcements in 2011. The initial announcements are expected to center around products we are developing for the Vascular Access market but longer-term will include the CRM, Neuromodulation and Orthopaedic markets. Ultimately our goal is to establish a cadence of system and device product announcements that will provide us incremental revenue growth as well as increased margins.

PATENTS AND PROPRIETARY TECHNOLOGY

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. We have 444 active U.S. patents and 381 active foreign patents. We also have 247 U.S. and 410 foreign pending patent applications at various stages of approval. During the past three years, we have been granted 95 new U.S. patents, 48 of which were granted in 2010. Corresponding foreign patents have been issued or are expected to be issued in the near future. Often, several patents covering various aspects of the design protect a single product. We believe this provides broad protection of the inventions employed.

We are also a party to several license agreements with third parties under which we have obtained, on varying terms, exclusive or non-exclusive rights to patents held by them. An example of these agreements is for the basic technology used in our wet tantalum capacitors, filtered feedthroughs, biomimetic coatings, safety needles and MRI compatible lead systems. We have also granted rights in our patents to others under license agreements.

It is our policy to require our management and technical employees, consultants and other parties having access to our confidential information 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 Greatbatch.

MANUFACTURING AND QUALITY CONTROL

We primarily manufacture small lot sizes, as most customer orders range from a few hundred to a few thousand 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 representatives from our quality control, engineering, manufacturing, materials and procurement departments. Our quality systems are compliant with and certified to various recognized international standards, requirements and directives.

Our facilities in Raynham, MA, Alden, NY, Clarence, NY, and Minneapolis, MN are certified under the International Organization for Standardization (“ISO”): 9001 quality system standard, which requires compliance with regulations regarding product design (where applicable), supplier control, manufacturing processes and component quality. This certification can only be achieved after completion of an audit conducted by an independent authority followed by periodic inspections to maintain this certification.

The quality systems of our manufacturing facilities in Tijuana, Mexico, Plymouth, MN, Clarence, NY, Chaumont, France, Orvin, Switzerland, Columbia City, IN and Indianapolis, IN are certified under the ISO: 13485 quality system standard, which requires, among other things, an implemented quality system that applies to the design (where applicable) and manufacture of components, assemblies and finished medical devices, including component quality and supplier control. Along with ISO: 13485, the facilities (where applicable) are subject to regulation by numerous regulatory bodies, including the Food and Drug Administration (“FDA”) and comparable international regulatory agencies in order to ship product worldwide.

We are required to register with the FDA as a device manufacturer and as a result, we are subject to periodic inspection by the FDA for compliance with their Quality System Regulation (“QSR”) requirements. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are required to maintain certain ISO certifications in order to sell products, and we undergo periodic inspections by notified bodies to obtain and maintain these certifications. Maintaining these certifications gives us the ability to serve as a manufacturing partner to medical device manufacturers, which we believe will improve our competitive position. Our Plymouth, MN, Columbia City, IN and Indianapolis, IN facilities are registered with the FDA.

SALES AND MARKETING

Products from our Greatbatch Medical business are sold directly to our customers. In our Electrochem business, we utilize a combination of direct and indirect sales methods, depending on the particular product. In 2010, approximately 46% of our products were sold in the U.S. Sales outside the U.S. are primarily to customers whose corporate offices are located and headquartered in the U.S. Information regarding our sales by geographic area is set forth at Note 14 “Business Segment Information” of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

Although the majority of our medical customers contract with us to develop custom components and assemblies to fit their product specifications, we also provide system and device solutions ready for market distribution by OEMs. As a result, we have established close working relationships between our internal program managers and our customers. We market our products and technologies at industry meetings and trade shows domestically and internationally.

Internal sales managers support all activity and involve engineers and technology professionals in the sales process to address customer requests appropriately. For system and device solutions, we partner with our customers’ research, marketing, and clinical groups to jointly develop technology platforms in alignment with their product roadmaps and therapy needs.

Electrochem utilizes a direct selling model to end users and to OEMs. Additionally, we have a small number of strategic partner organizations, which enable us to sell into markets where language or geographical barriers are present. We leverage our strategic account managers with appropriate support from engineering, to design and sell product solutions in our targeted markets. Our strategic account managers are trained to assist our customers in selecting appropriate chemistries and configurations. We market our products and services through well-defined selling strategies and marketing campaigns that are customized for each of the industries we target.

Firm backlog orders at December 31, 2010 and January 1, 2010 were approximately $159.4 million and $178.2 million, respectively. The majority of the orders outstanding at December 31, 2010 are expected to be shipped within one year. See Customers section below for further discussion.

CUSTOMERS

Our Greatbatch Medical customers include large multi-national OEMs and their affiliated subsidiaries such as, in alphabetical order here and throughout this report, Biotronik, Boston Scientific, Johnson & Johnson, Medtronic, Smith & Nephew, Sorin Group, St. Jude Medical, Stryker and Zimmer. During 2010 and 2009, Boston Scientific, Johnson & Johnson, Medtronic and St. Jude Medical collectively accounted for 62% and 63% of our total sales, respectively. The Company has been successful in leveraging our diversified product line to further penetrate these customers and selling into more of their operating divisions, which cover the CRM, neuromodulation, vascular and orthopaedic markets.

The nature and extent of our selling relationship with each OEM customer is different in terms of products purchased, selling prices, product volumes, ordering patterns and inventory management. For customers with long-term contracts, we have negotiated fixed pricing arrangements for pre-determined volume levels with pricing fixed at each level. In general, the higher the volume level, the lower the pricing. We have pricing arrangements with our customers that at times do not specify minimum order quantities. We recognize revenue when it is realized or realizable and earned. This occurs when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, the buyer is obligated to pay us (i.e., not contingent on a future event), the risk of loss is transferred, there is no obligation of future performance, collectability is reasonably assured and the amount of future returns can reasonably be estimated. Those criteria are met at the time of shipment when title passes.

Our visibility to customer ordering patterns is over a relatively short period of time. Our customers may have inventory management programs, vertical integration plans and/or alternate supply arrangements which we are unaware of. Additionally, the relative market share among the OEM manufacturers changes periodically. Consequently, these and other factors can significantly impact our sales in any given period. Our customers may initiate field actions with respect to market-released products. These actions may include product recalls or communications with a significant number of physicians about a product or labeling issue. The scope of such actions can range from very minor issues affecting a small number of units to more significant actions. There are a number of factors, both short-term and long-term, related to these field actions that may impact our results. In the short-term, if a product has to be replaced, or customer inventory levels have to be restored, demand will increase. Also, changing customer order patterns due to market share shifts or accelerated device replacements may also have a positive or negative impact on our sales results in the near-term. These same factors may have longer-term implications as well. Customer inventory levels may ultimately have to be rebalanced to match new demand.

In February 2011, we entered into a Memorandum of Understanding (“MOU”) with Medtronic, Inc., which secured volume commitments for several products, including coated components and our OptiSeal Valved Peelable Introducer. The Medtronic MOU also extends our previous supply agreement with Medtronic for shield assemblies, which was set to expire in April 2011, for three years, in return for certain price reductions.

In the first quarter of 2011, we completed negotiations with Boston Scientific on a new long term supply agreement pursuant to which Boston Scientific will continue to purchase a certain percentage of batteries, capacitors, filtered feedthroughs, case halves and leads it uses in or with its IMDs through 2015. This agreement replaces the previous contract between the two companies that expired on December 31, 2010, and expands the depth of the relationship by adding products from our Vascular Access systems platform.

In June 2010, we extended our feedthrough agreement with St. Jude Medical through 2017. Under the terms of the agreement we are guaranteed 100% of St Jude Medical’s feedthrough and filtering business, and 80% of their implantable pulse generator MRI filtered feedthrough business in exchange for certain price reductions.

Our Electrochem customers are primarily companies involved in demanding markets where highly sophisticated power solutions or wireless sensing needs exist, such as energy, military, portable medical and environmental monitoring. Some of our larger OEM customers include Halliburton Company, Weatherford International, General Electric, Thales, Zoll Medical Corp. and Scripps Institution of Oceanography.

SUPPLIERS AND RAW MATERIALS

We purchase certain critical raw materials from a limited number of suppliers due to the technically challenging requirements of the supplied product and/or the lengthy process required to qualify these materials both internally and with our customers. We cannot quickly establish additional or replacement suppliers for these materials because of these rigid requirements. For these critical raw materials, we maintain minimum safety stock levels and contractually partner with suppliers to help ensure the continuity of supply. Historically, we have not experienced any significant interruptions or delays in obtaining critical raw materials.

For non-critical raw material purchases, we utilize competitive pricing methods such as bulk purchases, precious metal pool buys, blanket orders, and long-term contracts to secure supply. We believe that there are alternative suppliers or substitute products available at competitive prices for all of these non-critical raw materials.

COMPETITION

Existing and potential competitors in our Greatbatch Medical business include leading IMD manufacturers such as Biotronik, Boston Scientific, Johnson & Johnson, Medtronic, Smith & Nephew, Sorin Group, St. Jude Medical, Stryker and Zimmer that currently have vertically integrated operations and may expand their vertical integration capability in the future. Competitors also include independent suppliers who typically specialize in one type of component. Competition for Electrochem varies and is dependent on the targeted industry. Our known non-vertically integrated competitors include the following:

Product Line		Competitors
Greatbatch Medical
Medical batteries		Eagle-Picher
Capacitors		Critical Medical Components
Feedthroughs		Alberox (subsidiary of The Morgan Crucible Co. PLC)
EMI filtering		AVX (subsidiary of Kyocera)
		Eurofarad
Enclosures		Heraeus
		Hudson
Machined and molded components		Numerous
Value added assembly		Numerous
Catheters		Teleflex
Leads		Oscor
Orthopaedic trays, instruments and implants		Accelent
		Avalign Technologies
		IMDS
		Micropulse, Inc.
		Norwood Medical
		Orchid
		Sandvik
		Symmetry
		Paragon
		Teleflex
Electrochem
Primary Power Solutions		Tracer Technologies, Engineered Power, Saft, Ultralife
Secondary Power Solutions		Micro Power, Nexergy, Ultralife, Saft
Wireless Sensing Solutions		Vektek

GOVERNMENT REGULATION

Except as described below, our business is not subject to direct governmental regulation other than the laws and regulations generally applicable to all businesses in the jurisdictions in which we operate. We are subject to 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 manufacturing and research, development and engineering activities may involve the controlled use of small amounts of hazardous materials. Liabilities associated with hazardous material releases arise principally under the Federal Comprehensive Environmental Response, Compensation and Liability Act and analogous state laws that impose strict, joint and several liabilities 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 may, however, become subject to these environmental liabilities in the future as a result of our historic or current operations.

Our products are subject to regulation by numerous government agencies, including the FDA and comparable foreign agencies. For some of our component technology, we have “master files” on record with the FDA. Master files may be used to provide proprietary and confidential detailed information about technology, facilities, processes, or articles used in the manufacturing, processing, packaging and storing of one or more medical device components. These master files for devices may be used by device manufacturers to support their premarket approval application (“PMA”), investigational device exemption application (“IDE”) or premarket notification (“510(k)”).

In the U.S., our introducer and delivery catheter products are considered Class II devices. The 510(k) process requires us to demonstrate that our new medical devices are substantially equivalent to a legally marketed medical device. In order to support a substantial equivalence claim, we must submit supporting data. In Europe, these devices are considered Class IIa and Class III, respectively, under European Medical Device Directives. These Directives require companies that wish to manufacture and distribute medical devices in European Union member countries to obtain a CE Marking for those products, which indicate that the products meet minimum standards of performance, essential requirements, safety conformity assessment and quality.

The PMA process is a more rigorous process that is required to demonstrate that a new medical device is safe and effective. This is demonstrated by generating data regarding the design, manufacturing processes, materials, bench testing, and animal testing and typically requiring human clinical data. Some of our products that we manufacture are Class III medical devices that require a PMA or, in the European Union, premarket approval through submission of a Design Dossier.

As a manufacturer of medical devices, we are also subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Requirements and the applicable notified body in the European Union to ensure conformity to the Medical Device Directives and Active Implantable Medical Device Directives. We believe that our quality controls, development, testing, manufacturing, labeling, marketing and distribution of our medical devices conform to the requirements of all pertinent regulations.

Our sales and marketing practices are subject to regulation by the U.S. Department of Health and Human Services pursuant to federal anti-kickback laws, and are also subject to similar state laws.

We are also subject to various other environmental, transportation and labor laws as well as various other directives and regulations both in the U.S. and abroad. We believe that compliance with these laws will not have a material impact on our capital expenditures, earnings or competitive position. Given the scope and nature of these laws, however, they may have a material impact on our operational results in the future. We assess potential product related liabilities on a quarterly basis. At present, we are not aware of any such liabilities that would have a material impact on our business.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively “Health Care Reform”) legislating broad-based changes to the U.S. health care system. Health Care Reform could significantly impact our business operations and financial results, including higher or lower revenue, as well as higher employee medical costs and taxes.

Health Care Reform imposes significant new taxes on OEMs of approximately $20 billion over ten years, which taxes will result in a significant increase in the tax burden on our industry and which could have a material, negative impact on our results of operations and our cash flows. Other elements of Health Care Reform such as comparative effectiveness research, an independent payment advisory board, payment system reforms including shared savings pilots and other provisions could meaningfully change the way healthcare is developed and delivered, and may materially impact numerous aspects of our business, results of operations and financial condition.

Many significant parts of Health Care Reform will be phased in over the next eight years and require further guidance and clarification in the form of regulations. As a result, many of the impacts of Health Care Reform will not be known until those regulations are enacted, which we expect to occur over the next several years.

On January 11, 2010, the U.S. Department of Transportation, and the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued a Notice of Proposed Rulemaking, “Hazardous Materials: Transportation of Lithium Batteries” in the federal register. PMHSA, in conjunction with the Federal Aviation Administration is proposing to amend requirements in the hazardous materials regulations on the transportation of lithium cells and batteries, including lithium cell and batteries packed with or contained in equipment. The Company is actively monitoring this rulemaking process because of the potential negative effect the rule, as currently proposed, could have on our Greatbatch Medical and Electrochem businesses.

RECRUITING AND TRAINING

We invest substantial resources in our recruiting efforts to focus on a quality workforce that will support our business objectives. Our goal is to provide our associates with growth opportunities by attempting to fill more than half of our open employment positions internally. We further meet our hiring needs through outside sources, as required. We have an active succession planning process including a comprehensive development program in place for senior management in order to ensure we are able to implement our strategic plan.

We provide training for our associates designed to educate them on safety, quality, business strategy, and our culture. Our safety training programs educate associates on basic industrial safety practices while emphasizing the importance of knowing emergency response procedures. Our training programs focus on the methodologies and technical competencies required to support current and future business needs with a strong focus on quality and continuous improvement.

Supporting our commitment to learning, we offer our associates tuition reimbursement and encourage them to continue their education at accredited colleges and universities. We have established a number of programs designed to challenge and motivate our associates specifically encouraging continuous improvement, supervisory and leadership skills. We believe ongoing development is necessary to ensure our associates utilize best practices, and share a common understanding of work practices and performance expectations.

EMPLOYEES

The following table provides a breakdown of employees as of December 31, 2010:

Manufacturing			1,486
General and administrative			118
Sales and marketing			48
Research, development and engineering			204
Chaumont, France facility			217
Switzerland facilities			188
Tijuana, Mexico facility			715
Total			2,976

We also employ a number of temporary employees to assist us with various projects and service functions and address peaks in staff requirements. Our employees at our Chaumont, France and Tijuana, Mexico facilities are represented by a union. Approximately 137 and 213 positions at our Switzerland and France locations, respectively, are manufacturing in nature. The positions at our Tijuana, Mexico facility are primarily manufacturing. We believe that we have a good relationship with our employees.

EXECUTIVE OFFICERS OF THE COMPANY

Information concerning our executive officers is presented below as of March 1, 2011. The officers’ terms of office run until the first meeting of the Board of Directors after our Annual Meeting, which takes place immediately following our Annual Meeting of Stockholders and until their successors are elected and qualified, except in the case of earlier death, retirement, resignation or removal.

Mauricio Arellano, age 44, is President of our Greatbatch Medical segment. He served as Senior Vice President and Business Leader of our Cardiac and Neurology Group from October 2008 until December 2010, Senior Vice President and Business Leader of our CRM and Neuromodulation Group from January 2008 to October 2008, Senior Vice President and Business Leader of our Medical Solutions Group from November 2006 to January 2008, and as Vice President of Greatbatch Mexico from January 2005 to November 2006. Mr. Arellano joined our Company in October 2003 as the Plant Manager of our former Carson City, NV facility. Prior to joining our Company, he served in a variety of human resources and operational roles with Tyco Healthcare — Especialidades Medicas Kenmex and with Sony de Tijuana Este.

Susan M. Bratton, age 54, is Senior Vice President and Business Leader for our Electrochem segment and has served in that office since January 2005. She served as Vice President of Corporate Quality from March 2001 to January 2005, as General Manager of our Electrochem Division from July 1998 to March 2001 and as Director of Procurement from June 1991 to July 1998. Ms. Bratton has held various other positions with our Company since joining us in 1976.

Michelle Graham, age 44, is Senior Vice President for Human Resources, and has served in that office since joining our Company in December 2010. From 2005 until December 2010, she held a number of senior human resources positions at Bausch & Lomb, most recently as Vice President of Human Resources for its Global Vision Care division.

Thomas J. Hook, age 48, has served as our President & Chief Executive Officer since August 2006. Prior to August 2006, he was our Chief Operating Officer, a position he assumed upon joining our Company in September 2004. From August 2002 until September 2004, Mr. Hook was employed by CTI Molecular Imaging where he had served as President, CTI Solutions Group.

Thomas J. Mazza, age 57, is Senior Vice President & Chief Financial Officer, and has served in that office since August 2005. He joined our Company in November 2003 as Vice President and Corporate Controller. Prior to that, Mr. Mazza served in a variety of financial roles with Foster Wheeler Ltd., including Vice President and Corporate Controller.

Timothy G. McEvoy, age 53, is Vice President, General Counsel & Secretary, and has served in that office since joining our Company in February 2007. From 1992 until January 2007, he was employed in a variety of legal roles by Manufacturers and Traders Trust Company, most recently as Administrative Vice President and Deputy General Counsel.

AVAILABLE INFORMATION

We make available free of charge through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the Securities and Exchange Commission. Our Internet address is www.greatbatch.com. The information contained on our website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report. These items may also be obtained free of charge by written request made to Christopher J. Thome, Director of External Reporting and Investor Relations, Greatbatch, Inc., 10000 Wehrle Drive, Clarence, New York 14031.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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 sales, expenses and profitability;

•

future development and expected growth of our business and industry;

•

our ability to execute our business model and our business strategy;

•

our ability to identify trends within our industries and to offer products and services that meet the changing needs of those markets; and

•

projected capital expenditures.

You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those stated or implied by these forward-looking statements. In evaluating these statements and our prospects, you should carefully consider the factors set forth below. 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 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: dependence upon a limited number of customers; customer ordering patterns; product obsolescence; our inability to market current or future products; pricing pressure from customers; our ability to timely and successfully implement cost reduction and plant consolidation initiatives; our reliance on third party suppliers for raw materials, products and subcomponents; fluctuating operating results; our inability to maintain high quality standards for our products; challenges to our intellectual property rights; product liability claims; our inability to successfully consummate and integrate acquisitions and to realize synergies and to operate these acquired businesses in accordance with expectations; our unsuccessful expansion into new markets; our failure to develop new products including system and device products; our inability to obtain licenses to key technology; regulatory changes or consolidation in the healthcare industry; global economic factors including currency exchange rates and interest rates; the resolution of various legal actions brought against the Company; and other risks and uncertainties that arise from time to time and are described in Item 1A “Risk Factors” of this report.

ITEM 1A. RISK FACTORS

Our business faces many risks. Any of the risks discussed below, or elsewhere in this report or in our other SEC filings, could have a material impact on our business, financial condition or results of operations.

Risks Related To Our Business

We depend heavily on a limited number of customers, and if we lose any of them or they reduce their business with us, we would lose a substantial portion of our revenues.

In 2010, Boston Scientific, Johnson & Johnson, Medtronic and St. Jude Medical, collectively accounted for approximately 62% of our revenues. Our supply agreements with these customers may not be renewed. Furthermore, many of our supply agreements do not contain minimum purchase level requirements and therefore there is no guaranteed source of revenue that we can depend upon under these agreements. The loss of any large customer or a reduction of business with that customer for any reason would harm our business, financial condition and results of operations.

If we do not respond to changes in technology, our products may become obsolete and we may experience a loss of customers and lower revenues.

We sell our products to customers in several industries that experience rapid technological changes, new product introductions and evolving industry standards. 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 significant number of our customers. In addition, other new products introduced by our customers may require fewer of our components. We dedicate a significant amount of resources to the development of our 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 products could result in a loss of customers and lower revenues.

If we are unable to successfully market our current or future products, our business will be harmed and our revenues and operating results will be reduced.

The market for our medical and commercial products has been growing in recent years. If the market for our products does not grow 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 CRM, Orthopaedic, Vascular Access or Energy markets in particular would negatively impact our revenues. In addition, we face the risk that our products will lose widespread market acceptance. Our customers may not continue to utilize the products we offer and a market may not 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 and our operating results will be negatively affected.

We are subject to pricing pressures from customers, which could harm operating results.

We have made price reductions to some of our large customers in recent years and we expect customer pressure for price reductions will continue. 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 would harm our operating results and 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, tantalum, platinum, ruthenium, gallium trichloride, tantalum pellets, vanadium pentoxide, iridium, and titanium. The supply and price of these raw materials are susceptible to fluctuations due to transportation, government regulations, price controls, economic climate or other unforeseen circumstances. Increasing global demand for these raw materials we need for our business has caused the prices of these materials to increase significantly. In addition, there are a limited number of worldwide suppliers of several raw materials needed to manufacture our products. We may not 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 products and subcomponents. 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 for 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.

We may never realize the full value of our intangible assets, which represent a significant portion of our total assets.

At December 31, 2010, we had $402.9 million of intangible assets, representing 52% of our total assets. These intangible assets consist primarily of goodwill, trademarks, tradenames, customer lists and patented technology arising from our acquisitions. Goodwill and other intangible assets with indefinite lives are not amortized, but are tested annually or upon the occurrence of certain events which indicate that the assets may be impaired. Definite lived intangible assets are amortized over their estimated useful lives and are tested for impairment upon the occurrence of certain events which indicate that the assets may be impaired. 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. In addition, intangible assets with definite lives, which represent $75.1 million of our net intangible assets at December 31, 2010, will continue to be amortized. We incurred total amortization expenses relating to these intangible assets of $9.7 million in 2010. These expenses will reduce our future earnings or increase our future losses.

Quality problems with our products could harm our reputation for producing high quality products, erode our competitive advantage.

Our products are held to high quality and performance standards. In the event that our products fail to meet these standards, our reputation could be harmed, which could damage our competitive advantage and result in lower revenues.

Quality problems with our products could result in warranty claims and additional costs.

We generally allow customers to return defective or damaged products for credit, replacement, or exchange. We generally warrant that our products will meet customer specifications and will be free from defects in materials and workmanship. Additionally, we carry a safety stock of inventory for our customers which may be impacted by warranty claims. We accrue for our exposure to warranty claims based upon recent historical experience and other specific information as it becomes available. However, such reserves may not be adequate to cover future warranty claims and additional warranty costs and/or inventory write-offs may be incurred which could harm our operating results or financial condition.

Regulatory issues resulting from product complaints, or recalls, or regulatory body audits could harm our ability to produce and supply products or bring new products to market.

Our products are designed, manufactured and distributed globally in compliance with all pertinent regulations and standards. However, a product complaint, recall or negative regulatory body audit may cause products to be removed from the market which could harm our operating results or financial condition. In addition, during the corrective phase, regulatory bodies may not allow new products to be cleared for marketing and sale.

If we become subject to product liability claims, our operating results and financial condition could suffer.

The manufacturing and sale of our products expose us to potential product liability claims and product recalls, including those that may arise from failure to meet product specifications, 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. Many of our products are components and function in interaction with our customers’ medical devices. For example, our batteries are produced to meet electrical performance, longevity and other specifications, but the actual performance of those products is dependent on how they are utilized as part of the customers’ devices over the lifetime of the products. Product performance and device interaction from time to time have been, and may in the future be, different than expected for a number of reasons. Consequently, it is possible that customers may experience problems with their medical devices that could require device recall or other corrective action, where our batteries met the specification at delivery, and for reasons that are not related primarily or at all to any failure by our product to perform in accordance with specifications. It is possible that our customers (or end-users) may in the future assert that our products caused or contributed to device failure. Even if these assertions do not lead to product liability or contract claims, they could harm our reputation and our customer relationships.

Provisions contained in our agreements with key customers attempting to limit our damages, including provisions to limit damages to liability for 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 and/or require us to pay significant damages. The occurrence of product liability claims or product recalls could adversely affect our operating results and financial condition.

We carry liability insurance coverage that is limited in scope and amount. We may not be able to maintain this insurance at a reasonable cost or on reasonable terms, or at all. This insurance may not be adequate to protect us against a product liability claim that arises in the future.

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 but not limited to the following:

•

a substantial percentage of our costs are fixed in nature, which results in our operations being particularly sensitive to fluctuations in production volumes;

•

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 31, 2010, we held 444 active U.S. patents and 381 active foreign patents. However, the steps we have taken and will take in the future to protect our proprietary rights may not 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 and/or procedures. If our trade secrets become known, we may lose our competitive advantages. Additionally, as patents and other intellectual property protection expire we may lose our competitive advantage.

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 from our business operations.

In producing our products, third parties may claim that we are infringing on their intellectual property rights, and we may be found to have infringed those intellectual property rights. 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. If any claim for invalidation prevailed, the result could be greatly expanded opportunities for third parties to manufacture and sell products that compete with our products and our revenues from any related license agreements would decrease accordingly. We also typically do not receive significant indemnification from parties that 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 products, and the uncertainty of intellectual property litigation increases 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.

We may not be able to attract, train and retain a sufficient number of qualified employees 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. There is currently aggressive competition for employees who have experience in technology and engineering. 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 attract, train and retain personnel.

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 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, customers and 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 may not be able to locate or employ such qualified personnel on acceptable terms.

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.

In the past, we have made and expect to make in the future 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. Implementation of our acquisition strategy entails a number of risks, including:

•

inaccurate assessments of potential liabilities associated with the acquired businesses;

•

the existence of unknown or undisclosed liabilities associated with the acquired businesses;

•

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 revenue growth, efficiencies and cost savings; and

•

increases in indebtedness and limitation in our ability to access capital if needed.

Our acquisitions have increased the size and scope of our operations, and may place a strain on our managerial, operational and financial resources and systems. Any failure by us to manage this growth and successfully integrate these acquisitions could harm our business and our financial condition and results.

If we are not successful in making acquisitions to expand and develop our business, our operating results may suffer.

One facet of our growth strategy is to make 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. Our continued growth may 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 unsuccessful acquisitions, and higher prices for acquired companies because of competition for attractive acquisition targets.

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, there is a risk that an accident or death could occur. Any accident, such as a chemical spill or fire, 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 harm our financial condition or operating results. Any disruption of operations at any of our facilities could harm our business.

We may face competition 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 our medical products may intensify in the future. One or more of our medical customers may undertake additional vertical integration initiatives and begin to manufacture some or all of their components that we currently supply them which could cause our operating results to suffer. 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 result in lower revenues and operating results.

We intend to develop new products and expand into new markets, which may not be successful and could harm our operating results.

We intend to expand into new markets and develop new products based on our existing technologies and engineering capabilities. 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. Additionally, many of the new products we are working on take longer and more resources to develop and commercialize, including obtaining regulatory approval. Specific risks in connection with expanding into new products and markets include, but are not limited to the inability to transfer our quality standards and technology into new products, failure to receive regulatory approval for our new products, the failure of customers to accept our new products, longer product development cycles and competition and intellectual property disputes.

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 and reduce our revenues.

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 another 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 may not 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.

Our international sales and operations are subject to a variety of risks and costs that could adversely affect our profitability and operating results.

Our sales outside the U.S., which accounted for 54% of sales for 2010, and our operations in Mexico, Switzerland and France are and will continue to be, subject to a number of risks and potential costs, including:

•

changes in foreign regulatory requirements;

•

local product preferences and product requirements;

•

longer-term receivables than are typical in the U.S.;

•

difficulties in enforcing agreements through certain foreign legal systems;

•

less protection of intellectual property in some countries outside of the U.S.;

•

trade protection measures and import and export licensing requirements;

•

work force instability;

•

political and economic instability; and

•

complex tax and cash management issues.

We earn revenue and incur expenses related to our foreign sales and operations that are denominated in a foreign currency. Historically, foreign currency fluctuations have not had a material effect on our consolidated financial statements. However, fluctuations in foreign currency exchange rates could have a significant negative impact on our profitability and operating results.

The current economic environment and credit market uncertainty could interrupt our access to capital markets, borrowings, or financial transactions to hedge certain risks, which could adversely affect our financial condition.

As of December 31, 2010, we had $220.6 million of long-term debt, including our convertible subordinated notes and revolving line of credit, which mature in 2013 and 2012, respectively. These facilities have allowed us to make investments in growth opportunities and fund working capital requirements. In addition, we enter into financial transactions to hedge certain risks, including foreign exchange and interest rate risk. Our continued access to capital markets, the stability of our lenders and their willingness to support our needs, and the stability of the parties to our financial transactions that hedge risks are essential for us to meet our current and long-term obligations, fund operations, and fund our strategic initiatives. An interruption in our access to external financing or financial transactions to hedge risk could adversely affect our business prospects and financial condition.

Risks Related To Our Industries

The healthcare industry is subject to various political, economic and regulatory changes that could force us to modify 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, IMDs produced by our medical customers are subject to regulation by the FDA and similar governmental agencies. These regulations cover 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.

Regulations issued in the healthcare industry 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. Our failure 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.

In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the Obama administration, members of Congress, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S. healthcare system. In March 2010, President Obama signed Health Care Reform into law. Health Care Reform imposes significant new taxes on OEMs of approximately $20 billion over ten years, which will result in a significant increase in the tax burden on our industry and which could have a material, negative impact on our results of operations and our cash flows. Other elements of Health Care Reform such as comparative effectiveness research, an independent payment advisory board, payment system reforms including shared savings pilots and other provisions could meaningfully change the way healthcare is developed and delivered, and may materially impact numerous aspects of our business, results of operations and financial condition.

Many significant parts of Health Care Reform will be phased in over the next eight years and require further guidance and clarification in the form of regulations. As a result, many of the impacts of Health Care Reform will not be known until those regulations are enacted, which we expect to occur over the next several years.

Our business is subject to environmental regulations that could be costly to comply with.

Federal, state and local regulations impose various environmental controls on the manufacturing, transportation, storage, use and disposal of batteries and hazardous chemicals and other materials used in, and hazardous waste produced by, the manufacturing of our products. Conditions relating to our historical operations may require expenditures for clean-up in the future and changes in environmental laws and regulations may impose costly compliance requirements on us or otherwise subject us to future liabilities. Additional or modified regulations relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our products or restricting disposal or transportation of batteries may be imposed that may result in higher costs or lower operating results. In addition, we cannot predict the effect that additional or modified environmental regulations may have on us or our customers.

Consolidation in the healthcare industry could result in greater competition and reduce our Greatbatch Medical revenues and harm our business.

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, our revenues would decrease and our operating results would suffer.

Our Greatbatch Medical business is indirectly subject to healthcare industry cost containment measures that could result in reduced sales of our products.

Several of our 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 medical devices may decline significantly, and our customers may reduce or eliminate purchases of our products. The cost containment measures that healthcare payors are instituting, both in the U.S. and internationally, could reduce our revenues and harm our operating results.

Our Electrochem revenues are heavily dependent on conditions in the oil and natural gas industry, which historically have been volatile.

Sales of our commercial products depend to a great extent upon the condition of the oil and gas industry. 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 (“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 Electrochem to decline.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The following table sets forth information about our significant facilities as of December 31, 2010:

Location		Sq. Ft.				Own/Lease		Principal Use
Alden, NY			125,000			Own		Medical battery and capacitor manufacturing
Blaine, MN			32,400			Own		Medical device engineering
Chaumont, France			59,200			Own		Manufacturing of orthopaedic and surgical goods
Clarence, NY			117,800			Own		Corporate offices and RD&E
Clarence, NY			20,800			Own		Machining and assembly of components
Clarence, NY			18,600			Lease		Machining and assembly of components
Cleveland, OH			16,900			Lease		Office and lab space for design engineering team
Columbia City, IN			40,000			Lease		Manufacturing of orthopaedic and surgical goods
Corgemont, Switzerland			34,400			Lease		Manufacturing of orthopaedic and surgical goods
Indianapolis, IN			82,600			Own		Manufacturing of orthopaedic and surgical goods
Minneapolis, MN			72,000			Own		Enclosure manufacturing and engineering
Orvin, Switzerland			40,400			Own		Manufacturing of orthopaedic and surgical goods
Plymouth, MN			95,700			Lease		Introducers, catheters and leads manufacturing
Raynham, MA			81,000			Own		Commercial battery manufacturing and RD&E
Tijuana, Mexico			144,000			Lease		Value-added assembly, and feedthrough, electrode and EMI filtering manufacturing
Warsaw, IN			3,000			Lease		Orthopaedic rapid prototyping design center

In general, we believe these facilities are suitable and adequate for our current business and have capacity to meet our future growth objectives without the need for significant capital expenditures. In January 2011, we announced our intention to construct an 80,000 square foot manufacturing facility in Allen County, IN. Total investment in the new facility will be approximately $17 million. We intend to transfer the manufacturing operations currently being performed at our Columbia City, IN location into this new facility once construction is complete.

ITEM 3. LEGAL PROCEEDINGS

We are party to various legal actions arising in the normal course of business. A description of all material pending legal actions against the Company is set forth at Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. We do not believe that the ultimate resolution of any pending legal actions will have a material adverse effect on our consolidated results of operations, financial position or cash flows. However, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact in the period in which the ruling occurs and beyond.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “GB.” The following table sets forth for the periods indicated the high, low and closing sales prices per share for the common stock as reported by the NYSE:

		High				Low				Close
2009
First Quarter		$	27.45			$	17.27			$	19.71
Second Quarter			23.48				18.50				22.00
Third Quarter			23.20				20.06				21.63
Fourth Quarter			22.21				17.99				19.23
2010
First Quarter		$	21.69			$	18.99			$	20.90
Second Quarter			24.43				19.94				22.00
Third Quarter			24.00				21.35				22.84
Fourth Quarter			25.11				21.61				24.15

As of March 1, 2011, there were approximately 220 record holders of the Company’s common stock. The Company stock account included in our 401(k) plan is considered one record holder for the purposes of this calculation. There is approximately 1,500 accounts holding Company stock in the 401(k) plan including accounts for active and former employees. We have not paid cash dividends and currently intend to retain any earnings to further develop and grow our business.

PERFORMANCE GRAPH

The following graph compares for the five year period ended December 31, 2010, the cumulative total stockholder return for Greatbatch, Inc., the S&P SmallCap 600 Index, and the Hemscott Peer Group Index. The Hemscott Peer Group Index includes over 150 comparable companies included in the Hemscott Industry Group 520 Medical Instruments & Supplies and 521 Medical Appliances & Equipment. The graph assumes that $100 was invested on December 30, 2005 and assumes reinvestment of dividends. The stock price performance shown on the following graph is not necessarily indicative of future price performance:

ITEM 6. SELECTED FINANCIAL DATA

The following table provides selected financial data of our Company for the periods indicated. You should read this data along with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data” appearing elsewhere in this report. The consolidated statement of operations data and the consolidated balance sheet data for the fiscal years indicated have been derived from our consolidated financial statements and related notes:

		Years ended
		Dec. 31,				Jan. 1,				Jan. 2,				Dec. 28,				Dec. 29,
		2010(1)(3)				2010(1)(3)				2009(1)(2)				2007(1)(2)				2006(1)
		(in thousands, except per share data)
Consolidated Statement of Operations Data:
Sales		$	533,425			$	521,821			$	546,644			$	318,746			$	271,142
Income (loss) before income taxes			49,325				(18,177	)			20,517				23,919				23,534
Income (loss) per share
Basic		$	1.44			$	(0.39	)		$	0.63			$	0.54			$	0.74
Diluted			1.40				(0.39	)			0.62				0.53				0.73
Consolidated Balance Sheet Data:
Working capital		$	150,922			$	119,926			$	142,219			$	116,816			$	199,051
Total assets			776,976				830,543				848,033				662,769				547,827
Long-term obligations			289,560				317,575				379,890				247,239				205,859

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Overview

Our Business

•

Our business

•

Our acquisitions

•

Our customers

•

Strategic and financial overview

•

Government regulation

•

Product development

Our Critical Accounting Estimates

•

Valuation of goodwill and other identifiable intangible assets including IPR&D

•

Stock-based compensation

•

Inventories

•

Tangible long-lived assets

•

Provision for income taxes

Cost Savings and Consolidation Efforts

Our Financial Results

•

Results of operations table

•

Fiscal 2010 compared with fiscal 2009

•

Fiscal 2009 compared with fiscal 2008

•

Liquidity and capital resources

•

Off-balance sheet arrangements

•

Litigation

•

Contractual obligations

•

Inflation

•

Impact of recently issued accounting standards

Our Business

We operate our business in two reportable segments — Greatbatch Medical and Electrochem Solutions (“Electrochem”). The Greatbatch Medical segment designs and manufactures systems, components and devices for the Cardiac Rhythm Management (“CRM”), Neuromodulation, Vascular Access and Orthopaedic markets. Our Greatbatch Medical customers include large multi-national original equipment manufacturers (“OEMs”). Greatbatch Medical products include: 1) batteries, capacitors, filtered and unfiltered feedthroughs, engineered components and enclosures used in Implantable Medical Devices (“IMDs”); 2) instruments and delivery systems used in hip and knee replacement, trauma and spine surgeries as well as hip, knee and shoulder implants; and 3) introducers, catheters, steerable sheaths and implantable stimulation leads. Additionally, Greatbatch Medical offers value-added assembly and design engineering services for medical systems and devices within the markets in which it operates.

Electrochem is a leader in technology solutions for critical industrial applications, including customized battery power and wireless sensing systems. Originating from the lithium cell invented for the implantable pacemaker by Wilson Greatbatch, our technology and superior quality and reliability is utilized in markets world-wide.

Our Acquisitions

On January 7, 2008, we acquired P Medical Holding SA (“Precimed”) which had administrative offices in Orvin, Switzerland and Exton, PA, manufacturing operations in Switzerland and Indiana and sales offices in Japan, China and the United Kingdom. Precimed was a leading technology-driven supplier to the orthopaedic industry. The results of Precimed’s operations were included in our Greatbatch Medical business from the date of acquisition. The purchase price and other direct costs of Precimed totaled $85.0 million, which we paid in cash. Total assets acquired from Precimed were $143.0 million, of which $82.3 million were intangible assets, including $2.2 million of in-process research and development (“IPR&D”) which we immediately expensed, and $47.2 million of goodwill.

On February 11, 2008, Precimed completed its previously announced acquisition of DePuy Orthopaedics (“DePuy”) Chaumont, France manufacturing facility (the “Chaumont Facility”). The Chaumont Facility produces hip and shoulder implants for DePuy Ireland who distributes them worldwide through various DePuy selling entities. This transaction included a new four year supply agreement with DePuy. The results of the Chaumont Facility’s operations were included in our Greatbatch Medical business from the date of acquisition. The purchase price and other direct costs of the Chaumont Facility totaled $28.7 million, which we paid in cash. Total assets acquired from the Chaumont Facility were $29.3 million, of which $6.6 million was goodwill.

Going forward, we will continue to pursue strategically targeted and opportunistic acquisitions.

Our Customers

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. The nature and extent of our selling relationships with each customer are different in terms of breadth of products purchased, purchased product volumes, length of contractual commitment, ordering patterns, inventory management and selling prices.

Our Greatbatch Medical customers include large multi-national OEMs, such as Biotronik, Boston Scientific, Johnson & Johnson, Medtronic, Smith & Nephew, Sorin Group, St. Jude Medical, Stryker and Zimmer. During 2010 and 2009, Boston Scientific, Johnson & Johnson, Medtronic and St. Jude Medical collectively accounted for 62% and 63% of our total sales, respectively.

In February 2011, we entered into a Memorandum of Understanding (“MOU”) with Medtronic, Inc., which secured volume commitments for several products, including coated components and our OptiSeal Valved Peelable Introducer. The Medtronic MOU also extends our previous supply agreement with Medtronic for shield assemblies, which was set to expire in April 2011, for three years, in return for certain price reductions.

In the first quarter of 2011, we completed negotiations with Boston Scientific on a new long term supply agreement pursuant to which Boston Scientific will continue to purchase a certain percentage of batteries, capacitors, filtered feedthroughs, case halves and leads it uses in or with its IMDs through 2015. This agreement replaces the previous contract between the two companies that expired on December 31, 2010, and expands the depth of the relationship by adding products from our Vascular Access systems platform.

In June 2010, we extended our feedthrough agreement with St. Jude Medical through 2017. Under the terms of the agreement we are guaranteed 100% of St Jude Medical’s feedthrough and filtering business, and 80% of their implantable pulse generator MRI filtered feedthrough business in exchange for certain price reductions.

Our Electrochem customers are primarily companies involved in demanding markets where highly sophisticated power solutions or wireless sensing needs exist, such as energy, military, portable medical and environmental monitoring. Some of our larger OEM customers include Halliburton Company, Weatherford International, General Electric, Thales, Zoll Medical Corp. and Scripps Institution of Oceanography.

Strategic and Financial Overview

Over three years ago we initiated a diversification strategy in order to enter into new higher growth markets and provide a more stable foundation from which to grow over the long-term. The benefits of this strategy were evident in 2010 as recoveries in our Vascular Access, Orthopaedic and Electrochem product lines offset the slow-down in the CRM market. As a result, sales for 2010 were $533.4 million or 2% above the prior year. Further evidence of the benefits of this strategy was the reduction in CRM and Neuromodulation revenue to 57% of our total sales in 2010 compared to 80% in 2007. Additionally, the concentration of sales to our top three customers in the CRM market was reduced to 50% of revenues in 2010, versus 67% for those same three customers in 2007. During 2009, revenue totaled $521.8 million, or $24.8 million lower than 2008, which included approximately $10 million of additional revenue as a result of an extra week of operations. During 2009, CRM/Neuromodulation revenue grew 7% and was offset by decreases in Orthopaedic, Vascular Access and Electrochem revenue, which were impacted by the economic downturn and uncertain health care environment.

Over this time, we have also focused on integrating our acquisitions and streamlining our operations. The benefits of these initiatives can be seen in our gross margin improvement to 32.5% in 2010 from 29.7% for 2008, excluding inventory step-up amortization, and our selling, general and administrative (“SG&A”) expenses declining to 12.1% of total sales in 2010 from 13.3% in 2008. The benefits of these initiatives can also be seen in the substantial increase in our cash flow from operating activities from $57.1 million in 2008 to $93.1 million in 2010, excluding the 2010 settlement of the Electrochem Litigation (See Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report). This excess cash flow helped to fund the repayment of debt, which totaled approximately $180 million over the last three years. We have now repaid over half of the debt assumed from our acquisitions in 2007 and 2008 and anticipate having sufficient capital to fund our future investment and growth plans.

In addition to growing and diversifying our revenue base and driving operating performance, over the past three years we have also made significant investments in research, development and engineering (“RD&E”) to provide innovative solutions to our customers. This included investments in systems and device products of approximately $20 million, $13 million and $4 million for 2010, 2009 and 2008, respectively. As a result, net RD&E costs increased to 8.4% of total sales in 2010 compared to 5.8% in 2008. In 2011, we expect to begin to see the financial benefit of these investments as the products we are working on with shorter development lead times, primarily in the Vascular Access market, will begin to commercialize. We expect the growth and cadence of new product introductions to accelerate over the next several years as our longer lead time systems and device products, which we have invested in over the last three years, will also begin to commercialize. The investments we have made in streamlining and consolidating our operations have provided the cash flow to support these investments and have provided us with sufficient manufacturing capacity for future production of these products.

From 2008 to 2010, we incurred costs related to the implementation of numerous cost savings, consolidation and integration initiatives. Additionally, during 2009, we accrued $34.5 million in connection with the Electrochem Litigation, of which $9.5 million was reversed in the fourth quarter of 2010 upon settlement of this litigation, and incurred a $15.9 million tradename write-down due to the successful rebranding of our Greatbatch Medical segment. During 2008, we incurred IPR&D charges and inventory step-up amortization expense related to our acquisitions of $8.7 million.

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Additionally, we consistently report and discuss in our quarterly earnings releases and investor presentations adjusted operating income and margin, adjusted net income and adjusted earnings per diluted share. These adjusted amounts consist of GAAP amounts excluding (i) acquisition-related charges, (ii) facility consolidation, manufacturing transfer and system integration charges, (iii) asset write-down and disposition charges, (iv) severance charges in connection with corporate realignments or a general reduction in force (v) litigation charges and gains, (vi) the impact of non-cash charges to interest expense due to the accounting change governing convertible debt, (vii) unusual or infrequently occurring items and (viii) the income tax (benefit) related to these adjustments. We believe that reporting these amounts provides important supplemental information to our investors and creditors seeking to understand the financial and business trends relating to our financial condition and results of operations. Additionally, the performance based compensation of our executive management is determined utilizing these adjusted amounts.

A reconciliation of GAAP operating income to adjusted operating income is as follows (in thousands):

		Year Ended
		December 31,				January 1,				January 2,
		2010				2010				2009
Operating income as reported:		$	68,994			$	1,048			$	34,894
Executive death benefits (SG&A)			885				—				—
Consolidation costs			1,348				7,069				9,010
Integration costs			42				3,077				5,369
Asset dispositions, severance and other			3,168				948				199
Electrochem Litigation charge (gain)			(9,500	)			34,500				—
Intangible asset write-down			—				15,921				—
Acquired IPR&D			—				—				2,240
Acquisition charges (inventory step-up)			—				—				6,422
Operating income — adjusted		$	64,937			$	62,563			$	58,134
Operating margin — adjusted			12.2	%			12.0	%			10.6	%

Our goal is to continuously improve adjusted operating margin over the next three to five years through our initiatives to improve operating performance and through the development of innovative products to drive future revenue growth, including systems and device products. Evidence of the progress we have made in these initiatives can be seen in the improvement of adjusted operating margin from 2008 to 2010. Our adjusted operating margin is expected to be between 12.0% and 13.0% for 2011. Adjusted operating income for 2011 is expected to consist of GAAP operating income less $8 million to $11 million of adjustments.

A reconciliation of GAAP income (loss) before taxes to adjusted net income and adjusted diluted EPS is as follows (in thousands, except per share amounts):

		Year Ended
		December 31,				January 1,				January 2,
		2010				2010				2009
Income (loss) before taxes as reported:		$	49,325			$	(18,177	)		$	20,517
Executive death benefits (SG&A)			885				—				—
Consolidation costs			1,348				7,069				9,010
Integration costs			42				3,077				5,369
Asset dispositions, severance and other			3,168				948				199
Electrochem Litigation charge (gain)			(9,500	)			34,500				—
Intangible asset write-down			—				15,921				—
Acquired IPR&D			—				—				2,240
Acquisition charges (inventory step-up)			—				—				6,422
Sub-total			45,268				43,338				43,757
CSN II conversion option discount amortization			7,876				7,311				6,786
Gain on extinguishment of debt & sale of investment security			—				—				(3,242	)
Adjusted income before taxes			53,144				50,649				47,301
Adjusted provision for income taxes			17,524				14,688				14,427
Adjusted net income		$	35,620			$	35,961			$	32,874
Adjusted diluted EPS		$	1.51			$	1.52			$	1.40
Number of shares(a)			23,802				23,983				24,128

For 2011, adjusted diluted EPS is expected to be in the range of $1.55 to $1.65 per diluted share. Adjusted diluted EPS is GAAP diluted EPS excluding the after-tax impact of the adjusted amounts described above, $8.5 million ($5.5 million net of tax) of non-cash convertible debt interest expense, and approximately $4.5 million ($2.9 million net of tax) gain from the previously disclosed sale of our IntElect Medical investment. This guidance also assumes that our effective tax rate will be approximately 35% and our average diluted shares outstanding will be approximately 24 million.

Government Regulation

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively “Health Care Reform”) legislating broad-based changes to the U.S. health care system. Health Care Reform could significantly impact our business operations and financial results, including higher or lower revenue, as well as higher employee medical costs and taxes. Many significant parts of Health Care Reform will be phased in over the next eight years and require further guidance and clarification in the form of regulations. As a result, many of the impacts of Health Care Reform will not be known until those regulations are enacted, which we expect to occur over the next several years.

On January 11, 2010, the U.S. Department of Transportation, and the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued a Notice of Proposed Rulemaking, “Hazardous Materials: Transportation of Lithium Batteries” in the federal register. PMHSA, in conjunction with the Federal Aviation Administration is proposing to amend requirements in the hazardous materials regulations on the transportation of lithium cells and batteries, including lithium cell and batteries packed with or contained in equipment. We are actively monitoring this rulemaking process because of the potential negative effect the rule, as currently proposed, could have on our Greatbatch Medical and Electrochem businesses.

Product Development

We are developing a series of new products for applications in the markets we serve, such as:

	1.		Develop systems and device solutions for our customers in the markets we operate in;
	2.		Continued development of MRI compatible leadwires and other Neuromodulation products;
	3.		Continued development of higher energy/higher density capacitors;
	4.		The design of next generation steerable catheters, sheaths and introducers;
	5.		Further develop minimally invasive surgical techniques for the Orthopaedic industry;
	6.		Develop disposable instrumentation for the Orthopaedic industry;
	7.		Provide wireless sensing solutions to Electrochem customers; and
	8.		Develop a charging platform for Electrochem’s secondary offering.

As a result of the investments we have made over the last three years, we are now able to provide our customers with full systems and device solutions. This includes development and regulatory submissions, as well as manufacturing and supporting worldwide distribution. These systems and devices are full product solutions that complement our OEM customers’ products and utilize our component expertise and capabilities. This strategy includes partnering with our OEM customers, including sharing technology and resources, in order to bring these solutions to market. The benefits to our OEM customers include shortening the time to market for these products by accelerating the velocity of innovation, optimizing their supply chain and ultimately providing them with cost efficiencies.

In 2010, Greatbatch Medical received clearance from the U.S. Food and Drug Administration for its OptiSeal Valved Peelable Introducer. We also received approval in Canada and CE Marking for distribution in Europe. OptiSeal is significant in that it represents the first 510(k) regulatory clearance received under the Greatbatch Medical brand and is the first product commercialized in connection with our systems and device strategy.

We expect to make additional system and device product announcements in 2011. The initial announcements are expected to center around products we are developing for the Vascular Access market but longer-term will include the CRM, Neuromodulation and Orthopaedic markets. Ultimately our goal is to establish a cadence of system and device product announcements that will provide us incremental revenue growth as well as increased margins.

Our Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Management considers an accounting estimate to be critical if 1) it requires assumptions to be made that were uncertain at the time the estimate was made; and 2) changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations, financial position or cash flows. Our most critical accounting estimates are described below. We also have other policies that we consider key accounting policies, such as our policies for revenue recognition; however, these policies do not meet the definition of critical accounting estimates, because they do not generally require us to make estimates or judgments that are difficult or subjective.

Balance Sheet Caption /
Nature of Critical
Estimate Item		Assumptions / Approach Used		Effect of Variations of Key Assumptions Used
Valuation of goodwill and other identifiable intangible assets including IPR&D When we acquire a company, we allocate the purchase price to the tangible and intangible assets we acquire and liabilities we assume based on their fair value at the date of acquisition, including IPR&D. Intangible assets, such as trademarks and tradenames, are considered non-amortizing intangible assets as they are expected to generate cash flows indefinitely. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Indefinite lived intangibles and goodwill are not amortized but are required to be assessed for impairment on an annual basis or more frequent if certain indicators are present. Definite-lived intangible assets are amortized over their estimated useful lives and are assessed for impairment if certain indicators are present.		We base the fair value of identifiable tangible and intangible assets on detailed valuations that use information and assumptions provided by management. The fair values of the assets acquired and liabilities assumed are determined using one of three valuation approaches: market, income or cost. The selection of a particular method for a given asset depends on the reliability of available data and the nature of the asset. The market approach values the asset based on available market pricing for comparable assets. The income approach values the asset based on the present value of risk adjusted cash flows projected to be generated by that asset. The projected cash flows for each asset considers multiple factors, including current revenue from existing customers, attrition trends, reasonable contract renewal assumptions from the perspective of a marketplace participant, and expected profit margins giving consideration to historical and expected margins. The cost approach values the asset by determining the current cost of replacing that asset with another of equivalent economic utility. The cost to replace the asset reflects the estimated reproduction or replacement cost, less an allowance for loss in value due to depreciation or obsolescence, with specific consideration given to economic obsolescence if indicated. We perform an annual review on the last day of each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill and other indefinite lived intangible assets are impaired. We assess goodwill for impairment by comparing the fair value of our reporting units to their carrying value to determine if there is potential impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value. Fair values for reporting units are determined based on the income and market approaches. Indefinite lived intangible assets such as trademarks and tradenames are evaluated for impairment by using the income approach. Definite-lived intangible assets such as purchased technology, patents and customer lists are reviewed at least quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in their remaining useful life. We do not believe that the Greatbatch tradename or goodwill allocated to our Greatbatch Medical or Electrochem segments are at risk of failing step one of future annual impairment tests unless operating conditions significantly deteriorate.		The use of alternative valuation assumptions, including estimated cash flows and discount rates, and alternative estimated useful life assumptions could result in different purchase price allocations. In arriving at the value of the IPR&D, we additionally consider among other factors: the in-process projects stage of completion; commercial feasibility of the project; the complexity of the work completed; the projected costs to complete and commercialize the project; and the estimated useful life of the technology. Significant changes in these estimates and assumptions could impact the value of the assets and liabilities recorded, which would change the amount and timing of future intangible asset amortization expense. We make certain estimates and assumptions that affect the expected future cash flows of our reporting units for our goodwill impairment testing. These include discount rates, terminal values and projections of future revenues and expenses. Significant changes in these estimates and assumptions could create future impairment losses to our goodwill. The assumptions used in our 2010 impairment test incorporate growth rates disclosed in “2011 Sales Outlook” of this section. For trademarks and tradenames, we make estimates of royalty rates, future revenues and discount rates. Significant changes in these estimates could create future impairments of these indefinite lived intangible assets. Estimation of the useful lives of indefinite- and definite-lived intangible assets is based upon the estimated cash flows of the respective intangible asset and requires significant management judgment. Events could occur that would materially affect our estimates of the useful lives. Significant changes in these estimates and assumptions could change the amount of future amortization expense or could create future impairments of these intangible assets. As of December 31, 2010, we have $402.9 million of intangible assets recorded on our balance sheet representing 52% of total assets. This includes $75.1 million of amortizing intangible assets, $20.3 million of indefinite lived intangible assets and $307.5 million of goodwill. A 1% change in the amortization of our intangible assets would change 2010 net income by approximately $0.06 million, or approximately $0.003 per diluted share.

Balance Sheet Caption /
Nature of Critical
Estimate Item		Assumptions / Approach Used		Effect of Variations of Key Assumptions Used
Stock-based compensation We record compensation costs related to our stock-based awards which include stock options, restricted stock and restricted stock units. We measure stock-based compensation cost at the grant date based on the fair value of the award. Compensation cost for service-based awards is recognized ratably over the applicable vesting period. Compensation cost for performance awards based on Company metrics is reassessed each period and recognized based upon the probability that the performance targets will be achieved. Compensation cost for performance awards based on market metrics (such as total shareholder return) is expensed each period whether the performance metrics are achieved or not. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest, excluding market and nonmarket performance award considerations. The total expense recognized over the vesting period will only be for those awards that ultimately vest, excluding market and nonmarket performance award considerations.		We utilize the Black-Scholes Options Pricing Model to determine the fair value of stock options. We are required to make certain assumptions with respect to selected Black Scholes model inputs, including expected volatility, expected life, expected dividend yield and the risk-free interest rate. Expected volatility is based on the historical volatility of our stock over the most recent period commensurate with the estimated expected life of the stock options. The expected life of stock options granted, which represents the period of time that the stock options are expected to be outstanding, is based, primarily, on historical data. The expected dividend yield is based on our history and expectation of dividend payouts. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period commensurate with the estimated expected life. The fair value of time-based as well as nonmarket-based performance restricted stock and restricted stock unit awards is equal to the fair value of the Company’s stock on the date of grant. The fair value of market-based performance restricted stock unit awards is determined by utilizing a Monte Carlo simulation model, which projects the value of Greatbatch stock versus our peer group under numerous scenarios and determines the value of the award based upon the present value of these projected outcomes. Compensation cost for nonmarket-based performance awards is reassessed each period and recognized based upon the probability that the performance targets will be achieved. That assessment is based upon actual and expected future performance. Stock-based compensation expense is only recorded for those awards that are expected to vest, excluding market and nonmarket performance award considerations. Forfeiture estimates for determining appropriate stock-based compensation expense are estimated at the time of grant based on historical experience and demographic characteristics. Revisions are made to those estimates in subsequent periods if actual forfeitures differ from estimated forfeitures.		Option pricing models were developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. Because our share-based payments have characteristics significantly different from those of freely traded options, and because changes in the subjective input assumptions can materially affect our estimates of fair values, existing valuation models may not provide reliable measures of the fair values of our share-based compensation. Consequently, there is a risk that our estimates of the fair values of our share-based compensation awards may bear little resemblance to the actual values realized upon the exercise, expiration or forfeiture of those share-based payments in the future. Stock options may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our consolidated financial statements. There are significant differences among valuation models. This may result in a lack of comparability with other companies that use different models, methods and assumptions. There is a high degree of subjectivity involved in selecting assumptions to be utilized to determine fair value and forfeiture assumptions. If factors change and result in different assumptions in future periods, the expense that we record for future grants may differ significantly from what we have recorded in the current period. Additionally, changes in performance of the Company and its stock price will affect the likelihood that performance-based targets are achieved and could materially impact the amount of stock-based compensation expense recognized. A 1% change in our stock based compensation expense would increase/decrease 2010 net income by approximately $0.04 million, or approximately $0.002 per diluted share.

Balance Sheet Caption /
Nature of Critical
Estimate Item		Assumptions / Approach Used		Effect of Variations of Key Assumptions Used
Inventories Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market.		Inventory costing requires complex calculations that include assumptions for overhead absorption, scrap, sample calculations, manufacturing yield estimates and the determination of which costs may be capitalized. The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality.		Variations in methods or assumptions could have a material impact on our results. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-downs or expense a greater amount of overhead costs, which would have a negative impact on our net income. As of December 31, 2010 we have $101.4 million of inventory recorded on our balance sheet representing 13% of total assets. A 1% write-down of our inventory would decrease 2010 net income by approximately $0.7 million, or approximately $0.03 per diluted share.
Tangible long-lived assets Property, plant and equipment and other tangible long-lived assets are carried at cost. The cost of property, plant and equipment is charged to depreciation expense over the estimated life of the operating assets primarily using straight-line rates. Tangible long-lived assets are subject to impairment assessment if certain indicators are present.		We assess the impairment of tangible long-lived assets when events or changes in circumstances indicate that the carrying value of the asset (asset group) may not be recoverable. Factors that we consider in deciding when to perform an impairment review include, but are not limited to: a significant decrease in the market price of the asset (asset group); a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); or a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Recoverability potential is measured by comparing the carrying amount of the asset (asset group) to the related total future undiscounted cash flows. The projected cash flows for each asset (asset group) considers multiple factors, including current revenue from existing customers, proceeds from the sale of the asset (asset group), reasonable contract renewal assumptions, and expected profit margins giving consideration to historical and expected margins. If an asset’s (assets group’s) carrying value is not recoverable through related cash flows, the asset (asset group) is considered to be impaired. Impairment is measured by comparing the asset’s (asset group’s) carrying amount to its fair value. When it is determined that useful lives of assets are shorter than originally estimated, and there are sufficient cash flows to support the carrying value of the assets, we accelerate the rate of depreciation in order to fully depreciate the assets over their shorter useful lives.		Estimation of the useful lives of tangible assets that are long-lived requires significant management judgment. Events could occur, including changes in cash flow that would materially affect our estimates and assumptions related to depreciation. Unforeseen changes in operations or technology could substantially alter the assumptions regarding the ability to realize the return of our investment in long-lived assets. Also, as we make manufacturing process conversions and other facility consolidation decisions, we must make subjective judgments regarding the remaining useful lives of our assets, primarily manufacturing equipment and buildings. Significant changes in these estimates and assumptions could change the amount of future depreciation expense or could create future impairments of these long-lived assets (asset groups). As of December 31, 2010 we have $162.6 million of tangible long-lived assets recorded on our balance sheet representing 21% of total assets. A 1% write-down in our tangible long-lived assets would decrease 2010 net income by approximately $1.1 million, or approximately $0.04 per diluted share.

Balance Sheet Caption /
Nature of Critical
Estimate Item		Assumptions / Approach Used		Effect of Variations of Key Assumptions Used
Provision for income taxes In accordance with the liability method of accounting for income taxes, the provision for income taxes is the sum of income taxes both currently payable and deferred. The changes in deferred tax assets and liabilities are determined based upon the changes in differences between the bases of assets and liabilities for financial reporting purposes and the tax bases of assets and liabilities as measured by the enacted tax rates that management estimates will be in effect when the differences reverse.		In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of temporary differences based upon the timing of expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not likely, we must increase our provision for income taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances.		Changes could occur that would materially affect our estimates and assumptions regarding deferred taxes. Changes in current tax laws and tax rates could affect the valuation of deferred tax assets and liabilities, thereby changing the income tax provision. Also, significant declines in taxable income could materially impact the realizable value of deferred tax assets. At December 31, 2010, we had $23.5 million of gross deferred tax assets on our balance sheet and a valuation allowance of $6.5 million has been established for certain deferred tax assets as it is more likely than not that they will not be realized. A 1 percentage point change in the effective tax rate would impact the current year provision for income taxes by $0.5 million, and 2010 diluted earnings per share by $0.02 per diluted share.
		The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for uncertain tax positions when we believe that certain tax positions do not meet the more likely than not threshold. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or the lapse of statutes of limitations. The provision for income taxes includes the impact of reserve provisions and changes to the reserves that are considered appropriate.

Cost Savings and Consolidation Efforts

In 2010, 2009 and 2008 we recorded charges in Other Operating Expenses, Net in the Consolidated Statements of Operations in connection with approximately twenty cost savings and consolidation initiatives. These initiatives were undertaken to improve our operational efficiencies and profitability. Additional information regarding the timing, cash flow and amount of future expenditures is set forth in Note 9 “Other Operating Expenses, Net” of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

In January 2011, we announced our intention to construct an 80,000 square foot manufacturing facility in Allen County, IN. Total investment in this facility is expected to be approximately $17 million. We intend to transfer the manufacturing operations currently being performed at our Columbia City, IN location into this new facility once construction is complete. Additionally, the Allen County facility will provide us with increased capabilities and capacity for future growth. This is the third project we have deployed as part of an overall strategy to partner with Orthopaedic device makers. In 2010, we launched the first phase of a state of the art Orthopaedic design center in Warsaw, IN, providing customers with rapid prototyping capabilities to develop and deliver effective solutions quickly. We are also in the process of completing a $6 million investment at our Indianapolis, IN manufacturing facility.

Our Financial Results

We utilize a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31^st. Fiscal years 2010, 2009 and 2008 ended on December 31, 2010, January 1, 2010 and January 2, 2009, respectively. Fiscal years 2010 and 2009 contained fifty-two weeks while fiscal year 2008 contained fifty-three weeks.

Results of Operations Table

		Year Ended												2010 vs. 2009								2009 vs. 2008
		Dec. 31,				Jan. 1,				Jan. 2,				$				%				$				%
Dollars in thousands, except per share data		2010				2010				2009				Change				Change				Change				Change
Greatbatch Medical
CRM/Neuromodulation		$	303,521			$	305,354			$	286,251			$	(1,833	)			-1	%		$	19,103				7	%
Vascular Access			38,000				35,816				39,443				2,184				6	%			(3,627	)			-9	%
Orthopaedic			118,748				113,897				142,446				4,851				4	%			(28,549	)			-20	%
Total Greatbatch Medical			460,269				455,067				468,140				5,202				1	%			(13,073	)			-3	%
Electrochem			73,156				66,754				78,504				6,402				10	%			(11,750	)			-15	%
Total sales			533,425				521,821				546,644				11,604				2	%			(24,823	)			-5	%
Cost of sales			359,844				355,402				390,855				4,442				1	%			(35,453	)			-9	%
Gross profit			173,581				166,419				155,789				7,162				4	%			10,630				7	%
Gross profit as a % of sales			32.5	%			31.9	%			28.5	%
SG&A expenses			64,510				70,294				72,633				(5,784	)			-8	%			(2,339	)			-3	%
SG&A as a % of sales			12.1	%			13.5	%			13.3	%
RD&E expenses			45,019				33,562				31,444				11,457				34	%			2,118				7	%
RD&E as a % of sales			8.4	%			6.4	%			5.8	%
Electrochem Litigation charge (gain)			(9,500	)			34,500				—				(44,000	)			-128	%			34,500				100	%
Intangible asset write-down			—				15,921				—				(15,921	)			-100	%			15,921				100	%
Acquired IPR&D			—				—				2,240				—				—				(2,240	)			-100	%
Other operating expenses, net			4,558				11,094				14,578				(6,536	)			-59	%			(3,484	)			-24	%
Operating income			68,994				1,048				34,894				67,946			NA					(33,846	)			-97	%
Operating margin			12.9	%			0.2	%			6.4	%
Interest expense			18,519				20,071				19,954				(1,552	)			-8	%			117				1	%
Interest income			(10	)			(324	)			(711	)			314				-97	%			387				-54	%
Gain on extinguishment of debt			—				—				(3,242	)			—				—				3,242				-100	%
Other (income) expense, net			1,160				(522	)			(1,624	)			1,682			NA					1,102				-68	%
Provision (benefit) for income taxes			16,187				(9,176	)			6,369				25,363			NA					(15,545	)		NA
Effective tax rate			32.8	%			50.5	%			31.0	%
Net income (loss)		$	33,138			$	(9,001	)		$	14,148			$	42,139			NA				$	(23,149	)		NA
Net margin			6.2	%			-1.7	%			2.6	%
Diluted earnings (loss) per share		$	1.40			$	(0.39	)		$	0.62			$	1.79			NA				$	(1.01	)		NA

Fiscal 2010 Compared with Fiscal 2009

Sales

Changes to sales by major product lines were as follows (in thousands):

		Year Ended
		December 31,				January 1,				$				%
Product Lines		2010				2010				Change				Change
Greatbatch Medical
CRM/Neuromodulation		$	303,521			$	305,354			$	(1,833	)			-1	%
Vascular Access			38,000				35,816				2,184				6	%
Orthopaedic			118,748				113,897				4,851				4	%
Total Greatbatch Medical			460,269				455,067				5,202				1	%
Electrochem			73,156				66,754				6,402				10	%
Total Sales		$	533,425			$	521,821			$	11,604				2	%

Greatbatch Medical — Our 2010 revenue from our Greatbatch Medical business increased $5.2 million or 1% from 2009 as recoveries in the Vascular Access and Orthopaedic markets offset the slow-down in the CRM market.

For the year, CRM and Neuromodulation sales were consistent with the prior year as higher volumes were offset by continued pressure from OEM customers on pricing and dual sourcing/vertical integration initiatives. More specifically, higher battery, capacitor and assembly revenue were offset by lower feedthrough and enclosure sales. Battery and capacitor sales for 2009 were impacted by customer inventory adjustments and, as expected, returned to more normalized levels in 2010. CRM revenue is significantly impacted each period due to the timing of various customer product launches, shifts in customer market share, customer inventory management initiatives as well as marketplace field actions. We expect the pressures on CRM revenue experienced in 2010 to continue to impact sales in 2011.

For 2010, Vascular Access sales increased 6% primarily due to higher introducer and catheter sales. We expect Vascular Access revenue growth to continue to accelerate in 2011 as we launch several new systems products.

Orthopaedic product line sales of $118.7 million for 2010 were 4% above the comparable 2009 period. This increase was across all of our Orthopaedic products as the markets continued to recover from the slowdown in 2009 and as our investments and expanded capabilities have begun to deliver new business, which included our new rapid prototyping facility, pilot line and spine implant and reconstructive implant capabilities. For the year, Orthopaedic sales include approximately $2 million of negative foreign currency exchange rate impact in comparison to 2009.

Electrochem — 2010 sales for the Electrochem business segment were $73.2 million, an increase of $6.4 million or 10% compared to 2009. This increase from the prior year primarily related to the recovery in the energy and portable medical markets from the slowdown in 2009, which caused customers to reduce inventory levels and push back projects. Additionally, Electrochem sales benefited from the sales and marketing initiatives undertaken during the economic downturn, which positioned us to capture market share once the markets recovered.

2011 Sales Outlook — 2011 annual revenue product line growth rates are expected to be as follows:

•

CRM & Neuromodulation: Flat

•

Vascular Access: 10% to 20%

•

Orthopaedic: 2% to 10%

•

Electrochem: 2% to 5%

By applying these growth rates to our 2010 results, consolidated annual sales for 2011 are projected to be in the range of approximately $540 million to $560 million. These growth projections may be impacted by a variety of factors including a continued softening in the CRM market, changes in pricing or exchange rates, changes in health care reimbursement policies, further dual sourcing/vertical integration initiatives by our customers and other factors described in “Cautionary Factors That May Affect Future Results” contained in Item 1 of this report.

Gross Profit

Changes to gross profit as a percentage of sales were primarily due to the following:

		2010-2009
		% Increase
Capacity & productivity (a)			-0.9	%
Selling price (b)			-0.5	%
Mix change (c)			2.8	%
Other			-0.8	%
Total percentage point change to gross profit as a percentage of sales			0.6	%

For 2011, we expect that our gross profit margin will continue to improve as our higher margin systems and device products ramp up and as volumes improve.

SG&A Expenses

Changes to SG&A expenses were primarily due to the following (in thousands):

		2010-2009
		$ Decrease
Personnel costs (a)		$	(2,688	)
Information technology and consulting (b)			(1,555	)
Allowance for doubtful accounts (c)			(1,095	)
Other			(446	)
Decrease in SG&A		$	(5,784	)

For 2011, we expect SG&A expenses as a percentage of sales to remain consistent with the 2010 levels as normal inflationary cost increases are offset by our cost control initiatives.

RD&E Expenses

Net research, development and engineering costs were as follows (in thousands):

		Year Ended
		December 31,				January 1,
		2010				2010
Research and development costs		$	17,378			$	17,707
Engineering costs			34,208				26,438
Less cost reimbursements			(6,567	)			(10,583	)
Engineering costs, net			27,641				15,855
Total RD&E		$	45,019			$	33,562

As expected, net RD&E expenses for 2010 were higher than the comparable 2009 period due to further investment in the development of new innovative technologies, including the development of systems and devices. The incremental investment in systems and device products was approximately $20 million, $13 million and $4 million for 2010, 2009 and 2008, respectively. During 2010 we also received a lower level of customer cost reimbursements compared to 2009. These cost reimbursements can vary significantly from period to period due to the timing of the achievement of milestones on development projects.

We expect net RD&E costs to continue to increase in 2011 as we further invest resources in the development of new technologies, including the development of complete systems and devices for our customers.

In 2009, a Louisiana jury found in favor of a former Electrochem customer on their claims made in connection with a failed business transaction dating back to 1997. During 2009, we accrued $34.5 million in connection with this litigation after the unfavorable jury verdict. In the fourth quarter of 2010, we settled this litigation for $25 million and accordingly recognized a $9.5 million gain. See Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

As a result of the successful rebranding of our Greatbatch Medical segment, during 2009, we wrote-down our non-Greatbatch trademarks and tradenames by $15.9 million, which is included in the results for our Greatbatch Medical segment. This charge was recorded based upon Management’s decision to discontinue use of the associated tradenames and its determination that there would be no market participants willing to purchase the previously acquired tradenames.

Other Operating Expenses, Net

Other operating expenses, net were comprised of the following (in thousands):

		Year Ended
		December 31,				January 1,
		2010				2010
(a) 2007 & 2008 facility shutdowns and consolidations		$	1,348			$	7,069
(b) Integration costs			42				3,077
(c) Asset dispositions, severance and other			3,168				948
		$	4,558			$	11,094

In 2011, consolidation and integration expenses are expected to be approximately $2 million to $4 million.

Interest Expense and Interest Income

Interest expense, which includes noncash discount amortization, and interest income for 2010 decreased in comparison to the same periods of 2009, primarily due to the repayment of $78 million of debt. Going forward, we expect interest expense to continue to decline as long-term debt is retired with cash flow provided by operations.

Other (Income) Expense, Net

Other (income) expense, net primarily includes the impact of foreign currency exchange rate fluctuations on our transactions denominated in foreign currencies. We generally do not expect foreign currency exchange rate fluctuations to have a material impact on our net income.

Provision for Income Taxes

During the fourth quarter of 2010, the research and development tax credit was extended for both 2010 and 2011, retroactive to the beginning of 2010. As a result, the fourth quarter 2010 GAAP and adjusted effective tax rates include the benefit of approximately $1.0 million representing the cumulative catch-up adjustment for this credit related to the first three quarters of 2010. The 2009 effective tax rate includes the favorable impact of the resolution of tax audits and the lapse of statutes of limitation on certain tax items. See Note 10 “Income Taxes” of the Notes to Consolidated Financial Statements contained at Item 8 of this report for a reconciliation of the U.S. statutory rate to our effective tax rate (benefit). For 2011, we currently expect our effective tax rate to approximate the 35% statutory rate.

In its budget submission to Congress in February 2011, the Obama administration proposed changes to the manner in which the U.S. would tax the international income of U.S. based companies. While it is uncertain how the U.S. Congress may address U.S. tax policy in the future, reform of U.S. taxation, including taxation of international income, continues to be a topic of discussion for Congress. A significant change to the U.S. tax system, including changes to the taxation of international income, could have a material effect on our effective tax rate.

Fiscal 2009 Compared with Fiscal 2008

Sales

Changes to sales by major product lines were as follows (in thousands):

		Year Ended
		January 1,				January 2,				$				%
Product Lines		2010				2009				Change				Change
Greatbatch Medical
CRM/Neuromodulation		$	305,354			$	286,251			$	19,103				7	%
Vascular Access			35,816				39,443				(3,627	)			-9	%
Orthopaedic			113,897				142,446				(28,549	)			-20	%
Total Greatbatch Medical			455,067				468,140				(13,073	)			-3	%
Electrochem			66,754				78,504				(11,750	)			-15	%
Total Sales		$	521,821			$	546,644			$	(24,823	)			-5	%

For 2009, revenue totaled $521.8 million compared to $546.6 million in 2008. 2008 results include the benefit of an additional week of operations due to the Company’s fiscal year ending on the closest Friday to December 31. This additional week added approximately $10 million to 2008 sales. Excluding this additional week of operations, 2009 annual revenue was 3% below the 2008 period as CRM/Neuromodulation revenue growth was offset by decreases in our other product lines, which were impacted by the uncertain health care and economic environment.

Greatbatch Medical — Our 2009 revenue from our Greatbatch Medical business decreased $13.1 million or 3% from 2008. Excluding the additional week of sales, this decline was 1% as CRM/Neuromodulation revenue growth was offset by decreases in the Vascular Access and Orthopaedic product lines, which were impacted by the uncertain health care environment.

For the year, CRM and Neuromodulation revenue increased 7%, driven by higher filtered feedthrough, coated component and assembly revenue offset by lower battery and capacitor revenue. During the first half of 2009, CRM revenue benefited from the timing of various customer product launches and, as expected, began to return to more normalized growth levels for the second half of 2009. Additionally, battery and capacitor sales for 2009 were impacted by customer inventory adjustments.

For the year, Vascular Access revenue was $35.8 million versus $39.4 million in 2008. These decreases were primarily due to lower introducer sales as a result of customer inventory stocking that took place during the first quarter of 2009 in connection with the Pressure Products litigation. See Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. Sales were also lower in comparison to the prior year due to the one less week of operations.

Our Orthopaedic product line revenues were $113.9 million for 2009, a decrease of 20% from the $142.4 million in 2008. This decrease was primarily due to reduced spending on elective procedures and an increased emphasis on inventory management programs from our customers as a result of the uncertain economic and regulatory environment. Additionally, Orthopaedic sales declined approximately $5 million as 2008 revenue included the favorable impact of the release of acquired backlog, favorable currency exchange rates and the additional week of sales in the fourth quarter offset by the impact of having our Orthopaedic product line for the full year in 2009 versus a partial year in 2008.

Electrochem — 2009 sales for the Electrochem business segment were $66.8 million, compared to $78.5 million in 2008. The decrease from the prior year primarily related to the slowdown in the energy and portable medical markets, which caused customers to reduce inventory levels and push back projects. These conditions began to ease in the fourth quarter of 2009.

Gross Profit

Changes to gross profit as a percentage of sales were primarily due to the following:

		2009-2008
		% Increase
Inventory step-up amortization (a)			1.2	%
Manufacturing efficiencies (b)			1.8	%
Selling price (c)			-1.1	%
Mix change (d)			1.1	%
Foreign currency (e)			0.5	%
Performance-based compensation (f)			0.5	%
Other			-0.6	%
Total percentage point change to gross profit as a percentage of sales			3.4	%

SG&A Expenses

Changes to SG&A expenses were primarily due to the following (in thousands):

		2009-2008
		$ Decrease
Legal costs (a)		$	(3,027	)
Performance-based compensation (b)			(2,907	)
IT and Consulting (c)			1,658
Rebranding initiative (d)			722
Bad debt expense (e)			371
Other			844
Net decrease in SG&A		$	(2,339	)

RD&E Expenses

Net research, development and engineering costs were as follows (in thousands):

		Year Ended
		January 1,				January 2,
		2010				2009
Research and development costs		$	17,707			$	18,750
Engineering costs			26,438				22,447
Less cost reimbursements			(10,583	)			(9,753	)
Engineering costs, net			15,855				12,694
Total RD&E		$	33,562			$	31,444

Net research, development and engineering costs for 2009, as expected, were higher versus 2008 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 drive long-term growth. Reimbursement on product development projects is dependent upon the timing of the achievement of milestones and are netted against gross spending. In 2009, cost reimbursements also decreased as a percentage of total engineering costs in comparison to 2008 due to the expiration of grants acquired from BIOMEC, which are not expected to be replaced.

In 2009, a Louisiana jury found in favor of a former Electrochem customer on their claims made in connection with a failed business transaction dating back to 1997. During 2009, we accrued $34.5 million in connection with this litigation after the unfavorable jury verdict. See Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report.

As a result of the successful rebranding of our Greatbatch Medical segment, during 2009, we wrote-down our non-Greatbatch trademarks and tradenames by $15.9 million, which is included in the results for our Greatbatch Medical segment. This charge was recorded based upon Management’s decision to discontinue use of the associated tradenames and its determination that there would be no market participants willing to purchase the previously acquired tradenames.

Approximately $2.2 million of the purchase price related to our 2008 acquisitions was allocated to IPR&D projects acquired. These projects had not yet reached technological feasibility and had no alternative future use as of the acquisition date, thus were immediately expensed on the date of acquisition.

Other Operating Expenses, Net

Other operating expenses, net were comprised of the following (in thousands):

		Year ended
		January 1,				January 2,
		2010				2009
(a) 2005 & 2006 facility shutdowns and consolidations		$	—			$	663
(a) 2007 & 2008 facility shutdowns and consolidations			7,069				8,347
(b) Integration costs			3,077				5,369
(c) Asset dispositions, severance and other			948				199
		$	11,094			$	14,578

Interest Expense and Interest Income

Interest expense and interest income for 2009 were consistent with the same periods of 2008.

Gain on Extinguishment of Debt

In December 2008, we entered into privately negotiated agreements under which we repurchased $21.8 million in aggregate principal amount of our original $170.0 million of 2.25% convertible subordinated notes due 2013 (“CSN I”) at $845.38 per $1,000 of principal. The primary purpose of this transaction was to retire the debentures, which contained a put option exercisable on June 15, 2010, at a discount. This transaction was funded with availability under our existing line of credit. This transaction was accounted for as an extinguishment of debt and resulted in a pre-tax gain of $3.2 million.

Other (Income) Expense, Net

Gain on foreign currency contracts — In December 2007 and January 2008, we entered into three forward currency contracts to purchase Swiss francs and Euros in order to partially fund our acquisition of Precimed, which was payable in Swiss francs, and the Chaumont Facility, which was payable in Euros. The net result of the above transactions was a gain of $2.4 million, $1.6 million of which was recorded in the first quarter of 2008.

The remainder of other (income) expense, net primarily includes the impact of foreign currency exchange rate fluctuations on our transactions denominated in foreign currencies.

Provision for Income Taxes

The effective tax rate (benefit) for 2009 was (50.5%) compared to 31.0% for 2008. The 2009 effective tax rate (benefit) includes the favorable impact of the resolution of tax audits and the lapse of statutes of limitation on certain tax items. Additionally, the 2009 and 2008 effective tax rate (benefit) includes the benefit of the Federal research and development tax credit. See Note 10 “Income Taxes” of the Notes to Consolidated Financial Statements contained at Item 8 of this report for a reconciliation of the U.S. statutory rate to our effective tax rate (benefit).

Liquidity and Capital Resources

		As of
		December 31,				January 1,
(Dollars in millions)		2010				2010
Cash and cash equivalents(a)		$	22.9			$	37.9
Working capital (b)		$	150.9			$	119.9
Current ratio (b)			3.5:1.0				1.9:1.0

Revolving Line of Credit — We have a senior credit facility (the “Credit Facility”) consisting of a $235 million revolving line of credit, which can be increased to $335 million upon our request and approval by a majority of the lenders. The Credit Facility also contains a $15 million letter of credit subfacility and a $15 million swingline subfacility. The Credit Facility is secured by our non-realty assets including cash, accounts and notes receivable, and inventories, and has an expiration date of May 22, 2012 with a one-time option to extend to April 1, 2013 at our option if no default has occurred. See Note 6 “Debt” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for a complete summary of the terms and conditions of the Credit Facility.

The Credit Facility is supported by a consortium of six banks with no bank controlling more than 26% of the facility. As of December 31, 2010, each bank supporting the Credit Facility has an S&P credit rating of at least BBB- or better, which is considered investment grade.

The Credit Facility requires us to maintain a ratio of adjusted EBITDA, as defined in the credit agreement, to interest expense of at least 3.00 to 1.00. For the twelve month period ended December 31, 2010, our ratio of adjusted EBITDA to interest expense, calculated in accordance with our credit agreement, was 12.2 to 1.00, well above the required limit. The Credit Facility also requires us to maintain a total leverage ratio, as defined in the credit agreement, of not greater than 4.50 to 1.00. As of December 31, 2010, our total leverage ratio, calculated in accordance with our credit agreement, was 2.38 to 1.00, well below the required limit. The calculation of adjusted EBITDA and leverage ratio exclude non-cash charges.

The Credit Facility contains customary events of default. Upon the occurrence and during the continuance of an event of default, a majority of the lenders may declare the outstanding advances and all other obligations under the Credit Facility immediately due and payable.

Based upon our current capital needs, we anticipate utilizing free cash flow (cash flow from operating activities less capital expenditures) to make principal payments on our long-term debt. As of December 31, 2010, we had $185 million of borrowing capacity available under the Credit Facility. This amount may vary from period to period based upon our debt and EBITDA levels, which impacts the covenant calculations. We anticipate that our cash flow from operating activities and the Credit Facility provide adequate liquidity to meet our short- and long- term funding needs.

Operating activities — Cash flows from operating activities for 2010 were $76.9 million compared to $71.8 million for the 2009 period. Cash flows from operating activities for 2010 was unfavorably impacted by the $25 million ($16.3 million net of tax) Electrochem Litigation settlement. See Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained in Item 8 of this report. Excluding this settlement payment, cash flows from operating activities were $93.1 million. The increase from the prior year is primarily due to the timing of payments and lower consolidation and integrations costs as well as our strategic initiative to lower working capital balances (i.e. accounts receivable and inventory).

Investing activities — Net cash used in investing activities for 2010 were $13.9 million and was primarily related to routine capital expenditures. Our current expectation is that capital spending for 2011 will be in the range of $30 million to $40 million, of which approximately half is discretionary in nature. In January 2011, we announced our intention to construct an 80,000 square foot manufacturing facility in Allen County, IN. Total investment in this facility is expected to be approximately $17 million. Other than this facility, capital spending relates to routine maintenance investments to support our internal growth.

We anticipate that cash on hand along with cash flow from operating activities and availability under our revolving line of credit will be sufficient to fund these capital expenditures. Going forward, we will continue to consider strategically targeted and opportunistic acquisitions.

Financing activities — Net cash used in financing activities for 2010 were $78.8 million. During 2010, we repaid $78.5 million on our outstanding long-term debt. Going forward, we expect excess cash flow to be used to pay down amounts outstanding under our revolving line of credit.

Capital Structure — As of December 31, 2010, our capital structure consisted of $197.8 million of convertible subordinated notes, $50.0 million of debt under our revolving line of credit and 23.3 million shares of common stock outstanding. Additionally, we had $22.9 million in cash and cash equivalents, which is expected to fund our short-term operating cash needs.

If necessary, we have access to $185 million under our available line of credit and are authorized to issue 100 million shares of common stock and 100 million shares of preferred stock. The market value of our outstanding common stock since our initial public offering has exceeded our book value; accordingly, we believe that if needed we can access public markets to raise additional capital. Our capital structure allows us to support our internal growth and provides liquidity for corporate development initiatives. We continuously evaluate our capital structure, including our revolving line of credit, as it relates to our anticipated long-term funding needs. Changes to our capital structure may occur as a result of this analysis, or changes in market conditions. We believe we can renew or replace the Credit Facility at market rates if needed.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

Litigation

We are party to various legal actions arising in the normal course of business. A description of all material pending legal actions against the Company is set forth at Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements contained at Item 8 of this report. We do not believe that the ultimate resolution of any current pending legal actions will have a material adverse effect on our consolidated results of operations, financial position or cash flows. However, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact in the period in which the ruling occurs.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2010:

		Payments due by period
						Less than 1												More than
CONTRACTUAL OBLIGATIONS		Total				year				1-3 years				3-5 years				5 years
Debt obligations (a)		$	262,726			$	6,030			$	256,696			$	—			$	—
Operating lease obligations (b)			15,323				2,361				4,295				4,007				4,660
Purchase obligations (b)			18,645				18,380				265				—				—
Foreign currency contracts (b)			6,000				6,000				—				—				—
Pension obligations (c)			11,845				957				2,146				2,284				6,458
Total		$	314,539			$	33,728			$	263,402			$	6,291			$	11,118

This table does not reflect $2.8 million of unrecognized tax benefits as we are uncertain as to if or when such amounts may be settled. Refer to Note 10 “Income Taxes” of the Notes to Consolidated Financial Statements contained in Item 8 of this report for additional information about these unrecognized tax benefits.

To help offset the cost of rising health care expenses, beginning in 2010, we began self-funding the medical insurance coverage for all of our U.S. based employees. Our risk is being limited through the use of stop loss insurance, which for 2010 had an annual deductible of $0.2 million per covered participant with losses covered up to $4.8 million per covered person. The maximum aggregate loss (i.e. sum of all claims under the $0.2 million deductible) was limited to $9.9 million with a maximum benefit of $1.0 million. For 2011, the annual maximum aggregate loss was raised to $14.2 million and there is no longer a maximum benefit for specific losses per covered person. As of December 31, 2010, there was $2.1 million accrued related to our self-insured medical plan, which is recorded within Accrued Expenses and Other Current Liabilities, and is not included in the contractual obligations table above.

Inflation

We utilize certain critical raw materials (including precious metals) in our products that we obtain from a limited number of suppliers due to the technically challenging requirements of the supplied product and/or the lengthy process required to qualify these materials with our customers. We cannot quickly establish additional or replacement suppliers for these materials because of these requirements. Our results may be negatively impacted by an increase in the price of these critical raw materials. This risk is partially mitigated as many of the supply agreements with our customers allow us to partially adjust prices for the impact of any raw material price increases and the supply agreements with our vendors have final one-time buy clauses to meet a long-term need. Historically, raw material price increases have not materially impacted our results of operations.

Impact of Recently Issued Accounting Standards

In the normal course of business, Management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”), American Institute of Certified Public Accountants (“AICPA”) or other authoritative accounting body to determine the potential impact they may have on our Consolidated Financial Statements. Based upon this review, Management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on our Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency — We have significant foreign operations in France, Mexico and Switzerland, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Mexican pesos and Swiss francs, respectively. We continuously evaluate our foreign currency risk and will take action from time to time in order to best mitigate these risks, which includes the use of various derivative instruments such as forward currency exchange contracts. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $8 million on our annual sales. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies. We estimate that foreign currency exchange rate fluctuations during 2010 reduced sales in comparison to 2009 by approximately $2 million.

In December 2009 and February 2010, we entered into forward contracts to purchase 6.6 million and 3.3 million, respectively, Mexican pesos per month through December 2010 at an exchange rate of 13.159 pesos and 13.1595 pesos per one U.S. dollar, respectively. These contracts were entered into in order to hedge the risk of peso-denominated payments associated with the operations at our Tijuana, Mexico facility for 2010 and were accounted for as a cash flow hedge.

In July 2010, we entered into forward contracts to purchase 6.6 million Mexican pesos per month from January 2011 to December 2011 at an exchange rate of 13.2231 pesos per one U.S. dollar. This contract was entered into in order to hedge the risk of peso-denominated payments associated with a portion of the operations at our Tijuana, Mexico facility for 2011 and are being accounted for as a cash flow hedge.

The amount recorded as a reduction of Cost of Sales during 2010 related to these forward contracts was $0.5 million. As of December 31, 2010, our outstanding forward contracts had a positive fair value of $0.3 million, which is recorded within Prepaid Expenses and Other Current Assets. No portion of the change in fair value of our foreign currency contracts during 2010 was considered ineffective.

In February 2011, we entered into forward contracts to purchase 3.7 million Mexican pesos per month from March 2011 to December 2011 at an exchange rate of 12.2761 pesos per one U.S. dollar. This contract was entered into in order to hedge the risk of peso-denominated payments associated with a portion of the operations at our Tijuana, Mexico facility for 2011 and are being accounted for as a cash flow hedge.

We translate all assets and liabilities of our foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the Consolidated Financial Statements as Comprehensive Income (Loss). The translation adjustment for 2010 was a $7.9 million gain. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. Net foreign currency transaction gains and losses included in Other (Income) Expense, Net amounted to a loss of $0.9 million for 2010. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately $9 million on our foreign net assets as of December 31, 2010.

Interest Rate Swaps — Interest rates on our revolving line of credit reset based upon the six-month LIBOR rate, thus subjecting us to interest rate risk. To help offset this risk, we enter into receive floating-pay fixed interest rate swaps indexed to the six-month LIBOR rate. The objective of these swaps is to hedge against potential changes in cash flows on our outstanding revolving line of credit, which is also indexed to the six-month LIBOR rate. No credit risk is hedged. The receive variable leg of the swaps and the variable rate paid on the revolving line of credit bear the same rate of interest, excluding the credit spread, and reset and pay interest on the same dates. Our interest rate swaps are accounted for as a cash flow hedges.

As of December 31, 2010, we had $50 million outstanding on our revolving line of credit and one interest rate swap remaining with the same notional amount. The interest rate swap matures on July 7, 2011 and has a pay fixed rate of 2.16% and a current receive floating rate of 0.75% at December 31, 2010.

The fair value of our interest rate swap as of December 31, 2010 was a liability of $0.4 million and is classified as Other Current Liabilities. The estimated fair value of the interest rate swap represents the amount we would have to pay to terminate the contract. No portion of the change in fair value of our interest rate swaps during 2010 was considered ineffective. The amount recorded in Interest Expense related to our interest rate swaps was expense of $1.7 million during 2010.

A hypothetical one percentage point change in the LIBOR interest rate on the $50 million of floating rate revolving line of credit debt outstanding would not have an impact on our interest expense due to the interest rate swap agreement we have in place.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following are set forth below:

Management’s Report on Internal Control Over Financial Reporting			55
Reports of Independent Registered Public Accounting Firm			56
Consolidated Balance Sheets as of December 31, 2010 and January 1, 2010			59
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2010, January 1, 2010 and January 2, 2009			60
Consolidated Statements of Cash Flows for the years ended December 31, 2010, January 1, 2010 and January 2, 2009			61
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, January 1, 2010 and January 2, 2009			62
Notes to Consolidated Financial Statements			63