U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 30, 2007
Commission File Number 1-16137
GREATBATCH, INC.
 (Exact name of Registrant as specified in its charter)
Delaware
 (State of incorporation)
16-1531026
(I.R.S. employer identification no.)
9645 Wehrle Drive
Clarence, New York
14031
(Address of principal executive offices)
(716) 759-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Exchange Act Rule 12b-2 (check one):

----------------------------   ---------------------   -------------------------
Large accelerated filer [  ]   Accelerated filer [X]   Non-accelerated filer [ ]
----------------------------   ---------------------   -------------------------	

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes [ ] No [ X ]
The number of shares outstanding of the Company's common stock, $0.001 par value per share, as of May 7, 2007 was: 22,327,572 shares.

                                GREATBATCH, INC.
                         TABLE OF CONTENTS FOR FORM 10-Q
               AS OF AND FOR THE THREE MONTHS ENDED March 30, 2007

                                                                                             Page

COVER PAGE                                                                                      1

TABLE OF CONTENTS                                                                               2

                   PART I - FINANCIAL INFORMATION (unaudited)

ITEM 1.    Condensed Consolidated Financial Statements

              Condensed Consolidated Balance Sheets                                             3

              Condensed Consolidated Statements of Operations and Comprehensive Income          4

              Condensed Consolidated Statements of Cash Flows                                   5

              Notes to Condensed Consolidated Financial Statements                              6

ITEM 2.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                            21

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk                          34

ITEM 4.    Controls and Procedures                                                             34

                           PART II - OTHER INFORMATION

ITEM 1.    Legal Proceedings                                                                   35

ITEM 1A.   Risk Factors                                                                        35

ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds                         35

ITEM 3.    Defaults Upon Senior Securities                                                     35

ITEM 4.    Submission of Matters to a Vote of Security Holders                                 35

ITEM 5.    Other Information                                                                   35

ITEM 6.  Exhibits                                                                              35

SIGNATURES                                                                                     36

EXHIBIT INDEX                                                                                  37	

PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                          GREATBATCH, INC.
                          CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
                           (in thousands except share and per share data)
-----------------------------------------------------------------------------------------------------
                                                                                   As of
                                                                      -------------------------------
                                                                         March 30,     December 29,
ASSETS                                                                     2007            2006
                                                                      -------------------------------
Current assets:
  Cash and cash equivalents                                           $      147,128  $       71,147
  Short-term investments available for sale                                   78,614          71,416
  Accounts receivable, net of allowance of $533 in 2007 and $532 in
   2006                                                                       38,505          31,285
  Inventories                                                                 54,483          57,667
  Refundable income taxes                                                          -           1,569
  Deferred income taxes                                                        6,021           5,899
  Prepaid expenses and other current assets                                    1,523           2,343
                                                                      -------------------------------
          Total current assets                                               326,274         241,326

Property, plant, and equipment, net                                           89,674          91,869
Amortizing intangible assets, net                                             27,130          28,078
Trademarks and tradenames                                                     28,252          28,252
Goodwill                                                                     155,039         155,039
Other assets                                                                   6,159           3,263
                                                                      -------------------------------
  Total assets                                                        $      632,528  $      547,827
                                                                      ===============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                    $       19,161  $       12,657
  Accrued expenses and other current liabilities                              32,373          29,618
                                                                      -------------------------------
           Total current liabilities                                          51,534          42,275

Convertible subordinated notes                                               240,111         170,000
Deferred income taxes                                                         25,490          35,859
                                                                      -------------------------------
           Total liabilities                                                 317,135         248,134
                                                                      -------------------------------

Stockholders' equity:
  Preferred stock, $0.001 par value, authorized 100,000,000 shares;
   no shares issued or outstanding in 2007 or 2006                                 -               -
  Common stock, $0.001 par value, authorized 100,000,000 shares;
   22,317,711 shares issued and outstanding in 2007 and 22,119,142
   shares issued and 22,111,516 shares outstanding in 2006                        22              22
  Additional paid-in capital                                                 232,239         227,187
  Treasury stock, at cost, no shares in 2007 and 7,626 shares in 2006              -            (205)
  Retained earnings                                                           79,834          69,165
  Accumulated other comprehensive income                                       3,298           3,524
                                                                      -------------------------------
           Total stockholders' equity                                        315,393         299,693
                                                                      -------------------------------
Total liabilities and stockholders' equity                            $      632,528  $      547,827
                                                                      ===============================

  The accompanying notes are an integral part of these condensed consolidated financial statements	

-3-

                                          GREATBATCH, INC.
                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                AND COMPREHENSIVE INCOME - Unaudited
                                (in thousands except per share data)
-----------------------------------------------------------------------------------------------------
                                                                            Three months ended
                                                                      -------------------------------
                                                                         March 30,      March 31,
                                                                           2007            2006
                                                                      -------------------------------
Sales                                                                 $       76,860  $       68,107
Costs and expenses:
Cost of sales - excluding amortization of intangible assets                   47,288          39,515
Cost of sales - amortization of intangible assets                                948             958
Selling, general and administrative expenses                                  10,033           9,015
Research, development and engineering costs, net                               6,452           5,898
Other operating expense, net                                                   1,533           2,669
                                                                      -------------------------------
   Operating income                                                           10,606          10,052
Interest expense                                                               1,144           1,135
Interest income                                                               (1,856)         (1,192)
Gain on extinguishment of debt                                                (4,473)              -
Other income, net                                                                (16)            (44)
                                                                      -------------------------------
   Income before provision for income taxes                                   15,807          10,153
Provision for income taxes                                                     5,138           3,503
                                                                      -------------------------------
   Net income                                                         $       10,669  $        6,650
                                                                      ===============================

Earnings per share:
   Basic                                                              $         0.48  $         0.31
   Diluted                                                            $         0.43  $         0.28

Weighted average shares outstanding:
   Basic                                                                      22,014          21,738
   Diluted                                                                    26,470          26,103

Comprehensive income:
  Net income                                                          $       10,669  $        6,650
  Net unrealized gain (loss) on short-term investments available for
   sale, net of tax                                                             (226)             26
                                                                      -------------------------------
Comprehensive income                                                  $       10,443  $        6,676
                                                                      ===============================

  The accompanying notes are an integral part of these condensed consolidated financial statements	

-4-

                                          GREATBATCH, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
                                           (in thousands)
-----------------------------------------------------------------------------------------------------
                                                                            Three months ended
                                                                      -------------------------------
                                                                         March 30,       March 31,
                                                                           2007             2006
                                                                      ---------------  --------------
Cash flows from operating activities:
  Net income                                                          $       10,669   $       6,650
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation and amortization                                            4,989           4,918
      Stock-based compensation                                                 2,548           2,207
      Gain on extinguishment of debt                                          (4,473)              -
      Deferred income taxes                                                  (10,369)          1,708
      (Gain) loss on disposal of assets                                         (251)              3
  Changes in operating assets and liabilities:
      Accounts receivable                                                     (7,220)         (9,860)
      Inventories                                                              3,184          (3,016)
      Prepaid expenses and other current assets                                  820            (113)
      Accounts payable                                                         6,617           2,069
      Accrued expenses and other current liabilities                         (13,266)         (9,954)
      Income taxes                                                            15,370           1,807
                                                                      ---------------  --------------
             Net cash provided by (used in) operating activities               8,618          (3,581)
                                                                      ---------------  --------------

Cash flows from investing activities:
  Short-term investments:
      Purchases                                                              (22,925)        (10,589)
      Proceeds from dispositions                                              15,379          10,350
  Acquisition of property, plant and equipment                                (1,829)         (3,692)
  Proceeds from sale of property, plant and equipment                              1               -
  Insurance proceeds for replacement of assets                                   300               -
  Increase in other assets                                                         -             (38)
                                                                      ---------------  --------------
             Net cash used in investing activities                            (9,074)         (3,969)
                                                                      ---------------  --------------

Cash flows from financing activities:
  Principal payments of long-term debt                                             -            (299)
  Proceeds from issuance of long-term debt                                    76,000               -
  Issuance of common stock                                                       610             334
  Excess tax benefits from stock-based awards                                     32               -
  Net repurchase of treasury stock                                              (205)              -
                                                                      ---------------  --------------
           Net cash provided by financing activities                          76,437              35
                                                                      ---------------  --------------
Net increase (decrease) in cash and cash equivalents                          75,981          (7,515)
Cash and cash equivalents, beginning of year                                  71,147          46,403
                                                                      ---------------  --------------
Cash and cash equivalents, end of period                              $      147,128   $      38,888
                                                                      ===============  ==============

  The accompanying notes are an integral part of these condensed consolidated financial statements	

-5-
GREATBATCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information (Accounting Principles Board Opinion ("APB") No. 28, Interim Financial Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of Greatbatch, Inc. and its indirect wholly-owned subsidiary Greatbatch, Ltd. (collectively the "Company") for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. The December 29, 2006 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 29, 2006. The Company utilizes a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For 52-week years, each quarter contains 13 weeks. The first quarter of 2007 and 2006 ended on March 30 and March 31, respectively.
2. SUPPLEMENTAL CASH FLOW INFORMATION

                                                               Three months ended
                                                         ------------------------------
                                                             March 30,     March 31,
                                                               2007           2006
                                                         ------------------------------
Noncash investing and financing activities:                      (in thousands)
 Net unrealized gain (loss) on available-for-sale
  securities                                              $        (226) $          26
 Common stock contributed to 401(k) Plan                          2,956          2,780
 Property, plant and equipment purchases included in
  accounts payable                                                  695          1,647
 Deferred financing fees and acquisition costs included
  in accrued expenses and other current liabilities
  (note 6)                                                        4,495            530
 Exchange of convertible subordinated notes (note 6)            117,782              -

Cash paid (received) during the period for:
 Interest                                                 $         337  $          16
 Income taxes                                                       105            (13)	

-6-
 
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
3. SHORT-TERM INVESTMENTS
Short-term investments available for sale at March 30, 2007 and December 29, 2006 are comprised of the following (in thousands):

                                                     Gross      Gross
                                                    unrealized unrealized Estimated
                                           Cost       gains      losses   fair value
                                        ---------------------------------------------
March 30, 2007
--------------
Equity securities                       $      291 $    4,274 $      (34)$     4,531
Auction rate securities and other           74,083          -          -      74,083
                                        ---------------------------------------------
  Total available for sale securities   $   74,374 $    4,274 $      (34)$    78,614
                                        =============================================

December 29, 2006
-----------------
Equity securities                       $      291 $    4,588 $        - $     4,879
Auction rate securities and other           66,537          4         (4)     66,537
                                        ---------------------------------------------
  Total available for sale securities   $   66,828 $    4,592 $       (4)$    71,416
                                        =============================================	

In April 2007, the Company sold an equity security investment which resulted in a pre-tax gain of $4.0 million.
4. INVENTORIES
Inventories are comprised of the following (in thousands):

                      March 30,    December 29,
                         2007           2006
                     ----------------------------
Raw materials        $     27,755  $      28,568
Work-in-process            13,500         13,528
Finished goods             13,228         15,571
                     ----------------------------
  Total              $     54,483  $      57,667
                     ============================	

-7-
 
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
5. AMORTIZING INTANGIBLE ASSETS
Amortizing intangible assets are comprised of the following (in thousands):

                             Gross carrying   Accumulated     Net carrying
                                  amount       amortization       amount
                             ----------------------------------------------
March 30, 2007
--------------
Patented technology          $      21,462  $       (13,711) $        7,751
Unpatented technology               30,886          (11,531)         19,355
Other                                1,340           (1,316)             24
                             ------------- ---------------- ---------------
Total amortizing intangible
 assets                      $      53,688  $       (26,558) $       27,130
                             ============= ================ ===============

December 29, 2006
-----------------
Patented technology          $      21,462  $       (13,320) $        8,142
Unpatented technology               30,886          (10,975)         19,911
Other                                1,340           (1,315)             25
                             ------------- ---------------- ---------------
Total amortizing intangible
 assets                      $      53,688  $       (25,610) $       28,078
                             ============= ================ ===============	

Aggregate amortization expense for the first quarter of 2007 and 2006 was $0.9 million and $1.0 million, respectively. As of March 30, 2007, annual amortization expense is estimated to be $2.8 million for the remainder of 2007, $3.8 million for 2008, $3.2 million for 2009 and $2.7 million for 2010, 2011 and 2012. The above amounts do not contemplate the intangible assets that will be recorded in connection with the acquisitions of BIOMEC, Inc. and Enpath Medical, Inc. (See note 14).
6. DEBT
Long-term debt is comprised of the following (in thousands):

                                               March 30,   December 29,
                                                 2007          2006
                                              -----------  ------------

2.25% convertible subordinated notes I, due
 2013                                         $   52,218   $   170,000
2.25% convertible subordinated notes II, due
 2013                                            197,782             -
Unamortized discount                              (9,889)            -
                                              -----------  ------------
Total long-term debt                          $  240,111   $   170,000
                                              ===========  ============	

Convertible Subordinated Notes - In May 2003, the Company completed a private placement of $170.0 million of 2.25% convertible subordinated notes, due 2013 ("CSN I"). In November 2003 the Company had a registration statement with the Securities and Exchange Commission ("SEC") declared effective with respect to these notes and the underlying common stock. In March 2007, the Company entered into separate, privately negotiated agreements to exchange $117.8 million of CSN I for an equivalent principal amount of a new series of 2.25% convertible subordinated notes due 2013 ("CSN II") (collectively the "Exchange").
The primary purpose of the Exchange was to eliminate the June 15, 2010 call and put option that is included in the terms of CSN I. In connection with the Exchange, the Company issued an additional $80 million aggregate principal amount of CSN II at a price of $950 per $1,000 of principal. In April 2007, the Company filed a registration statement with the SEC with respect to these notes and has 90 days from March 28, 2007 to have such registration statement declared effective. In the event that the Company fails to comply with this requirement it is obligated to make additional payments equal to 0.5% of the aggregate principal amount outstanding.
-8-
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
The Exchange was accounted for as an extinguishment of debt and resulted in a pre-tax gain of $4.5 million ($2.9 million net of tax) or $0.11 per diluted share. As a result of the extinguishment, the Company had to recapture the tax interest expense that was previously deducted on the extinguished debentures. This resulted in an additional current income tax liability of approximately $11.3 million, which is payable in 2007. This amount was previously recorded as a non-current deferred tax liability on the balance sheet. The following is a summary of the significant terms of CSN I and CSN II:
CSN I - The notes bear interest at 2.25 percent per annum, payable semiannually. Holders may convert the notes into shares of the Company's common stock at a conversion rate of 24.8219 shares per $1,000 of principal, subject to adjustment, before the close of business on June 15, 2013 only under the following circumstances: (1) during any fiscal quarter commencing after July 4, 2003, if the closing sale price of the Company's common stock exceeds 120% of the $40.29 conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding fiscal quarter; (2) subject to certain exceptions, during the five business days after any five consecutive trading day period in which the trading price per $1,000 of principal for each day of such period was less than 98% of the product of the closing sale price of the Company's common stock and the number of shares issuable upon conversion of $1,000 of principal; (3) if the notes have been called for redemption; or (4) upon the occurrence of certain corporate events.
Beginning June 20, 2010, the Company may redeem any of the notes at a redemption price of 100% of their principal amount, plus accrued interest. Note holders may require the Company to repurchase their notes on June 15, 2010 or at any time prior to their maturity following a fundamental change at a repurchase price of 100% of their principal amount, plus accrued interest. The notes are subordinated in right of payment to all of our senior indebtedness and effectively subordinated to all debts and other liabilities of the Company's subsidiaries.
Beginning with the six-month interest period commencing June 15, 2010, the Company will pay additional contingent interest during any six-month interest period if the trading price of the notes for each of the five trading days immediately preceding the first day of the interest period equals or exceeds 120% of the principal amount of the notes.
CSN II - The notes bear interest at 2.25 percent per annum, payable semiannually. The holders may convert the notes into shares of the Company's common stock at a conversion price of $34.70 per share, which is equivalent to a conversion ratio of 28.8219 shares per $1,000 of principal. The conversion price and the conversion ratio will adjust automatically upon certain changes to the Company's capitalization.
The notes are convertible at the option of the holders at such time as: (i) the closing price of the Company's common stock exceeds 150% of the conversion price of the notes for 20 out of 30 consecutive trading days;
(ii) the trading price per $1,000 of principal is less than 98% of the product of the closing sale price of common stock for each day during any five consecutive trading day period and the conversion rate per $1,000 of principal; (iii) the notes have been called for redemption; (iv) the Company distributes to all holders of common stock rights or warrants entitling them to purchase additional shares of common stock at less than
-9-
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
the average closing price of common stock for the ten trading days immediately preceding the announcement of the distribution; (v) the Company distributes to all holders of common stock any form of dividend which has a per share value exceeding 5% of the price of the common stock on the day prior to such date of distribution; (vi) the Company affects a consolidation, merger, share exchange or sale of assets pursuant to which its common stock is converted to cash or other property; (vii) the period beginning 60 days prior to but excluding June 15, 2013; and (viii) certain fundamental changes occur or are approved by the Company's Board of Directors.
Conversions in connection with corporate transactions that constitute a fundamental change require the Company to pay a premium make-whole amount whereby the conversion ratio on the notes may be increased by up to 8.2 shares per $1,000 of principal. The premium make-whole amount will be paid in shares of common stock upon any such conversion, subject to the net share settlement feature of the notes described below.
The notes contain a net share settlement feature that requires the Company to pay cash for each $1,000 of principal. Any amounts in excess of $1,000 will be settled in shares of the Company's common stock, or at the Company's option, cash. The Company has a one-time irrevocable election to pay the holders in shares of its common stock, which it currently does not plan to exercise.
The notes are redeemable by the Company at any time on or after June 20, 2012, or at the option of a holder upon the occurrence of certain fundamental changes affecting the Company. The notes are subordinated in right of payment to all of our senior indebtedness and effectively subordinated to all debts and other liabilities of the Company's subsidiaries.
The following is a reconciliation of deferred financing fees for the first quarter of 2007, which are included in other assets:

Balance at December 29, 2006                           $    2,305
Financing costs deferred                                    4,331
Write off during the period due to extinguishment          (1,416)
Amortization during the period                               (180)
                                                       -----------
Balance at March 30, 2007                              $    5,040
                                                       ===========	

The $4.3 million of financing fees deferred in connection with the Exchange and new CSN II notes issued will be paid in the second quarter of 2007.
Revolving Line of Credit - The Company maintains a three-year $50 million Revolving Credit Facility (the "Revolver"), which contains a $10.0 million sub-limit for the issuance of commercial or standby letters of credit. The Revolver is secured by the Company's non-realty assets including cash, accounts and notes receivable, and inventories and has an expiration date of May 31, 2008. The Revolver requires compliance with two quarterly financial covenants, as defined. The first relates to the ratio of consolidated net earnings or loss before interest, taxes, depreciation, and amortization ("EBITDA") to fixed charges. The second is a leverage ratio, which is calculated based on the ratio of consolidated funded debt less cash, cash equivalent investments and short-term investments to consolidated EBITDA. Interest rates under the Revolver vary with the
-10-
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
Company's leverage. The Company is required to pay a commitment fee of between 0.125% and 0.250% per annum on the unused portion of the Revolver based on the Company's leverage. As of March 30, 2007, the Company had no balance outstanding on the Revolver.
In April 2007, the Company signed a commitment letter for a new five-year senior credit facility (the "Credit Facility") consisting of a $235 million revolving credit facility, which can be increased to $335 million upon the Company's request. The Credit Facility also contains a $15 million letter of credit subfacility and a $15 million swingline subfacility. This Credit Facility will replace the $50 million Revolver and has similar financial covenants, interest rates, commitment fees and prioritization as the Revolver. The Company expects that this agreement will become effective in the second quarter of 2007.
7. STOCK-BASED COMPENSATION
Compensation costs related to share-based payments for the three months ended March 30, 2007 totaled $1.7 million, $1.1 million net of tax, or $0.04 per diluted share. This compares to $1.4 million, $0.9 million net of tax, or $0.03 per diluted share for the three months ended March 31, 2006.
The following table summarizes stock option activity related to the Company's stock-based incentive plans:

                                                                      Weighted
                                                                       average
                                                         Weighted     remaining    Aggregate
                                           Number of      average     contractual  intrinsic
                                              stock       exercise     life (in   value(1) (in
                                             options        price       years)      millions)
                                          -----------------------------------------------------
Outstanding at January 1, 2006               1,397,160 $       23.16
     Granted(2)                                483,265         23.92
     Exercised                                (160,605)        12.97
     Forfeited or Expired                      (93,291)        24.94
                                          -------------

Outstanding at December 29, 2006             1,626,529 $       24.27         7.4 $         6.4
     Granted                                   164,832         25.50
     Exercised                                 (32,748)        18.63
     Forfeited or Expired                      (44,115)        29.92
                                          -------------

Outstanding at March 30, 2007                1,714,498 $       24.36         7.4 $         4.4
                                          =====================================================
Exercisable at March 30, 2007                  904,913 $       25.30         6.1 $         2.6
                                          =====================================================	

(1) Intrinsic value is calculated for in-the-money options (exercise price less than market price) outstanding and/or exercisable as the difference between the market price of our common shares as of March 30, 2007 ($25.50) and the weighted average exercise price of the underlying options, multiplied by the number of options outstanding and/or exercisable.
(2) Includes 183,648 performance based stock options which had a weighted average exercise price of $22.38 per share.
-11-
 
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
The weighted-average fair value and assumptions used to value options granted are as follows:

                                             Three months ended
                                      ---------------------------------
                                         March 30,         March 31,
                                           2007              2006
                                      ----------------  ---------------
Weighted-average fair value                    $10.33           $10.41
Risk-free interest rate                          4.48%            4.63%
Expected volatility                                39%              40%
Expected life (in years)                            5                5
Expected dividend yield                             0%               0%	

The following table summarizes restricted stock and restricted stock unit activity related to the Company's plans:

                                                     Weighted average
                                      Activity          fair value
                                   ---------------   ----------------
Nonvested at January 1, 2006               93,956     $        22.46
  Shares granted                          145,126              23.25
  Shares vested                           (25,911)             20.00
  Shares forfeited                         (9,015)             22.63
                                   ---------------

Nonvested at December 29, 2006            204,156     $        23.32
  Shares granted                           63,338              25.50
  Shares vested                            (9,436)             25.50
  Shares forfeited                              -
                                   ---------------

Nonvested at March 30, 2007               258,058     $        23.78
                                   ===============	

On March 6, 2007, the Board of Directors awarded 50,193 shares of restricted stock to executives of the Company. These awards had a value of $1.3 million as of the grant date and are subject to approval by stockholders, at the Company's 2007 Annual Meeting of Stockholders which will be held on May 22, 2007, of an amendment to the Company's 2005 Stock Incentive Plan to increase the number of shares available for grant by 1,450,000 shares.
8. OTHER OPERATING EXPENSE
The following were recorded in other operating expense, net in the Company's Consolidated Statements of Operations and Comprehensive Income (in thousands):

                                                     Three months ended
                                                  -------------------------
                                                   March 30,     March 31,
                                                     2007          2006
                                                  -----------   -----------
(a) Alden facility consolidation                  $        -    $      515
(b) Carson City facility shutdown and Tijuana
    facility consolidation No. 1                         386         1,228
(c) Columbia facility shutdown, Tijuana facility
    consolidation No. 2 and RD&E consolidation         1,303           922
(d) ECP expansion                                        137             -
(e) Asset dispositions and other                        (293)            4
                                                  -----------   -----------
                                                  $    1,533    $    2,669
                                                  ===========   ===========	

-12-
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
(a) Alden Facility consolidation - Beginning in the first quarter of 2005 and ending in the second quarter of 2006 the Company consolidated the medical capacitor manufacturing operations in Cheektowaga, NY, and the implantable medical battery manufacturing operations in Clarence, NY, into the advanced power source manufacturing facility in Alden, NY ("Alden Facility"). The Company also consolidated the capacitor research, development and engineering operations from the Cheektowaga, NY facility into the Technology Center in Clarence, NY.
The total cost for these consolidation efforts was $3.4 million, which was below the Company's original estimate of $3.5 to $4.0 million. The expenses for the Alden Facility consolidation are included in the IMC business segment and included the following:
o Production inefficiencies and revalidation - $0.3 million;
o Moving and facility closures - $2.7 million; and
o Other - $0.4 million.
(b) Carson City Facility shutdown and Tijuana Facility consolidation No. 1. On March 7, 2005, the Company announced its intent to close the Carson City, NV facility ("Carson City Facility") and consolidate the work performed at that facility into the Tijuana, Mexico facility ("Tijuana Facility consolidation No. 1").
The Company delayed the anticipated final closing of the Carson City Facility until the second quarter of 2007 in order to accommodate a customer's regulatory approval. If this closing is delayed further, additional costs could be incurred. The total revised estimate for this plan is anticipated to be between $7.7 million and $7.9 million of which $7.6 million has been incurred through March 30, 2007. The major categories of costs include the following:
o Costs related to the shutdown of the Carson City Facility:
a. Severance and retention - $3.9 million;
b. Accelerated depreciation - $0.6 million; and
c. Other - $0.5 million.
o Costs related to the Tijuana Facility consolidation No. 1:
a. Production inefficiencies and revalidation - $0.4 million;
b. Relocation and moving - $0.2 million;
c. Personnel (including travel, training and duplicate wages) - $1.5 to $1.7 million; and
d. Other - $0.6 million.
All categories of costs are considered to be cash expenditures, except accelerated depreciation. Once the moves are completed, the Company anticipates annual cost savings in the range of $2.5 million to $3.1 million. The expenses for the Carson City Facility shutdown and the Tijuana Facility consolidation No. 1 are included in the IMC business segment.
-13-
 
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
Accrued liabilities related to the Carson City Facility shutdown are comprised of the following (in thousands):

                               Severance and  Accelerated
                                  retention    depreciation      Other           Total
                              -------------------------------------------------------------
Restructuring charges         $        3,551  $        600  $          278  $        4,429
Cash payments                         (2,394)            -            (278)         (2,672)
Write-offs                                 -          (600)              -            (600)
                              -------------------------------------------------------------
Balance, December 29, 2006    $        1,157  $          -  $            -  $        1,157

Restructuring charges                    279             -               -             279
Cash payments                           (134)            -               -            (134)
                              -------------------------------------------------------------
Balance, March 30, 2007       $        1,302  $          -  $            -  $        1,302
                              =============================================================

Accrued liabilities related to the Tijuana Facility consolidation No. 1 are
comprised of the following (in thousands):

                                   Production
                                 inefficiencies    Relocation
                                 and revalidation   and moving     Personnel         Other          Total
                               ------------------------------------------------------------------------------
Restructuring charges          $             293  $        124  $        1,701  $          636  $      2,754
Cash payments                               (293)         (124)         (1,701)           (636)       (2,754)
                               ------------------------------------------------------------------------------
Balance, December 29, 2006     $               -  $          -  $            -  $            -  $          -

Restructuring charges                        107             -               -               -           107
Cash payments                               (107)            -               -               -          (107)
                               ------------------------------------------------------------------------------
Balance, March 30, 2007        $               -  $          -  $            -  $            -  $          -
                               ==============================================================================	

(c) Columbia Facility shutdown, Tijuana Facility consolidation No. 2 and RD&E consolidation. On November 16, 2005, the Company announced its intent to close both the Columbia, MD facility ("Columbia Facility") and the Fremont, CA Advanced Research Laboratory ("ARL"). The manufacturing operations at the Columbia Facility will be moved into the Tijuana Facility ("Tijuana Facility consolidation No. 2"). The research, development and engineering ("RD&E") and product development functions at the Columbia Facility and at ARL will relocate to the Technology Center in Clarence, NY.
The total estimated cost for this facility consolidation plan is anticipated to be between $8.4 million and $8.9 million of which $7.6 million has been incurred through March 30, 2007. The ARL move and closure portion of this consolidation project is complete. The Company expects to incur and pay the remaining cost for the other portions of the consolidation project in 2007.
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GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
The major categories of costs include the following:
o Costs related to the shutdown of the Columbia Facility and ARL and the move and consolidation of the RD&E functions to Clarence, NY:
a. Severance and retention - $2.8 to $3.0 million;
b. Personnel (including travel, training and duplicate wages) - $1.5 million
c. Accelerated depreciation/asset write-offs - $0.5 million; and
d. Other - $0.3 to $0.4 million.
o Costs related to Tijuana Facility consolidation No. 2:
a. Production inefficiencies and revalidation - $0.4 to $0.5 million;
b. Relocation and moving - $0.2 million;
c. Personnel (including travel, training and duplicate wages) - $2.6 to $2.7 million; and
d. Other (including asset write-offs) - $0.1 million.
All categories of costs are considered to be cash expenditures, except for accelerated depreciation and asset write-offs. Once the moves are completed, the Company anticipates annual cost savings in the range of $5.0 million to $6.0 million. The expenses for the Columbia Facility and ARL shutdowns, the Tijuana Facility consolidation No. 2 and the RD&E consolidation are included in the IMC business segment.
Accrued liabilities related to the Columbia Facility and ARL shutdowns and the RD&E consolidation are comprised of the following (in thousands):

                                                              Accelerated
                               Severance and                 depreciation /
                                  retention     Personnel    asset write-offs    Other        Total
                              -------------------------------------------------------------------------
Restructuring charges         $        2,297  $        701  $            509  $      428  $      3,935
Cash payments                           (550)         (701)                -        (428)       (1,679)
Write-offs                                 -             -              (509)          -          (509)
                              -------------------------------------------------------------------------
Balance, December 29, 2006    $        1,747  $          -  $              -  $        -  $      1,747

Restructuring charges                    510            72                 -           4           586
Cash payments                           (257)          (72)                -          (4)         (333)
                              -------------------------------------------------------------------------
Balance, March 30, 2007       $        2,000  $          -  $              -  $        -  $      2,000
                              =========================================================================	

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GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
Accrued liabilities related to Tijuana Facility consolidation No. 2 are comprised of the following (in thousands):

                                  Production
                                 inefficiencies
                                      and       Relocation and
                                  revalidation       moving         Personnel          Other            Total
                               ------------------------------------------------------------------------------------
Restructuring charges          $           264  $           149  $         1,594  $           317  $         2,324
Cash payments                             (264)            (149)          (1,594)            (317)          (2,324)
                               ------------------------------------------------------------------------------------
Balance, December 29, 2006     $             -  $             -  $             -  $             -  $             -

Restructuring charges                       60                7              433              217              717
Cash payments                              (60)              (7)            (433)            (217)            (717)
                               ------------------------------------------------------------------------------------
Balance, March 30, 2007        $             -  $             -  $             -  $             -  $             -
                               ====================================================================================	

(d) Electrochem Commercial Power ("ECP") expansion. In February 2007, the Company announced that it will close its current manufacturing facility in Canton, MA and construct a new 80,000 square foot facility in the Massachusetts area to perform those operations in. The expected completion of this $28 million expansion project is mid-2008. The total expense to be recognized for this relocation is estimated to be $2.2 million to $2.4 million. Costs related to this move are included in the ECP business segment and include the following:
o Production inefficiencies and revalidation - $0.6 million;
o Moving and facility closure - $0.9 million to $1.0 million;
o Accelerated depreciation - $0.4 million; and
o Other - $0.3 million to $0.4 million.
(e) Asset dispositions and other. During the first quarter of 2007, the Company received $0.3 million of insurance proceeds related to equipment damaged during transportation to the Tijuana Facility in the second quarter of 2006. The remaining expense is for property, plant and equipment dispositions.
9. INCOME TAXES
Effective in the first quarter of 2007, the Company adopted the provisions of Financial Standards Accounting Board ("FASB") Interpretation ("FIN") No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement of Financial Accounting Standards ("SFAS") No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized under SFAS 109. FIN No. 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure.
Upon adoption of FIN No. 48, the Company did not recognize any adjustment to its $1.8 million of unrecognized tax benefits, all of which would favorably impact the effective tax rate (net of federal benefit on state issues), if recognized. The Company's unrecognized tax benefits consist of refund claims which did not meet the more likely than not threshold under FIN No. 48. At the end of the first quarter, there was no change in the balance of unrecognized tax benefits. The Company anticipates that the total unrecognized tax benefits could significantly change within the next twelve months due to the settlement of audits/appeals currently in process, however, quantification of an estimated range cannot be made at this time.
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GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
The Company will recognize interest expense related to uncertain tax positions as Interest Expense. Penalties, if incurred, would be recognized as a component of Selling, General and Administrative Expenses. At the end of the first quarter, there was no accrued interest or penalties related to uncertain tax positions. The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which we are subject. The 2001 and 2002 tax years remain open in certain jurisdictions as a result of audits/appeals currently in process.
10. COMMITMENTS AND CONTINGENCIES
Litigation - The Company is a party to various legal actions arising in the normal course of business including actions brought by former employees who were terminated in connection with our consolidation initiatives. While the Company does not believe that the ultimate resolution of any such pending activities will have a material adverse effect on its consolidated results of operations, financial position or cash flows, 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.
During 2002, a former non-medical customer commenced an action alleging that the Company had used proprietary information of the customer to develop certain products. We have meritorious defenses and are vigorously defending the matter. The potential risk of loss is between $0.0 and $1.7 million.
Product Warranties - The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The Company accrues its estimated exposure to warranty claims based upon recent historical experience and other specific information as it becomes available.
The change in aggregate product warranty liability for the quarter ended March 30, 2007 is as follows (in thousands):

Beginning balance at December 29, 2006      $    1,993
Additions to warranty reserve                      452
Warranty claims paid                              (721)
                                           ------------
Ending balance at March 30, 2007            $    1,724
                                           ============	

Purchase Commitments - Contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are normally based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We enter into blanket orders with vendors that have preferred pricing and terms, however these orders are normally cancelable by us without penalty. As of March 30, 2007, the total contractual obligation related to such expenditures is approximately $10.5 million and will be financed by existing cash, short-term investments or cash generated from operations. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty.
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GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
11. EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

                                                          Three months ended
                                                     ----------------------------
                                                       March 30,     March 31,
                                                          2007          2006
                                                     ----------------------------
Numerator for basic earnings per share:
  Net Income                                          $     10,669  $      6,650
Effect of dilutive securities:
  Interest expense on convertible notes and related
   deferred financing fees, net of tax                         727           733
                                                     ----------------------------
Numerator for diluted earnings per share              $     11,396  $      7,383
                                                     ============================

Denominator for basic earnings per share:
  Weighted average shares outstanding                       22,014        21,738
Effect of dilutive securities:
  Convertible notes                                          4,219         4,219
  Stock options and unvested restricted stock                  237           146
                                                     ----------------------------
Dilutive potential common shares                             4,456         4,365
                                                     ----------------------------
Denominator for diluted earnings per share                  26,470        26,103
                                                     ============================

Basic earnings per share                              $       0.48  $       0.31
                                                     ============================
Diluted earnings per share                            $       0.43  $       0.28
                                                     ============================	

The diluted weighted average share calculations do not include 786,716 and 1,123,903 of stock options for the three months ended March 30, 2007 and March 31, 2006, respectively, as they are not dilutive to the earnings per share calculations.
12. COMPREHENSIVE INCOME
The Company's comprehensive income includes net income and the net unrealized gain (loss) on its short-term investments available for sale. The net unrealized gain (loss) on short-term investments available for sale reported on the Condensed Consolidated Statements of Operations and Comprehensive Income are shown net of a deferred income tax benefit of $122 thousand and tax expense of $8 thousand for the three month periods ended March 30, 2007 and March 31, 2006, respectively.
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GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
13. BUSINESS SEGMENT INFORMATION
The Company operates its business in two reportable segments: Implantable Medical Components ("IMC") and Electrochem Commercial Power ("ECP"). The IMC segment designs and manufactures critical components used in implantable medical devices. The principal components are batteries, capacitors, filtered feedthroughs, enclosures and precision components. Additionally, the IMC business includes value-added assembly of products that incorporate these components. The principal medical devices are pacemakers, defibrillators and neurostimulators. The ECP segment designs and manufactures high performance batteries and battery packs; principal markets for these products are for oil and gas exploration, pipeline inspection, telematics, oceanography equipment, seismic, communication, military and aerospace applications.
The Company defines segment income from operations as sales less cost of sales, including amortization, and expenses attributable to segment-specific selling, general, administrative, research, development, engineering and other operating expenses. Segment income also includes a portion of non-segment specific selling, general, administrative, research, development and engineering expenses based on allocations appropriate to the expense categories. The remaining unallocated operating expenses are primarily corporate headquarters and administrative function expenses. The unallocated operating expenses along with other income and expense are not allocated to reportable segments. Transactions between the two segments are not significant.
An analysis and reconciliation of the Company's business segment information to the respective information in the consolidated financial statements is as follows (in thousands):

                                             Three months ended
                                        ----------------------------
                                          March 30,     March 31,
Sales:                                       2007          2006
                                        ----------------------------
   IMC
     ICD batteries                       $     11,651  $     12,679
     Pacemaker and other batteries              5,845         5,787
     ICD capacitors                             8,514         3,568
     Feedthroughs                              18,393        16,288
     Enclosures                                 5,706         6,340
     Other medical                             15,087        12,918
                                        ----------------------------
  Total IMC                                    65,196        57,580
  ECP                                          11,664        10,527
                                        ----------------------------
  Total sales                            $     76,860  $     68,107
                                        ============================

Segment income from operations:
  IMC                                    $     11,721  $     10,900
  ECP                                           2,722         2,843
                                        ----------------------------
  Total segment income from operations         14,443        13,743
  Unallocated operating income
   (expenses)                                  (3,837)       (3,691)
                                        ----------------------------
  Operating income as reported                 10,606        10,052
  Unallocated other income                      5,201           101
                                        ----------------------------
  Income before provision for income
taxes as reported                        $     15,807  $     10,153
                                        ============================	

The carrying amount of goodwill at March 30, 2007 and December 29, 2006 for IMC was $152.4 million and $2.6 million for ECP.
-19-
GREATBATCH, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't) - Unaudited
14. ACQUISITIONS (Subsequent Event)
On April 3, 2007, the Company acquired substantially all of the assets of BIOMEC, Inc. ("BIOMEC") for $11.4 million in cash and future additional consideration. BIOMEC has grants in place that will fund substantially all of its development costs through 2008. Currently, the engineering team is working on various projects, including a novel-polymer coating (biomimetic) that mimics the surface of endothelial cells of blood vessels. Additionally, BIOMEC has a product development agreement and a 20% investment partnership in IntElect Medical, Inc., an early stage neurostimulation device company that works in conjunction with the Cleveland Clinic. This transaction was accounted for under the purchase method of accounting.
On April 30, 2007, the Company jointly announced with Enpath Medical, Inc. ("Enpath") that they have entered into a definitive merger agreement under which the Company will acquire Enpath for $14.38 per share in cash, or approximately $102 million, including assumption of debt. Under the terms of the agreement, the Company will commence a tender offer for all of Enpath's outstanding shares no later than May 8, 2007. The transaction is subject to customary closing conditions and regulatory approvals and the tender of a majority of Enpath's outstanding shares, on a fully diluted basis. The purchase price will be funded out of the Company's available cash and short-term investments. The transaction is expected to close in late June. Enpath is a medical products company engaged in designing, developing, manufacturing and marketing single use medical device products for the cardiac rhythm management, neuromodulation and interventional radiology markets.
15. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2007, the FASB issued SFAS No 159, The Fair Value Option for Financial Assets and Financial Liabilities--Including an amendment of FASB Statement No. 115. This Statement provides entities with an option to choose to measure eligible items at fair value at specified election dates. If elected, an entity must report unrealized gains and losses on the item in earnings at each subsequent reporting date. The fair value option: may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; is irrevocable (unless a new election date occurs); and is applied only to entire instruments and not to portions of instruments. The Company is still evaluating the impact of SFAS No. 159 on its financial statements, which is effective beginning in fiscal year 2008.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value while applying generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions based on market data obtained from independent sources and (2) the reporting entity's own assumptions developed based on unobservable inputs. The Company is still evaluating the impact of SFAS No. 157 on its financial statements, which is effective beginning in fiscal year 2008.
-20-
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business
We are a leading developer and manufacturer of batteries, capacitors, feedthroughs, enclosures, and other components used in implantable medical devices ("IMDs") through our Implantable Medical Components ("IMC") business. We offer technologically advanced, highly reliable and long lasting products that enable our customers to introduce IMDs that are progressively smaller, longer lasting, more efficient and more functional. Additionally, through our manufacturing facility in Tijuana Mexico, our IMC business includes value-added assembly of products that incorporates the components we manufacture. We also leverage our core competencies in technology and manufacturing through our Electrochem Commercial Power ("ECP") business to develop and produce cells and battery packs for commercial applications that demand high performance and reliability, including oil and gas exploration, pipeline inspection, telematics, oceanographic equipment, seismic, communication, military and aerospace applications. Most of the IMC products that we sell are utilized by customers in cardiac rhythm management ("CRM") devices. The CRM market comprises devices utilizing high-rate batteries and capacitors such as implantable cardioverter defibrillators ("ICDs") and cardiac resynchronization therapy ("CRT") with backup defibrillation devices ("CRT-D") and devices utilizing low or medium rate batteries but no capacitors (pacemakers and CRTs). All CRM devices utilize other components such as enclosures and feedthroughs, and certain CRM devices utilize electromagnetic interference ("EMI") filtering technology.
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. Our medical customers include leading IMD manufacturers such as Boston Scientific, St. Jude Medical, Medtronic, Biotronik, Cyberonics and the Sorin Group. A substantial part of our business is conducted with a limited number of customers. For the first quarter of 2007, Boston Scientific, Medtronic and St. Jude Medical collectively accounted for approximately 69% of our total sales compared to 70% for the first quarter of 2006. The nature and extent of our selling relationships with each CRM customer are different in terms of breadth of component products purchased, purchased product volumes, length of contractual commitment, ordering patterns, inventory management and selling prices. Our ECP customers are primarily companies involved in oil and gas exploration, pipeline inspection, telematics, oceanographic equipment, seismic, communication, military and aerospace applications industries. We have entered into long-term supply agreements with some of our customers. For each of our products, we recognize revenue when the products are shipped and title passes.
Business Highlights
o Total Company - record sales of $76.9 million, an increase of 13% compared to $68.1 million in 2006. >> IMC - record sales of $65.2 million, an increase of 13% compared to $57.6 million in 2006, driven by growth of ICD capacitors, feedthroughs and assembly products partially offset by a decrease in ICD battery sales. >> ECP - sales of $11.7 million, an increase of 11% compared to $10.5 million in 2006, driven by growth in oil & gas, pipeline inspection, and military products.
o Earnings per share increased by 54% to $0.43, inclusive of a $0.11 gain on the exchange of $117.8 million of convertible debentures.
o Final production run for Carson City plant is scheduled for June 2007.
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o Columbia, Maryland shutdown scheduled to be completed in the second half of 2007.
o ECP expansion on track for completion in mid - 2008.
o Completed the exchange of $117.8 million of the existing $170 million convertible subordinated debentures outstanding. Issued an additional $80 million of new convertible subordinated debentures and received cash of $74 million (net of fees and discount).
o Received commitments for a new revolving bank credit facility of $235 million with the ability to expand to $335 million.
o Completed the acquisition of BIOMEC, Inc. for $11.4 million on April 3, 2007.
o Announced on April 30, 2007 that we entered into a definitive agreement to acquire Enpath Medical, Inc.
Our CEO's View
We had a solid start to the year achieving sales of $76.9 million, a 13% increase over last years first quarter. Medical sales were at $65.2 million and the Commercial business achieved growth of 11%. We earned 43 cents in the quarter compared with 28 cents last year. This result is inclusive of a one-time gain of 11 cents from the exchange of $117.8 million of our subordinated convertible debentures.
Our ICD capacitor sales more than doubled in the quarter to $8.5 million, a $4.9 million increase over the prior year first quarter. Our lean manufacturing systems enabled reduced lead times to capture this revenue opportunity. Approximately half of the increase in the quarter was due to inventory replenishment by our customers. In addition to inventory related demand, sales increased as a result of a customer supply issue. We anticipate this higher level of demand continuing into the second quarter.
We also continue to experience growth in our feedthrough business with sales increasing by 13% over last years first quarter. The majority of this growth has come from domestic market share penetration.
Other medical products sales increased by $2.2 million, or 17% from last year. Other medical sales consists of assembly, coatings and machined components. The growth in this quarter was split evenly between the coatings and assembly products.
ICD battery sales declined by 8% and pacemaker and other battery volume increased slightly from the first quarter of last year. However, on a sequential basis, ICD sales were up 16% from the fourth quarter of 2006. The first quarter 2006 represented our toughest year-over-year comparison. ICD battery sales softened through the balance of 2006 reflecting the general slowdown in the ICD market.
On the commercial side of the business, sales were up 11% from last years first quarter. The growth in the quarter primarily came from oil & gas, pipeline inspection and military markets. Oil and gas drilling activity remains strong and continues to drive the core growth of the business. The growth over the last two years has resulted in launching our capacity expansion plan. We are in the process of developing facility plans which will more than double our existing capacity. We plan to begin construction of a new 80,000 square foot manufacturing facility in the Massachusetts area in June of this year. We expect to complete this important expansion project by mid- 2008. In addition to a new expanded facility, we will also be investing in semi-automation equipment.
We have recently completed several important transactions. First, we refinanced $117.8 million of our existing convertible debentures and issued $80 million in new debentures. Second, on April 3rd we completed the acquisition of BIOMEC which expands our offerings to include design service capabilities, and third, we received customer clearance to complete the closure of our Carson City facility, which is now scheduled for June 2007. Additionally, on April 30, 2007
-22-
we announced that we signed a definitive agreement to acquire Enpath Medical, a developer, manufacturer and marketer of single use medical device products for the cardiac rhythm management, neuromodulation and interventional radiology markets. We view the acquisition of Enpath as another long-term growth platform and is consistent with our stated goal of broadening both our market and product reach.
Product Development
Currently, the company is developing a series of new products for customer applications in the CRM, neurostimulation and commercial markets.
Some of the key development initiatives are as follows:
1. Continue the evolution of our Q series high rate ICD batteries.
2. Complete the development of a high voltage and high energy density capacitor system.
3. Develop Q series medium rate battery for neurostimulation and pacemaker applications.
4. Augment our existing rechargeable battery with a new rechargeable battery offering for use in neurostimulation applications.
5. Develop rechargeable battery packs for use in commercial applications.
6. Continue development of the batteries and capacitors used in intravascular ICD devices.
IMC. Our near term focus for growth in the medical battery market, a portion of our IMC business, is the introduction of our Q-Series batteries. Initially they will be available in two configurations - QHR (High Rate) and QMR (Medium Rate). These batteries hold the promise of unparalleled performance in a wide range of implantable device and neurostimulation applications and allow our customers to incorporate advanced power-hungry features into these devices. It delivers advanced performance criteria to an industry that historically embraces new products. We believe the Q-Series will represent a major breakthrough by combining a smaller size with greater energy density (more power). The first ICD device implant with our new QHR technology occurred in the third quarter of 2006. We expect a second customer to begin implanting our QHR technology in the near term. We also released a new, non-proprietary model of medium-rate implantable "Q" series battery.
In addition to primary batteries, our rechargeable battery program also continues to make progress in qualification and is receiving tremendous interest from Neurostimulation customers.
In addition to our battery programs, we continue to advance our ICD capacitor technology with the development of a higher energy capacitor expected for release in 2008. Furthermore, we continue to develop the technology for a next generation higher voltage capacitor.
Finally, enabling safe MRI device interaction continues to remain a key focus and represents a potential growth opportunity for the company. We anticipate unveiling a series of new technologies in this area in the near future.
ECP. ECP continues to develop new and innovative power solutions for the world's most demanding commercial applications. ECP has developed a new high energy lithium cell for a customer in the telematics market. Due to their exceptional high energy, two of these new cells are capable of providing power for the entire 10-year life of the telematics device. ECP also has developed a battery pack capable of withstanding the customer's harsh operating conditions such as high vibration, high shock, salt spray, high temperature, low temperature, and high humidity.
-23-
Finally, ECP has developed a modular battery pack for a customer's fleet of underwater sonabuoys which measure water characteristics. The long life of ECP cells, coupled with their ability to withstand harsh conditions, make them ideally suited for buoys. The customer's expense of commissioning a ship to replace the batteries in each buoy is reduced when using ECP batteries due to their long life.
Cost Savings and Consolidation Efforts
During 2005, we initiated several significant cost savings and consolidation efforts, the implementation of which continued during 2006 and the first three months of 2007.
Alden Facility Consolidation. Beginning in the first quarter of 2005 and ending in the second quarter of 2006 we consolidated our medical capacitor manufacturing operations in Cheektowaga, NY, and our implantable medical battery manufacturing operations in Clarence, NY, into our advanced power source manufacturing facility in Alden, NY ("Alden Facility"). We also consolidated our capacitor research, development and engineering operations from our Cheektowaga, NY facility into our Technology Center in Clarence, NY.
The total cost for these consolidation efforts was $3.4 million, which was below the Company's original estimate of $3.5 to $4.0 million. Expenses of $2.8 million were incurred in 2005 and $0.6 million were incurred during the first two quarters of 2006. In total, $1.8 million was paid in cash and $0.8 million was for assets written-off in 2005. Approximately $0.8 million was paid in cash during 2006. The expenses for the Alden Facility consolidation were included in the IMC business segment.
Carson City Facility shutdown and Tijuana Facility consolidation No. 1. On March 7, 2005, we announced our intent to close the Carson City, NV facility ("Carson City Facility") and consolidate the work performed at our Carson City Facility into our Tijuana, Mexico facility ("Tijuana Facility consolidation No. 1").
The Company delayed the anticipated final closing of the Carson City Facility until the second quarter of 2007 in order to accommodate a customer's regulatory approval. If this closing is delayed further, additional costs could be incurred. The total revised estimate for this plan is anticipated to be between $7.7 million and $7.9 million of which $7.6 million has been incurred and is comprised of $5.0 million for the Carson City Facility shutdown and $2.7 million to $2.9 million for the Tijuana Facility consolidation No. 1. To date, $7.6 million of expenses has been recorded. All categories of costs are considered to be cash expenditures, except for accelerated depreciation.
Carson City Facility shutdown expenses of $4.7 million have been incurred to date, of which $4.4 million were recorded in 2005 and 2006, and $0.3 million were incurred in the first three months of 2007. In 2005 and 2006, $2.6 million were paid in cash and $0.6 million were recorded as accelerated depreciation. In 2007, $0.1 million were paid in cash. To date, $2.5 million of the $3.8 million of severance and retention recorded to date was paid. Tijuana Facility consolidation No. 1 expenses of $2.8 million were incurred and paid in 2005 and 2006, and $0.1 million were incurred and paid in 2007.
Once the moves are completed, we anticipate annual cost savings in the range of $2.5 to $3.1 million. The expenses for the Carson City Facility shutdown and the Tijuana Facility consolidation No. 1 are included in the IMC business segment.
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Columbia Facility & ARL shutdown, Tijuana Facility consolidation No. 2, and RD&E Consolidation. On November 16, 2005, we announced our intent to close both our Columbia, MD facility ("Columbia Facility") and our Fremont, CA Advanced Research Laboratory ("ARL"). The manufacturing operations at our Columbia Facility will be moved into our Tijuana Facility ("Tijuana Facility consolidation No. 2"). The research, development and engineering ("RD&E") and product development functions at our Columbia Facility have begun to relocate to the Technology Center in Clarence, NY. The ARL relocation to the Technology Center in Clarence, NY is complete.
The total revised estimated cost for this facility consolidation plan is anticipated to be between $8.4 million and $8.9 million. To date, we have expensed $7.6 million related to these projects and expect to incur the remaining costs in 2007. All categories of costs are considered to be future cash expenditures, except for accelerated depreciation and asset write-offs.
Approximately $3.9 million of the Columbia Facility and ARL shutdown costs were incurred in 2005 and 2006 ($0.5 million for assets written-off), and $0.6 million were incurred in the first three months of 2007. Approximately $0.3 million was paid in cash during the first three months of 2007. Tijuana Facility consolidation plan No. 2 expenses of $2.3 million were incurred and paid in cash in 2006 and $0.7 million in the first quarter of 2007.
Once the moves are completed, the Company anticipates annual cost savings in the range of $5.0 to $6.0 million. The expenses for the Columbia Facility and ARL shutdowns, the Tijuana Facility consolidation No. 2 and the RD&E consolidation are included in the IMC business segment.
ECP Expansion. In February 2007, the Company announced that it will close its current manufacturing facility in Canton, MA and construct a new 80,000 square foot facility in the Massachusetts area to perform those operations in. The expected completion of this $28 million expansion project is mid-2008. The total expense to be recognized for this relocation is estimated to be $2.2 million to $2.4 million. During the first three months of 2007, approximately $0.1 million of costs were incurred related to this project, which were primarily non-cash items. Costs related to this move are included in the ECP business segment.
Our Financial Results
We utilize a fifty-two, fifty-three week fiscal year ending on the Friday nearest December 31st. For 52-week years, each quarter contains 13 weeks. The first quarter of 2007 and 2006 ended on March 30, and March 31, respectively. The commentary that follows should be read in conjunction with our condensed consolidated financial statements and related notes and with the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the fiscal year ended December 29, 2006.
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     Results of Operation
                                               Three months ended
                                             ----------------------
                                              March 30,  March 31,      $         %
     In thousands, except per share data        2007       2006      Change     Change
----------------------------------------------------------------------------------------
     IMC
          ICD batteries                      $   11,651 $   12,679     (1,028)       -8%
          Pacemaker and other batteries           5,845      5,787         58         1%
          ICD capacitors                          8,514      3,568      4,946       139%
          Feedthroughs                           18,393     16,288      2,105        13%
          Enclosures                              5,706      6,340       (634)      -10%
          Other medical                          15,087     12,918      2,169        17%
                                             -------------------------------------------
     Total IMC                                   65,196     57,580      7,616        13%
     ECP                                         11,664     10,527      1,137        11%
                                             -------------------------------------------
     Total sales                                 76,860     68,107      8,753        13%
     Cost of sales - excluding amortization
        of intangible assets                     47,288     39,515      7,773        20%
     Cost of sales - amortization
        of intangible assets                        948        958        (10)       -1%
                                             -------------------------------------------
     Total Cost of Sales (1)                     48,236     40,473      7,763        19%
     Cost of sales as a % of sales                 62.8%      59.4%                 3.4%

     Selling, general, and administrative
      expenses (SG&A)                            10,033      9,015      1,018        11%
     SG&A as a % of sales                          13.1%      13.2%                -0.1%

     Research, development and engineering
      costs, net (RD&E)                           6,452      5,898        554         9%
     RD&E as a % of sales                           8.4%       8.7%                -0.3%

     Other operating expense, net                 1,533      2,669     (1,136)      -43%
                                             -------------------------------------------
     Operating income                            10,606     10,052        554         6%
     Operating margin                              13.8%      14.8%                -1.0%

     Interest expense                             1,144      1,135          9         1%
     Interest income                             (1,856)    (1,192)      (664)      -56%
     Other (income) expense, net                 (4,489)       (44)    (4,445)   -10102%
     Provision for income taxes                   5,138      3,503      1,635        47%
     Effective tax rate                            32.5%      34.5%                -2.0%

                                             -------------------------------------------
     Net income                              $   10,669 $    6,650 $    4,019        60%
                                             ===========================================
     Net margin                                    13.9%       9.8%                 4.1%
     Diluted earnings per share              $     0.43 $     0.28 $     0.15        54%	

Sales
IMC. The nature and extent of our selling relationship with each CRM customer is different in terms of component products purchased, selling prices, product volumes, ordering patterns and inventory management. We have pricing arrangements with our customers that at times do not specify minimum order quantities. Our visibility to customer ordering patterns is over a relatively short period of time. Our customers may have inventory management programs and alternate supply arrangements of which we are unaware. Additionally, the relative market share among the CRM device manufacturers changes periodically. Consequently, these and other factors can significantly impact our sales in any given period.
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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 product has to be replaced, or customer inventory levels have to be restored, this will result in increased component demand. Also, changing customer order patterns due to market share shifts or accelerated device replacements may also have a positive 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 demand.
The increase in IMC sales of 13% for the three month period ending March 30, 2007 was driven by growth of ICD capacitors, feedthroughs and coatings and assembly products, which are included in the other medical category. Our ICD capacitor sales more than doubled in the quarter, to $8.5 million, a $4.9 million increase over the prior year. Approximately half of the increase was due to our customers replenishing inventory in the current quarter. In addition to inventory related demand, sales increased as a result of a customer supply issue, which we anticipate continuing into the second quarter. We also continued to experience growth in our feedthrough business with sales increasing by 13% from last year. The majority of this growth has come from domestic market share penetration.
This growth was partially offset by lower sales from ICD batteries as well as medical enclosures. ICD battery sales declined by 8%. However, ICD sales were up 16% from fourth quarter of 2006. ICD battery sales softened through the balance of 2006 reflecting the general slowdown in the ICD market but began to rebound in the first quarter of 2007.
ECP. Similar to IMC customers, we have pricing arrangements with our customers that many times do not specify minimum quantities. Our visibility to customer ordering patterns is over a relatively short period of time.
ECP sales increased 11% from last year. The growth in the quarter primarily came from oil & gas, pipeline inspection and military markets. Oil and gas drilling activity remains strong and continues to drive the core growth of the business.
Cost of Sales
Changes from the prior year to cost of sales as a percentage of sales were primarily due to the following:

                                                           Three months ended
                                                              March 30, 2007
                                                           -------------------
Production inefficiencies primarily associated with
lower volumes (a)                                                         3.2%
Excess capacity at Tijuana Facility (b)                                  -1.1%
Mix change (c)                                                            0.7%
Other                                                                     0.6%
                                                           -------------------
Total percentage point change to cost of sales as a
percentage of sales                                                       3.4%
                                                           ===================	

(a) This increase in cost of sales is primarily due to lower production of ICD batteries, which absorb a greater amount of fixed costs such as plant overhead and depreciation. In the prior year period, ICD production volume was 9% higher in response to increased sales and replenishment of safety stock.
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(b) The Tijuana Facility was fully operational in the first quarter of 2006 but was not being fully utilized as it was only producing sub-assemblies. In 2007, the facility was producing increased volumes of sub-assemblies and the majority of the filtered feedthroughs reducing the excess capacity from the prior year. In accordance with the Company's inventory accounting policy, excess capacity costs were expensed.
(c) The revenue increase from 2006 was primarily in capacitors, which generally have lower margins.
We expect cost of sales as a percentage of sales to decrease over the next several years as the result of the consolidation efforts and the elimination of excess capacity. Excess capacity for the Tijuana Facility is not expected to be eliminated until mid-2007 when the last announced consolidation effort is anticipated to be completed (see the "cost savings and consolidation efforts" section for additional information).
SG&A expenses
Changes from the prior year to SG&A expenses were due to the following (in thousands):

                                        Three months ended
                                          March 30, 2007
                                       ---------------------
Stock-based compensation expense (a)   $                250
Increased workforce (b)                                 230
Director fees (c)                                       150
Legal fees (d)                                          130
Other                                                   258
                                       ---------------------
    Net increase in SG&A               $              1,018
                                       =====================	

(a) Increase in stock-based compensation related to our leadership succession planning transition. The increase in stock-based compensation expense is expected to continue into the future.
(b) The increased workforce expense was a result of the Company's efforts to increase the marketing and sales of its products as well as general and administrative costs related to finance personnel additions in 2006.
(c) Increase in director fees is consistent with the approved plan as disclosed in our most recent proxy. (d) Increase in legal fees is due to customer contract negotiations and the financing transactions discussed above.
RD&E expenses
Net research, development and engineering costs are as follows (in thousands):

                                                 Three months ended
                                           -------------------------------
                                              March 30,      March 31,
                                                2007            2006
                                           -------------------------------

Research and development costs             $        3,631  $        3,973
                                           -------------------------------

Engineering costs                                   3,131           2,356
Less cost reimbursements                             (310)           (431)
                                           -------------------------------
Engineering costs, net                              2,821           1,925
                                           -------------------------------
Total research and development and
 engineering costs, net                    $        6,452  $        5,898
                                           ===============================	

The increase in RD&E expenses for the three month period ended March 30, 2007 is primarily due to the planned increase in engineering personnel costs (headcount), as we continue to invest substantial resources to develop new products. In terms of the development costs billed, reimbursements were lower due to lower volume and timing of reimbursable development projects. Reimbursements for achieving certain development milestones are netted against gross spending.
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Other operating expense
Other operating expense for 2007 and 2006 are comprised of the following costs (in thousands):

                                                      Three months ended
                                                ------------------------------
                                                  March 30,       March 31,
                                                     2007            2006
                                                --------------  --------------
(a)  Alden facility consolidation                $          -    $        515
(a)  Carson City facility shutdown and Tijuana
     facility consolidation No. 1                         386           1,228
(a)  Columbia facility shutdown, Tijuana
      facility
     consolidation No. 2 and RD&E consolidation         1,303             922
(a)  ECP expansion                                        137               -
(b)  Asset dispositions and other                        (293)              4
                                                --------------  --------------
                                                 $      1,533    $      2,669
                                                ==============  ==============	

(a) Refer to the "Cost Savings and Consolidation Efforts" discussion for disclosure related to the timing and level of remaining expenditures for these items as of March 30, 2007.
(b) During the first quarter of 2007, the Company received $0.3 million of insurance proceeds related to equipment damaged during transportation to the Tijuana Facility in the second quarter of 2006. The remaining expense is for property, plant and equipment dispositions.
Interest expense and interest income
Interest expense for the three months ended March 30, 2007 is consistent with prior year periods, and is primarily related to our outstanding convertible notes. Interest expense is expected to increase in the future as a result of the additional $80.0 million of 2.25% convertible subordinated notes issued during the first quarter of 2007 and additional amortization of deferred fees and discounts associated with these notes and the notes exchanged during the quarter (See Gain on extinguishment of debt).
Interest income for the three months ended March 30, 2007 increased in comparison to the same periods of 2006 primarily due to increased cash, cash equivalents and short-term investment balances.
Gain on extinguishment of debt
In March 2007, the Company entered into separate, privately negotiated agreements to exchange $117.8 million of the original $170.0 million of 2.25% convertible subordinated notes due 2013 ("CSN I") for an equivalent principal amount of a new series of 2.25% convertible subordinated notes due 2013. The primary purpose of this transaction was to eliminate the June 15, 2010 call and put option that is included in the terms of CSN I. This exchange was accounted for as an extinguishment of debt and resulted in a net pre-tax gain of $4.5 million ($2.9 million net of tax) or $0.11 per diluted share.
Provision for income taxes
Our effective tax rate for the first quarter of 2007 was 32.5% compared to 34.5% for the same period of 2006. This decrease was primarily a result of our estimated increase in R&D tax credits and the Qualified Production Activities Deduction for 2007.
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Subsequent Events
On April 3, 2007, the Company acquired substantially all of the assets of BIOMEC, Inc. ("BIOMEC") for $11.4 million in cash and future additional consideration. BIOMEC has grants in place that will fund substantially all of its development costs through 2008. Currently, the engineering team is working on various projects, including a novel-polymer coating (biomimetic) that mimics the surface of endothelial cells of blood vessels. Additionally, BIOMEC has a product development agreement and a 20% investment partnership in IntElect Medical, Inc., an early stage neurostimulation device company that works in conjunction with the Cleveland Clinic. This transaction was accounted for under the purchase method of accounting.
On April 30, 2007, the Company jointly announced with Enpath Medical, Inc. ("Enpath") that they have entered into a definitive merger agreement under which the Company will acquire Enpath for $14.38 per share in cash, or approximately $102 million, including assumption of debt. Under the terms of the agreement, the Company will commence a tender offer for all of Enpath's outstanding shares no later than May 8, 2007. The transaction is subject to customary closing conditions and regulatory approvals and the tender of a majority of Enpath's outstanding shares, on a fully diluted basis. The purchase price will be funded out of the Company's available cash and short-term investments. The transaction is expected to close in late June. Enpath is a medical products company engaged in designing, developing, manufacturing and marketing single use medical device products for the cardiac rhythm management, neuromodulation and interventional radiology markets.

Liquidity and Capital Resources

                                                         March 30,  December 29,
  (Dollars in millions)                                    2007         2006
                                                       -------------------------

  Cash and cash equivalents and short-term investments
   (a)(b)                                              $      225.7  $    142.6
  Working capital (b)                                  $      274.7  $    199.1
  Current ratio                                           6.3 : 1.0   5.7 : 1.0	

(a) Short-term investments consist of investments acquired with maturities that exceed three months and are less than one year at the time of acquisition, equity securities classified as available-for-sale, and auction rate securities.
(b) Cash and cash equivalents and working capital increased primarily due to $76.0 million of net cash received from the issuance of additional 2.25% convertible subordinated notes due 2013 in March 2007.
Revolving Line of Credit
The Company maintains a three-year $50 million Revolving Credit Facility (the "Revolver"), which contains a $10.0 million sub-limit for the issuance of commercial or standby letters of credit. The Revolver is secured by the Company's non-realty assets including cash, accounts and notes receivable, and inventories and has an expiration date of May 31, 2008. The Revolver requires compliance with two quarterly financial covenants, as defined. The first relates to the ratio of consolidated net earnings or loss before interest, taxes, depreciation, and amortization ("EBITDA") to fixed charges. The second is a leverage ratio, which is calculated based on the ratio of consolidated funded debt less cash, cash equivalent investments and short-term investments to consolidated EBITDA. Interest rates under the Revolver vary with the Company's leverage. The Company is required to pay a commitment fee of between 0.125% and 0.250% per annum on the unused portion of the Revolver based on the Company's leverage. As of March 30, 2007, the Company had no balance outstanding on the Revolver.
In April 2007, the Company signed a commitment letter for a new five-year senior credit facility (the "Credit Facility") consisting of a $235 million revolving credit facility, which can be increased to $335 million upon the Company's request. The Credit Facility also contains a $15 million letter of credit subfacility and a $15 million swingline subfacility. This Credit Facility will replace the $50 million Revolver and has similar financial covenants, interest rates, commitment fees and prioritization as the Revolver. The Company expects that this agreement will become effective in the second quarter of 2007.
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Our principal sources of liquidity are our operating cash flow combined with our working capital of $225.7 million at March 30, 2007 and availability under our Revolver. Historically we have generated cash from operations sufficient to meet our capital expenditure and debt service needs, other than for acquisitions. At March 30, 2007, our current ratio was 6.3:1.0. As discussed above, subsequent to the end of the first quarter, the Company acquired substantially all of the assets of BIOMEC for $11.4 million in cash and future additional consideration and entered into a definitive merger agreement to acquire Enpath for approximately $102 million in cash, including the assumption of debt. These transactions will be funded with the Company's cash and cash equivalents and short-term investments available for sale. The Company regularly engages in discussions relating to potential acquisitions and may announce additional acquisition transactions at any time.
Operating activities
Net cash flows from operating activities for the three months ended March 30, 2007 increased $12.2 million over the comparable period in 2006. This was primarily the result of a decrease in inventory levels due to increased sales and a decreased accounts receivable change compared to the first quarter of 2006. The $4.5 million ($2.9 million net of tax) non-cash gain on the extinguishment of debt during the first quarter of 2007 resulted in a reclassification of approximately $11.3 million of income tax liability, which is payable in 2007. This amount was previously recorded as a non-current deferred tax liability on the balance sheet.
Investing activities
The majority of the acquisition of property, plant and equipment for the first three months of 2007 was related to routine purchases made in order to support our internal growth and to maintain our technology leadership. We expect these purchases to increase in the future as we begin construction of a new 80,000 square foot manufacturing facility in the Massachusetts area in June of this year. In addition to a new expanded facility, we will also be investing in semi-automation equipment. The expected completion of this $28 million expansion project is mid-2008. We expect to use $113.4 million of cash and cash equivalents and short term investments available for sale to fund the acquisition of BIOMEC and Enpath in the second quarter of 2007.
Net cash invested in short-term instruments during the first three months of 2007 of $7.5 million is primarily a result of the investment of excess cash flow from operations.
Financing activities
Cash flow from financing activities for the first quarter of 2007 was primarily related to the issuance of $80.0 million of additional 2.25% convertible subordinated notes due 2013 at a price of $950 per $1,000 of principal. The Company has incurred approximately $4.3 million of financing fees related to this transaction which will be paid in the second quarter of 2007. Additionally, cash flows from financing activities included cash received from non-qualified stock option exercises for both 2007 and 2006.
Capital Structure
At March 30, 2007, our capital structure consisted of $240.1 million of convertible subordinated notes and our 22.3 million shares of common stock outstanding. We have $225.7 million in cash, cash equivalents and short-term investments and are in a position to finance our future acquisitions. We are also 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 IPO has exceeded our book value; accordingly, we believe that if needed we can access public markets to sell additional common or preferred stock assuming conditions are appropriate. Our capital structure allows us to support our internal growth and provides liquidity for corporate development initiatives. Our current expectation for 2007 is that capital spending will be in the range of $35.0 million to $45.0 million, of which $20.0 million is attributable to the ECP expansion.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.
Contractual Obligations
In the normal course of business, the Company makes routine purchase commitments (primarily equipment and raw material purchases) in order to maintain the technological leadership of its manufacturing facilities and meet the needs of its customers. As of March 30, 2007, total contractual obligations related to such expenditures are approximately $10.5 million and will be financed by existing cash, short-term investments, or cash generated from operations.
Inflation
We do not believe that inflation has had a significant effect on our operations.
Impact of Recently Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No 159, The Fair Value Option for Financial Assets and Financial Liabilities--Including an amendment of FASB Statement No. 115. This Statement provides entities with an option to choose to measure eligible items at fair value at specified election dates. If elected, an entity must report unrealized gains and losses on the item in earnings at each subsequent reporting date. The fair value option: may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; is irrevocable (unless a new election date occurs); and is applied only to entire instruments and not to portions of instruments. The Company is still evaluating the impact of SFAS No. 159 on its financial statements, which is effective beginning in fiscal year 2008.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value while applying generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions based on market data obtained from independent sources and (2) the reporting entity's own assumptions developed based on unobservable inputs. The Company is still evaluating the impact of SFAS No. 157 on its financial statements, which is effective beginning in fiscal year 2008.
Application of Critical Accounting Estimates
Our unaudited condensed consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that some of the more critical estimates and related assumptions that affect our financial condition and results of operations are in the areas of inventories, goodwill and other indefinite lived intangible assets, long-lived assets, share-based compensation and income taxes. For further information, refer to Item 7 "Managements Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 "Financial Statements and Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended December 29, 2006.
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During the three months ended March 30, 2007, we did not change or adopt new accounting policies that had a material effect on our consolidated financial condition and results of operations.
Effective in the first quarter of 2007, the Company adopted the provisions of FASB Interpretation ("FIN") No. 48 Accounting for Uncertainty in Income Taxes, an interpretation of FASB SFAS No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized under SFAS 109. FIN No. 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure.
Upon adoption of FIN No. 48, the Company did not recognize any adjustment to its $1.8 million of unrecognized tax benefits, all of which would favorably impact the effective tax rate (net of federal benefit on state issues), if recognized. The Company's unrecognized tax benefits consist of refund claims which did not meet the more likely than not threshold under FIN No. 48. At the end of the first quarter, there was no change in the balance of unrecognized tax benefits. The Company anticipates that the total unrecognized tax benefits could significantly change within the next twelve months due to the settlement of audits/appeals currently in process, however, quantification of an estimated range cannot be made at this time.
The Company will recognize interest expense related to uncertain tax positions as Interest Expense. Penalties, if incurred, would be recognized as a component of Selling, General and Administrative Expenses. At the end of the first quarter, there was no accrued interest or penalties related to uncertain tax positions. The tax years 2003-2006 remain open to examination by the major taxing jurisdictions to which we are subject. The 2001 and 2002 tax years remain open in certain jurisdictions as a result of audits/appeals currently in process.
Forward-Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q 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:
o future sales, expenses and profitability;
o the future development and expected growth of our business and the industries we operate in;
o our ability to successfully execute our business model and our business strategy;
o our ability to identify trends within the implantable medical devices, medical components, and commercial power sources industries and to offer products and services that meet the changing needs of those markets;
o projected capital expenditures; and
o trends in government regulation.
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 suggested by these forward-looking statements. In evaluating these statements and our prospects generally, 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
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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, product obsolescence, inability to market current or future products, pricing pressure from customers, reliance on third party suppliers for raw materials, products and subcomponents, fluctuating operating results, inability to maintain high quality standards for our products, challenges to our intellectual property rights, product liability claims, inability to successfully consummate and integrate acquisitions, unsuccessful expansion into new markets, competition, inability to obtain licenses to key technology, regulatory changes or consolidation in the healthcare industry, and other risks and uncertainties that arise from time to time as described in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Under our line of credit any borrowings bear interest at fluctuating market rates. At March 30, 2007, we did not have any borrowings outstanding under our line of credit and thus no interest rate sensitive financial instruments other than short-term investments. We do not believe that the impact of fluctuations in interest rates on our short-term investments will have a material effect on our condensed consolidated financial statements.
The company incurs certain expenses related to the Tijuana operations that are denominated in a foreign currency. We do not believe that the impact of foreign currency fluctuations will have a material effect on our condensed consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES.
a. Evaluation of Disclosure Controls and Procedures.
Our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the SEC as of March 30, 2007. These disclosure controls and procedures have been designed to provide reasonable assurance that material information relating to us, including our subsidiaries, is made known to our management, including these officers, by other of our employees, and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC's rules and forms.
Based on their evaluation, as of March 30, 2007, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
b. Changes in Internal Control Over Financial Reporting.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material changes to those legal proceedings as previously disclosed in the Company's Form 10-K for the year ended December 29, 2006.
ITEM 1A. RISK FACTORS.
There have been no material changes in risk factors as previously disclosed in the Company's Form 10-K for the year ended December 29, 2006, except as follows:
We face risks associated with our proposed acquisition of Enpath Medical, Inc.
Our proposed acquisition of Enpath Medical, Inc. ("Enpath") presents several risks and uncertainties, including the following:
o We may not consummate the acquisition or it may be delayed, for reasons beyond our control, and we may incur costs that may not be reimbursed;
o The allocation of the purchase price to Enpath's assets, the amortization of intangible assets resulting from that allocation and the impact of fair value purchase accounting adjustments may adversely affect our earnings;
o We may be unsuccessful in integrating Enpath's business;
o Integrating Enpath's business may be distractive to our management and disruptive to our business and the costs of integration may be significant; and
o We may assume liabilities in the Enpath acquisition that we did not anticipate that could have a material adverse effect on our operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See the Exhibit Index for a list of those exhibits filed herewith.
-35-
 
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 7, 2007                     GREATBATCH, INC.

                                       By  /s/ Thomas J. Hook
                                           -------------------------------------
                                           Thomas J. Hook
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

                                       By  /s/ Thomas J. Mazza
                                           -------------------------------------
                                           Thomas J. Mazza
                                           Senior Vice President and Chief
                                               Financial Officer
                                           (Principal Financial Officer)

                                       By  /s/ Marco F. Benedetti
                                           -------------------------------------
                                           Marco F. Benedetti
                                           Corporate Controller
                                           (Principal Accounting Officer)	

-36-
 
EXHIBIT INDEX

Exhibit No.    Description
-----------    -----------

3.1            Amended and Restated Certificate of Incorporation (incorporated
               by reference to Exhibit 3.1 to our quarterly report on Form 10-Q
               ended July 1, 2005).

3.2            Amended and Restated Bylaws (incorporated by reference to
               Exhibit 3.2 to our quarterly report on Form 10-Q ended March 29,
               2002).

10.1*+         Amendment No. 2 to Supplier Partnering Agreement between Wilson
               Greatbatch Ltd. and Pacesetter, Inc. (d/b/a St. Jude Medical
               CRMD) dated August 24, 2005.

10.2*+         Amendment No. 2 to Supplier Partnering Agreement between
               Greatbatch, Inc. and Pacesetter, Inc. (d/b/a St. Jude Medical
               CRMD) dated November 17, 2005.

10.3*+         Amendment No. 4 to Supplier Partnering Agreement between
               Greatbatch, Inc. and Pacesetter, Inc. (d/b/a St. Jude Medical
               CRMD) dated April 20, 2006.

10.4*+         Amendment No. 5 to Supplier Partnering Agreement between
               Greatbatch, Inc. and Pacesetter, Inc. (d/b/a St. Jude Medical
               CRMD) dated February 28, 2007.

10.5*+         Amendment No. 6 to Supplier Partnering Agreement between
               Greatbatch, Inc. and Pacesetter, Inc. (d/b/a St. Jude Medical
               CRMD) dated February 28, 2007.

31.1*          Certification of Chief Executive Officer pursuant to Rule
               13a-14(a) of the Securities Exchange Act.

31.2*          Certification of Chief Financial Officer pursuant to Rule
               13a-14(a) of the Securities Exchange Act.

32*            Certification of Chief Executive Officer and Chief Financial
               Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002.	

* - Filed herewith.
+ - Portions of these exhibits have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
-37-
 
Exhibit 10.1
THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 405 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AMENDMENT NO. 2 TO SUPPLIER PARTNERING AGREEMENT
BETWEEN WILSON GREATBATCH LTD.
AND PACESETTER, INC. (d/b/a ST JUDE MEDICAL CRMD)
This amendment (the "amendment") to the Supplier Partnering Agreement between Greatbatch, Inc. (FKA - Wilson Greatbatch Technologies, Inc.), a Delaware Corporation ("Seller"), and Pacesetter, Inc. d/b/a "St Jude Medical CRMD", a California Corporation ("Buyer") are collectively referred to herein as the "Parties". This amendment is entered into effective as of 27 July 2005 (the "effective" date).
BACKGROUND
A. The Parties entered into a Supplier Partnering Agreement (the "Agreement") effective January 1, 2004.
B. The Parties to the Agreement desire to revise the following:
a. Security / Safety stocks of key raw materials, including "specialty metals"
b. The ongoing financial liability of maintaining said raw material safety stock, including "specialty metals".
AGREEMENT
In consideration of the foregoing Recitals and the Parties mutual covenants contained herein, the Parties hereby agree as follows:
1. Pacesetter desires for Greatbatch to maintain secured safety stock of Grade 9 Titanium (raw material) to ensure an ongoing, uninterrupted supply and flow of finished case product. As such, Pacesetter requires and Greatbatch agrees to purchase an initial * of raw material. Any additional purchases of raw material must be approved in writing by Pacesetter prior to purchase.
2. Pacesetter, Inc. further guarantees the requisite purchase of Grade 9 cases, sufficient to consume the initial (Greatbatch purchased) * and any future acquisitions of Grade 9 material purchases (per item 1), or at it's option, Pacesetter agrees to purchase the raw material (including normal carrying costs) from Greatbatch within * after material receipt at Greatbatch, Inc. The expected material receipt is *.
3. Both parties agree, in good faith to increase (or decrease) the price of completed shields by the proportionate variance of raw Titanium material on * due to inherent market price / cost fluctuation. Only price / cost variance beyond * will require pricing changes. Reference current grade 9 titanium market price quoted by Hamilton Precision Metals is *.
4. Except as provided herein, all of the terms and conditions of the agreement shall remain unchanged and in full force and effect.
The parties have caused this amendment to be executed by their respective duly authorized representatives as of the effective date.

Buyer:  Pacesetter, Inc.              Seller:  Greatbatch, Inc.

By:  /s/ Mary Lytle                   By:  /s/ James J. Porcaro
     -----------------------------         --------------------------------

Title:  Sr. Commodity Mgr.            Title:  VP, Components Manufacturing
        --------------------------            -----------------------------

Date:  7/28/05                        Date:  August 24, 2005
       ---------------------------           ------------------------------	

Exhibit 10.2
THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 405 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AMENDMENT NO. 2 TO SUPPLIER PARTNERING AGREEMENT
BETWEEN GREATBATCH, INC.
AND PACESETTER, INC. (d/b/a ST. JUDE MEDICAL CRMD)
This Amendment No. 2 (the "Amendment 2") to the Supplier Partnering Agreement between Greatbatch, Inc., a Delaware corporation ("Seller"), and Pacesetter, Inc. d/b/a/ "St. Jude Medical CRMD," a California corporation ("Buyer" or "St. Jude"). SELLER and BUYER are collectively referred to herein as the "Parties." This Amendment 2 is entered into effective as 01 January 2006 (the "Effective Date").
BACKGROUND
A. The Parties entered into a Supplier Partnering Agreement (the "Agreement") effective January 1, 2004.
B. The Parties entered into an Amendment No. 1 to the Supplier Partnering Agreement effective January 1, 2005.
C. The Parties to the Agreement desire to add the following:
a. The pricing and terms for certain Molded Header Assemblies
AGREEMENT
In consideration of the foregoing Recitals and the Parties' mutual covenants contained herein, the Parties hereby agree as follows:
1. Any specially capitalized terms used and not otherwise defined in this Amendment shall have the meaning set forth in the Agreement.
2. As of the Effective Date the Agreement is hereby amended to incorporate Exhibit "F," which lists pricing and terms for the base price of Molded Header Assemblies ("MHA").
3. Except as provided herein, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect.
The parties have caused this Amendment to be executed by their respective duly authorized representatives as of the Effective Date.

BUYER:                                     SELLER:

PACESETTER, INC.                           GREATBATCH, INC.

By:  /s/ Jeff Chateau                      By:  /s/ James J. Porcaro
     ----------------------------------         --------------------------------

Title:  V.P. Supply Lines                  Title:  VP, Components Mfg
        -------------------------------            -----------------------------

Date:  11-17-05                            Date:  Nov. 9, 2005
       --------------------------------           ------------------------------	

EXHIBIT F
MOLDED HEADER ASSEMBLIES
PRICING AND INVENTORY LEVELS
A. Molded Header Assembly (MHA) Pricing and Terms

Part #60002009-001 (EPIC 2 VR)

---------------------- ----------------------
    Units per Year              Price
           *                      *
           *                      *
           *                      *
---------------------- ----------------------

---------------------------------------------
        Part #60002008-001 (EPIC 2 DR)
---------------------- ----------------------
    Units per Year              Price
           *                      *
           *                      *
           *                      *
---------------------- ----------------------

---------------------------------------------
        Part #60002010-001 (EPIC 2 HF)
---------------------- ----------------------
    Units per Year              Price
           *                      *
           *                      *
---------------------- ----------------------	

1. Buyer agrees to purchase a minimum of * of its total demand for each item listed above from Seller.
2. Pricing is established by Buyer's * forecast of *. If forecast drops below * or increases above *, pricing per above table will apply.
3. Price premiums may apply for changes made to current specifications.
B. Molded Header Assembly Inventory
1. Initial safety stock for each individual part number to be held by Seller is equivalent to * of Buyer's * forecasted requirements.
2. Upon Seller's completion of * of on-time delivery to Buyer of an individual part number, safety stock requirement will be equivalent to
* of Buyer's * forecasted requirements.
 
Exhibit 10.3
THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 405 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AMENDMENT NO. 4 TO SUPPLIER PARTNERING AGREEMENT
BETWEEN GREATBATCH, INC.
AND PACESETTER, INC. (d/b/a ST. JUDE MEDICAL CRMD)
This Amendment No. 4 (the "Amendment 4") to the Supplier Partnering Agreement between Greatbatch, Inc., a Delaware corporation ("Seller"), and Pacesetter, Inc. d/b/a "St. Jude Medical CRMD", a California Corporation ("Buyer" or "St. Jude"). SELLER and BUYER are collectively referred to herein as the "Parties". This Amendment 4 is entered into effective as of 01 January 2006 (the "Effective Date").
BACKGROUND
A. The Parties entered into a Supplier Partnering Agreement (the "Agreement") effective January 1, 2004.
B. The Parties entered into an Amendment No. 1 to the Supplier Partnering Agreement effective January 1, 2005.
C. The Parties entered into and Amendment No. 2 to the Supplier Partnering Agreement effective July 27, 2005.
D. The Parties entered into and Amendment No. 2 to the Supplier Partnering Agreement effective January 1, 2006, which included a revised Exhibit F regarding molded header assemblies, which is now hereby amended to properly reflect that it really is Amendment No. 3 hereinafter.
E. The Parties to the Agreement desire to replace the original Attachment C to reflect the increase in pricing for certain Filtered Feedthroughs due to an adjustment for Platinum metal costs.
AGREEMENT
In consideration of the foregoing Recitals and the Parties' mutual covenants contained herein, the Parties hereby agree as follows:
1. Any specially capitalized terms used and not otherwise defined in this Amendment shall have the meaning set forth in the Agreement.
2. As of the Effective Date, the Agreement is hereby amended to incorporate Exhibit "G", which lists pricing and terms for the price of Filtered Feedthroughs. Exhibit "G" reflects the * London spot price of platinum of * per troy ounce. Exhibit "G" is attached to this document.
3. Except as provided herein, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect.
The parties have caused this Amendment to be executed by their respective duly authorized representatives as of the Effective Date.

BUYER:                                SELLER:

PACESETTER, INC.                      GREATBATCH, INC.

By:  /s/ Jeff Chateau                 By:  /s/ James P. Porcaro
     -----------------------------         --------------------------------

Title:  V.P. Supply Line              Title:  VP, Components Mfg.
        --------------------------            -----------------------------

Date:  4-20-06                        Date:  March 31, 2006
       ---------------------------           ------------------------------	

                                                     Exhibit G
                                Feedthrough and Filtered Feedthrough Pricing Table

-------------------------------- --------------------------------- ------------------------- ----------------
            COMPONENT                      GB Part Number               SJM Part Number         2006 PRICE
-------------------------------- --------------------------------- ------------------------- ----------------
Tripolar                                       959901                       6327659                 *
-------------------------------- --------------------------------- ------------------------- ----------------
Bipolar                                        977101                       2054583                 *
-------------------------------- --------------------------------- ------------------------- ----------------
Quadpolar                                      970001                       8001713                 *
-------------------------------- --------------------------------- ------------------------- ----------------
Quadpolar                                      961101                       3001206                 *
-------------------------------- --------------------------------- ------------------------- ----------------
1540 EPIC HF                       Obsolete - was 989401 old rev.         1080514-001               *
-------------------------------- --------------------------------- ------------------------- ----------------
1540 EPIC HF (short leads)              989401 (now 8002548)              1080514-003               *
-------------------------------- --------------------------------- ------------------------- ----------------
ATLAS 2 4-pin                                 1011801                      10009230                 *
-------------------------------- --------------------------------- ------------------------- ----------------
ATLAS 2 6-pin                                 1011701                    10009229-001               *
-------------------------------- --------------------------------- ------------------------- ----------------
ATLAS 2 6-pin Shortlead                       1019801                    10009229-002               *
-------------------------------- --------------------------------- ------------------------- ----------------
Photon Micro H                                1009101                     1080492-004               *
-------------------------------- --------------------------------- ------------------------- ----------------
Photon Micro II                               1009101                      10007259                 *
-------------------------------- --------------------------------- ------------------------- ----------------
Aegis 8-pin                                   1028911                    40001734-002               *
-------------------------------- --------------------------------- ------------------------- ----------------
Aegis 6-pin                                   1016511                    40000789-002               *
-------------------------------- --------------------------------- ------------------------- ----------------
Dual Quadpolar                                1018601                    60004415-001               *
-------------------------------- --------------------------------- ------------------------- ----------------
Dual Quadpolar                                1023401                    60004415-002               *
-------------------------------- --------------------------------- ------------------------- ----------------
Dual Quadpolar Staggered                      1031401                    60004415-003               *
-------------------------------- --------------------------------- ------------------------- ----------------
Frontier Quadpolar (-1B)                      1027701                    60002780-002               *
-------------------------------- --------------------------------- ------------------------- ----------------
Frontier Quadpolar                            1029801                    60002780-004               *
-------------------------------- --------------------------------- ------------------------- ----------------	

Exhibit 10.4
THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK, HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 405 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
AMENDMENT NO. 5 TO SUPPLIER PARTNERING AGREEMENT
BETWEEN GREATBATCH, INC.
AND PACESETTER, INC. (d/b/a ST. JUDE MEDICAL CRMD)
This Amendment (the "Amendment No. 5") to the Supplier Partnering Agreement is between Greatbatch, Inc., a Delaware corporation ("Seller"), and Pacesetter, Inc. d/b/a "St. Jude Medical CRMD", a California corporation ("Buyer" or "St. Jude"). Seller and Buyer are collectively referred to herein as the "Parties". This Amendment is entered into effective as of 1 March 2007 (the "Effective Date").
BACKGROUND
A. Buyer and Seller entered into a Supplier Partnering Agreement (the "Agreement") effective 01 January 2004.
B. Buyer and Seller entered into an Amendment No. 1 to the Agreement effective 01 January 2005.
C. Buyer and Seller entered into an Amendment No. 2 to the Agreement effective 27 July 2005. Amendment No. 2 is void.
D. Buyer and Seller entered into an Amendment No. 2 to the Agreement effective 01 January 2006 which included a revised Exhibit "F" regarding molded header assemblies, which was amended to properly reflect that it really is Amendment No. 3 on 01 January 2006.
E. Buyer and Seller entered into an Amendment No. 4 to the Agreement effective 01 January 2006, which included a replacement to Exhibit "C" with revised Exhibit "G" for pricing on Filtered Feedthroughs.
F. The Parties agree to continue good faith negotiations towards expanding the business relationship between the Buyer and Seller.
G. This Amendment No. 5 amends the Agreement as herein provided and, among other things, shall supersede and replace Amendment No. 1 in its entirety, all as of the Effective Date.
H. The Parties to the Agreement desire to revise the following:
a. The Initial Term of the Agreement
b. The pricing and terms for certain Batteries
c. The development of Tantalum Capacitors
d. The safety stock requirements for Batteries
e. The definition of new products to include Sensor Assemblies
f. The pricing and terms for Feedthroughs and Filtered Feedthroughs
g. The pricing and terms for Platinum Components
h. The pricing and terms for Machined / Molded Components
i. The pricing for Enclosures
AGREEMENT
In consideration of the foregoing Recitals and the Parties' mutual covenants contained herein, the Parties hereby agree as follows:
1. Any specially capitalized terms used and not otherwise defined in this Amendment shall have the meanings set forth in the Agreement.
2. As of the Effective Date, the initial term of the Agreement is hereby amended so that it will remain in force until 31 December 2013 ("Initial Term"). Section 9 to Exhibit A of the Agreement (Option to Extend the Agreement) is hereby deleted in its entirety.
3. The Buyer shall have the option to extend the term of this Agreement beyond the Initial Term for a period of two (2) years ("Option Extension Period") by delivering written notice to Seller not less than ninety (90) days prior to the extension date. The parties further agree that:
3.1 The prices for Products, including but not limited to Batteries, Feedthroughs, Components and Enclosures during the Option Extension Period of the Agreement (if any) shall be, at the option of Seller either: (a) the last prices charged by Seller to Buyer for each such Product prior to the Option Extension Period, or (b) prices for each such Product determined by Seller which gives Seller an average gross margin for each Product type then covered by this Agreement as amended: [for example for all Batteries (in the aggregate), for all Feedthroughs (in the aggregate), for all Components (in the aggregate) and for all Enclosures (in the aggregate)] sold to Buyer in each year of the Option Extension Period, which is equal to the average gross margin obtained by Seller for all Products in that Product category sold by Seller to Buyer in Seller's 2012 and 2013 fiscal years averaged.
3.2 If Seller elects pricing under Paragraph 3.1(b) above, Seller will notify Buyer as soon as is reasonably possible, as to the pricing applicable for the Option Extension Period. At the election of Buyer, Seller's pricing shall be subject to audit by PricewaterhouseCoopers (or its successor), who will issue a binding opinion as to the amount of the price increase that Seller is entitled to impose with respect to each Product type: [for example, Batteries (in the aggregate), Feedthroughs (in the aggregate), Components (in the aggregate) and Enclosures (in the aggregate)]. Seller will cooperate with the audit and make its books and records available to the accounting firm so that the accounting firm can issue its opinion within thirty (30) days of its appointment by Buyer. If the audit price is within ten percent (10%) of the price quoted by Seller, then Buyer will be solely responsible for the cost of the accounting firm. If the price quoted by Seller is more than ten percent (10%) above the audit price, then Seller will be solely responsible for the cost of the accounting firm.
"Gross margin" under Paragraph 3.1(b) above shall: (a) be calculated according to Generally Accepted Accounting Principles (GAAP) and in a manner consistent with Seller's previous practices; and (b) exclude any unreasonable or extraordinary costs.
Seller, Buyer, and PricewaterhouseCoopers will cooperate in good faith to establish the relevant categories of costs to be included in the calculation of gross margin. If Seller and Buyer have not agreed to composition of the relevant costs within thirty (30) days, then the relevant costs will be finally determined by PricewaterhouseCoopers. Seller and Buyer will cooperate and negotiate in good faith in connection with allocating the aggregate price increases permitted by Buyer under Paragraph 3.1(b) above among individual Products to be purchased by Buyer during the "Option Extension Period."
4. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of Lithium Iodine Bradycardia Batteries as set forth according to the table below:

---------------------------------------------------------------------------
                           Lithium Iodine Pricing

Model    2007      2008      2009      2010      2011      2012      2013
-----    ----      ----      ----      ----      ----      ----      ----
 8077    $ *       $ *       $ *       $ *       $ *       $ *       $ *
 8711    $ *       $ *       $ *       $ *       $ *       $ *       $ *
 9107    $ *       $ *       $ *       $ *       $ *       $ *       $ *
 9438    $ *       $ *       $ *       $ *       $ *       $ *       $ *
 9918    $ *       $ *       $ *       $ *       $ *       $ *       $ *
---------------------------------------------------------------------------	

Lithium Iodine Bradycardia Battery Terms
a. Purchase Requirements: * of Buyer's total bradycardia device battery demand to be purchased from Seller
b. Pricing schedules for each calendar year listed in Lithium Iodine table above are effective only if total lithium iodine battery unit demand is forecasted by Buyer, per Section 5 of the Supplier Partnering Agreement, to exceed * units for the subsequent calendar year. If Buyer's total lithium iodine battery unit demand forecast is less than * units for the subsequent calendar year, the price will be set according to the pricing schedule of the most recent calendar year where at least * units were shipped to Buyer
c. Pricing applies for current models with standard shape and pin modifications
d. Price premiums based upon shape and/or terminal modification complexity will apply.
5. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of SVO Multiplate Defibrillator Batteries as set forth according to the tables below:

SVO Multiplate Legacy Products

     Annual Quantity           Base
        by Model            Unit Price
        --------            ----------
            *                   *
            *                   *
            *                   *
------------------------------------------------	

High Temperature Pressed Powder SVO

                                          Base Unit Pricing
  Annual Quantity                         -----------------
     by Model         2007     2008     2009     2010     2011     2012     2013
     --------         ----     ----     ----     ----     ----     ----     ----
         *             *        *        *        *        *        *        *
         *             *        *        *        *        *        *        *
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                           Nano SVO or USVO Multiplate
                          Unit Pricing for Basic Cells

  Year                Y1       Y2       Y3       Y4       Y5       Y6       Y7
  ----                --       --       --       --       --       --       --
  All Volumes         *        *        *        *        *        *        *
--------------------------------------------------------------------------------	

SVO Multiplate Defibrillator Battery Terms
a. Purchase Requirements: * of Buyer's total tachycardia device battery demand to be purchased from Seller
b. Annual aggregate quantity by model table (Quantity) for "SVO Multiplate Legacy Products" and "Model 2255/High Temperature Pressed Powder SVO" determined by battery model table based on Buyer's calendar year forecast updated *, Retroactive price adjustments will not be permitted. A battery model will be considered the same for aggregate base model pricing if the same case and internal components are utilized. The following battery model groupings apply:
1. M2150 (SVO Multiplate Legacy Products)
2. M2156/2356/2556 (SVO Multiplate Legacy Products)
3. M2353 (SVO Multiplate Legacy Products)
4. M2255/2555/2655 (High Temperature Pressed Powder SVO)
For the first year of a product, Quantity will be determined by the Buyer's forecast for the *. For subsequent periods, the Annual Quantity will be based on Buyer's * updated on a *. Retroactive price adjustments will not be permitted. For the "Model 2255/High Temperature Pressed Powder SVO" table, if Buyer's total aggregate forecast volume demand for a given battery model grouping is less than
* units for a subsequent calendar year, the price for that model grouping will be set according to the pricing schedule of the most recent calendar year where at least * units were shipped to Buyer.
c. Year 1 (Y1) pricing for Nano SVO or USVO Multiplate applies to the first consecutive * that the Buyer's forecast volumes for the technology equals or exceeds * units. A price of * each applies prior to the Buyer's forecast equaling or exceeding * units in a *.
d. Pricing applies to current technologies referred to as High Temperature Pressed Powder/High Temperature Sheet (HTPP/HTS) and Nano
SVO or USVO
e. Price premiums based upon shape and/or terminal modification complexitywill apply.
f. NRE charges for custom designed cells will be * per development program. A rebate of * per unit will be applied to the * of this model purchased by the Buyer after completion of qualification. The rebate will expire upon the earlier of the following:
i) * after completion of the product qualification by the Seller -or-
ii) Expiration of the Agreement.
g. NRE charge for conversion of an existing model to Nano SVO or USVO will be * per model conversion.
6. As of the Effective Date, Part I.A. of Exhibit B of the Agreement for QMR technology (term 2) is hereby amended as follows (Quasar Medium Rate (MR) Cell Prcing and terms 1, 3, 4 and 5 remain the same and are provided below for reference):
Quasar Medium Rate (MR) Cell Pricing

  -------------------------- --------------------------
          Units/Year                   Price
  -------------------------- --------------------------
               *                         *
  -------------------------- --------------------------
               *                         *
  -------------------------- --------------------------

1. Purchase Requirements: * of Buyer's total bradycardia device	

battery demand to be purchased from Seller
2. Quasar MR "Units per Year" include all models and will be based on Buyer's *. Retroactive price adjustments will not be permitted. For the first year of a product, Quantity will be determined by the Buyer's forecast for the *. For subsequent periods, the Annual Quantity will be based on Buyer's calendar year forecast updated on *.
3. Minimum annual quantity per model * pieces
4. Quasar MR pricing shown above is for stainless steel encased, single cathode plate construction cells
5. Price premiums based upon shape and/or terminal modification complexity apply.
7. As of the Effective Date, Part I.A. of Exhibit B of the Agreement is hereby amended to incorporate the new scheduled pricing and the new terms for the base price of carbon monofluoride (CFx) basic cell pricing as set forth according to the table below:

                           CFx

    Annual Quantity by Model         Price
    ------------------------         -----
                *                      *
                *                      *
                *                      *
                *                      *
-----------------------------------------------------	

Carbon Monofluoride (CFx) Battery Terms
a. Purchase Requirements: * of Buyer's CFx device battery demand to be purchased from Seller
b. "Annual Quantity by Model" (Quantity) determined by battery model and will be based on Buyer's calendar year forecast updated on a *.. Retroactive price adjustments will not be permitted. For the first year of a product, the Annual Quantity will be determined by the Buyer's forecast for the *. For subsequent periods, Quantity will be based on Buyer's calendar year forecast updated on a *.. Retroactive price adjustments will not be permitted.
c. Minimum annual quantity per model * pcs.
d. CFx pricing shown above is for stainless steel encased, single cathode plate construction cells
e. Price premiums based upon shape and/or terminal modification complexity will apply.
f. The above CFx price table is based on the premise that GB proves the QMR technology functional by *. If GB is not successful in qualifying the QMR technology, then the CFx pricing from Part I.A. of Exhibit B of the Agreement applies.
8. As of Effective Date, Part I B of Exhibit B of the Agreement is hereby amended to read in its entirety as follows:
"Battery Inventory
1. Seller's obligation under the Agreement to maintain inventory is limited to the level reflected in "Inventory Requirement" column of the table set forth below (subject to Item 5 below)
2. The "Inventory Requirement" is that Seller maintain inventory that can be processed by Seller to completion and shipped to Buyer within *
3. Seller inventories will be replenished within a period of *
4. All inventory levels adjusted quarterly per Buyer's updated forecast
5. Safety Stock requirement for Buyer's location is Sweden (AB) is limited to Consignment Inventory only
6. Buyer and Seller agree to work together to minimize inventory obsolescence costs. Buyer is responsible for finished inventory and work in process necessary to sustain safety stock levels.

--------------------------------------------------------------------------------
              Battery                             Required Inventory*
--------------------------------------------------------------------------------
           Lithium Iodine                         * of annual forecast
--------------------------------------------------------------------------------
                SVO                               * of annual forecast
--------------------------------------------------------------------------------
                CFx                               * of annual forecast
--------------------------------------------------------------------------------
                QMR                               * of annual forecast
--------------------------------------------------------------------------------	

* will be held off-site for Disaster Recovery purposes.
* is the target date to achieve above inventory requirements."
9. Within * of the Effective Date of this Amendment, Buyer and Seller agree to entertain exploratory discussions aimed at developing a high rate battery targeted for emerging markets. This program will be a high priority strategic initiative for both Buyer and Seller. This battery will at minimum maintain current safety requirements and will target a step function improvement in cost. Performance tradeoffs around longevity, charge times, size and other key attributes will need to be made to achieve the above goals. The Parties acknowledge that this Product is not available today and agree to jointly explore the options for developing such a Product. Upon the annual anniversary date of this Amendment No. 5, if the Buyer does not see satisfactory progress on this initiative by the Seller, a meeting will be called by the Buyer and the Seller will have * to rectify the Buyer's concerns. If lack of progress for issues identified in the meeting continues the Buyer retains the right to reduce the minimum purchase requirements in Sub-section 5a of this Amendment No. 5 to *.
10. As of Effective Date, Part II of Exhibit B of the Agreement is hereby amended to add a new subpart "D" which reads in its entirety as follows:
"D. The Seller agrees at the Buyer's request to complete a custom designed Capacitor Development Program for an NRE charge of *. The Seller will then rebate the Buyer * per unit of Capacitors purchased for the * of this model purchased by the Buyer after completion of the qualification. The rebate will expire upon the earlier of the following:
i) * after completion of the product qualification by the Seller -or-
ii) Expiration of the Agreement."
11. As of Effective Date, Section 7 of Exhibit A of the Agreement is hereby amended to include Sensor Assemblies as a New Product subject to the terms of the Agreement. Buyer and Seller shall negotiate in good faith a Sensor Collaborative Development Agreement to be executed no later than * from execution of this Amendment No.5. Upon successful qualification of Sensor Assembly Product by Seller, Seller shall have the right of first refusal to manufacture the Product according to the terms set forth in such agreement.
12. As of the Effective Date of this Amendment No. 5, Section 7 of Exhibit A of the Agreement is hereby amended to include a new Sub-section 7.3 which reads in its entirety as follows:
"*"
13. As of Effective Date, Section 1 of Exhibit A of the Agreement is hereby amended to add a new subpart which will read in its entirety as follows:
1.9 "Sensor Assemblies" means implantable optical biological detection technologies including but not limited to the sensor programs currently known as Photophlethysmography "PPG" and "SVO2."
14. As of Effective Date, Amendment No. 4 Exhibit G of the Agreement is hereby amended to read in its entirety as follows:

-------------------------------------------------------------------------------------------------------------
                                           Filtered Feedthrough*

                                               Unit Pricing

Component                        SJM Part #            2007    2008    2009    2010    2011    2012    2013
---------                        ----------            ----    ----    ----    ----    ----    ----    ----
LV Quad Square Flange            60002780-002           *       *       *       *       *       *       *

LV Quad Angled Flange            60002780-004           *       *       *       *       *       *       *

Microny                          6327659                *       *       *       *       *       *       *

Regency                          2054583                *       *       *       *       *       *       *

ATLAS 2 6-pin Shortlead          10009229-002           *       *       *       *       *       *       *

Quadpolar                        8001713                *       *       *       *       *       *       *

Quadpoloar                       3001206                *       *       *       *       *       *       *

ATLAS 2 4-pin                    10009230-001           *       *       *       *       *       *       *

ATLAS 2 6-pin                    10009229-001           *       *       *       *       *       *       *

Photon Micro H                   1080492-004            *       *       *       *       *       *       *

Photon Micro II                  10007259               *       *       *       *       *       *       *

Dual Quadpolar                   60004415-001           *       *       *       *       *       *       *

Dual Quadpolar                   60004415-002           *       *       *       *       *       *       *
-------------------------------------------------------------------------------------------------------------	

*The price of platinum metal used for calculations is the London spot market closing price as of *. It is * per Troy ounce.
a. Purchase Requirements: Minimum * of Buyer's overall Feedthrough (including filtered) requirements to be purchased from Seller.
15. As of the Effective Date, Part B of Exhibit D of the Agreement is hereby amended to incorporate the new scheduled pricing for Platinum Components, which will now be referred to as Coated Components, and additional terms for Coated Components:

                              Coated Component

                                Unit Pricing

Component         SJM Part #                   GB Part #     Unit Price
---------         ----------                   ---------     ----------
Ring              2106342 / 6042379-001        1005701       *
Tip               2106334 / 6042378-001        1005801       *
Eluting Tip       6041783-097                  0959201       *
Helix             6041706-002                  0957001       *	

3. GB will be offered the opportunity to quote on new part numbers, and, assuming GB's pricing, responsiveness to requests for quotes and leadtimes are acceptable, additional part numbers will be added to the pricing tables as new programs are introduced.
4. A minimum of * of Buyer's demand for part numbers 2106342 / 6042379-001 and 2106334 / 6042378-001 to be purchased from the Seller.
16. As of the Effective Date, Part C of Exhibit D of the Agreement is hereby amended to incorporate the new scheduled pricing for Other Machined/Molded Components and additional terms for Other Machined/Molded Components:
 
Machined / Molded Component
Unit Pricing

Machined Part                                      Part #          Unit Price
-------------                                      ------          ----------

SET SCREW ALL                                   6041534-001             *
WASHER/1388 LEADS (2 PER)                       6041701-001             *
SPACER                                          6041696-002             *
SET SCREW                                       6041504-001             *
RING                                            6041697-001             *
CONNECTOR PIN                                   6041555-001             *
PROXIMAL RING                                   6041266-002             *
CRIMP CORE                                      6041693-001             *
SEPTUM RING                                     3001236                 *
HEADER COUPLING                                 6041994-001             *
CONNECTOR BLOCK                                 6041809-001             *
ICD CONNECTOR BLOCK                             10001534                *
ICD CONNECTOR BLOCK                             10001535                *
ICD CONNECTOR BLOCK                             10001536                *
ICD CONNECTOR BLOCK                             40000332-001            *
ICD CONNECTOR BLOCK                             40000331-001            *
CONNECTOR ASSEMBLY (IS-1)                       7001441-012             *
CONNECTOR ASSEMBLY                              7001630-001             *
A-CONNECTOR ASSEMBLY                            7002236-001             *
V-CONNECTOR ASSEMBLY                            7002237-001             *
L-CONNECTOR SUB-ASSEMBLY, A-CHAMBER             7002323-001             *
L-CONNECTOR SUB-ASSEMBLY, V-CHAMBER             7002323-002             *
T CONNECTOR W/WIRE (LV)                         7002443-004             *
T CONNECTOR W/WIRE (RV)                         7002443-005             *
T CONNECTOR W/WIRE (A)                          7002443-006             *	

1. GB will be offered the opportunity to quote on new part numbers, and, assuming GB's pricing, responsiveness to requests for quotes and leadtimes are acceptable, additional part numbers will be added to the pricing tables as new programs are introduced.
17. As of the Effective Date, Part A of Exhibit E of the Agreement is hereby amended to incorporate the new scheduled pricing for Enclosures:

                                 Enclosures

                                Unit Pricing

   Part #         Unit Price                   Part #         Unit Price
   ------         ----------                   ------         ----------

02065589               *                   6012054-001             *
02074441               *                   6012054-002             *
02101582               *                   6042356-001             *
02101590               *                   6042356-002             *
6201847                *                   6042372-001             *
6201854                *                   6042372-005             *
6231463                *                   6042372-006             *
6231471                *                   10006573                *
10007741               *                   40002540-001            *
10007742               *                   40002540-002            *
10008938               *                   40002544-001            *
10008939               *                   40002544-002            *
10008940               *                   60008403-001            *
10008941               *                   60008403-002            *
10009060-001           *                   60008403-003            *
10009061-001           *                   60008403-004            *
6011200-001            *
6011200-002            *
6011200-005            *
6011200-006            *	

18. As of the Effective Date, Section 3 of the Agreement is hereby amended to incorporate:
"3.1 Price Adjustments for Significant Cost Impact. The price for any Product may be adjusted up or down during the term of this agreement, by mutual consent, if there is significant impact to the final cost of the Product:
(a) In the case of Platinum, the price of any Product is subject to upward or downward modification from time to time due to an increase or decrease, as the case may be, in the cost of Platinum to Seller. Any price modifications will be indexed and based upon the "one year" Futures Contract Price as reported by Johnson Matthey on any day between *, at Buyers selection, of each contract year. Buyer is required to have provided a forecast for all Products for the following calendar year and the Seller is required to have accepted that forecast a minimum of * before the day in * selected by the Buyer. On the day selected by the Buyer, the Buyer is required to communicate its selection to the Seller's Global Account Manager and Customer Service Representative. The Seller will then have * to lock-in price of Pt for the Buyer for the following calendar year. Any price modification shall be determined and agreed upon by * of each year and will be effective with shipments delivered beginning on * of the following year. The cost of Platinum used as the basis is per the pricing table under paragraph 13.
(b) In the case of Titanium, the price of any Product is subject to upward or downward modification from time to time due to an increase or decrease, as the case may be, in the cost of Titanium to Seller, to the extent Seller's price change is based on an increase or decrease in the cost of Titanium in an amount greater than * of the current cost of Titanium contained in any Product. The reference price of Titanium will be based upon the *. Any price modification shall be determined and agreed upon in
* of each year and will be effective with shipments delivered beginning 01 January of the following year.
If Seller determines that a price increase or decrease under this Article is required or permissible, Seller shall deliver written notice to Buyer setting forth the basis for such determination.
In the event that purchase volumes deviate from forecasted volumes by more than * annually, Seller reserves the right to appropriately re-price product as a result of these varying impacts. Specifically, product pricing, impacted (increased or decreased) by raw material costs for purchased volumes exceeding * of the forecasted annual volume, will be re-priced to accommodate these relevant raw material changes. Further, should purchased volumes not meet the * level of the forecasted annual volume, Buyer agrees to pay the actual carrying costs associated with the inventoried products, WIP, and raw materials that remain un-purchased."
3.2 Prior to * of each contract year, Buyer shall provide Seller with written certification of Buyer's compliance with the minimum purchase requirements set forth in Section 6 of the Agreement."
19. Buyer and Seller agree, within * of the effective date of this Amendment, to issue a joint press release stating that Greatbatch is the exclusive supplier of battery technology and the critical supplier of filtered feedthrough technology to St. Jude Medical. The press release will also state that the Parties have entered into an amended Supply Agreement through 2013, which provides for year over year price reductions on both technologies through collaboration on manufacturing and supply chain efficiencies. Additionally, the parties are committed to jointly develop new technologies, including the introduction of a new low cost power solution, for future market requirements with an implementation date of no later than 2009.
20. Except as provided herein, all of the terms and conditions of the Agreement shall remain unchanged and in full force and effect.
The parties have caused this Amendment No. 5 to be executed by their respective duly authorized representatives as of the Effective Date.

BUYER:                     SELLER:                     SELLER:

PACESETTER, INC.           GREATBATCH, INC.            GREATBATCH, INC.

By: /s/ Jeff Chateau       By: /s/ Susan Campbell      By: /s/ Mauricio Arellano
    --------------------       ---------------------       ---------------------
                                  Vice President              Vice President
Title: VP Supply Lines     Title: Medical Power        Title: Medical Solutions
       -----------------          ------------------          ------------------

Date: 2-26-07              Date: 2-28-07               Date: 2-28-07
      ------------------         ------------------          -------------------	

Exhibit 10.5
AMENDMENT NO. 6 TO SUPPLIER PARTNERING AGREEMENT
BETWEEN GREATBATCH, INC.
AND PACESETTER, INC. (d/b/a ST. JUDE MEDICAL CRMD)
This Amendment (the "Amendment No. 6") to the Supplier Partnering Agreement is between Greatbatch, Inc., a Delaware corporation ("Seller"), and Pacesetter, Inc. d/b/a "St. Jude Medical CRMD", a California corporation ("Buyer" or "St. Jude"). Seller and Buyer are collectively referred to herein as the "Parties". This Amendment No.6 is entered into effective as of 1 March 2007 (the "Effective Date").
BACKGROUND
A. Buyer and Seller entered into a Supplier Partnering Agreement (the "Agreement") effective 01 January 2004.
B. Buyer, Seller and, where applicable, the other Parties have entered into Amendment Nos. 1-5 to the Agreement.
C. The Parties agree to continued good faith negotiations towards expanding the business relationship between the Buyer and Seller.
D. The Parties to the Agreement desire to further amend the Agreement as provided for herein.
AGREEMENT
In consideration of the foregoing Recitals and the Parties' mutual covenants contained herein, the Parties hereby agree as follows:
1. As of Effective Date, Subpart 1.7 of Exhibit A of the Agreement is hereby amended to include Coated Components and Molded Header Assemblies as Products.
2. As of Effective Date, Section 1 of Exhibit A of the Agreement is hereby amended to add new Subparts which read in their entirety as follows:
"1.10 "Coated Components" means any substrate material that is covered, in whole or in part, by a material intended specifically to alter the therapy delivery characteristics of the substrate material, including where the context requires all such Products manufactured by Seller and sold to Buyer under this Agreement.
1.11 "Molded Header Assemblies" means a single piece molded device header assembly, including where the contract requires all such Products manufactured by Seller and sold to Buyer under this Agreement."
3. As of the Effective Date, Exhibit F of Amendment No. 3 of the Agreement is hereby amended to add a new Subpart A4 which reads in its entirety as follows:
"A.4.Buyer agrees to provide Seller future opportunities to expand sales of Molded Header Assemblies to Buyer."
4. As of the Effective Date, Exhibit D of the Agreement is hereby amended to add a new Subpart A4 which reads in its entirety as follows:
"A.4.Buyer agrees to provide Seller future opportunities to expand sales of Coated Components to Buyer."
5. As of Effective Date, Section 7 of Exhibit A of the Agreement is hereby amended to include Subsection 7.4 which reads in its entirety as follows:
"7.4 During the Term of the Agreement, Buyer and Seller agree to explore the opportunity for Seller to perform assembly services for the Buyer."
6. As of Effective Date, Section 8 of the Agreement is hereby amended to read in its entirety as follows:
"8. Communication: Seller and Buyer will conduct a semi annual review to facilitate the purposes of this agreement. Buyer will also provide Seller with quarterly updates of planned production rates for the Products to assist the Seller in capacity planning. The Buyer's Commodity Managers and the Seller's Customer Program Managers shall facilitate all communications."
7. As of Effective Date, Section 2.7 of Exhibit A of the Agreement is amended in its entirety to change the term "Batteries" to "Products."
8. As of the Effective Date, Section 3 of Exhibit A of the Agreement is hereby amended to add a new Subpart 4 which reads in its entirety as follows:
"3.4 Buyer hereby agrees to indemnify, defend and hold Seller, its Affiliates and each of their officers, directors and employees harmless from any damage, costs or liabilities, including, without limitation, any reasonable costs or legal fees thereby incurred by Seller and payable to third parties (collectively, "damages") arising out of any claim to the extent that such claim arises from or results out of the marketing, distribution or sale of medical devices by Buyer which contain a component ("Third Party Component") supplied by a Non-Seller Supplier identified in Exhibit H of this Amendment that was procured by Seller under directions from Buyer. Such indemnification shall include, without limitation, damages resulting from:
(a) Personal injury or death resulting from the use of a medical device containing a Third Party Component;
(b) Alleged defects of the medical devices containing a Third Party Component;
(c) Any breach by Buyer of its covenants contained in any existing agreements between Buyer and Seller; and
(d) Any Third Party Component as supplied to Seller from Non-Seller Supplier under direction from Buyer which infringes any patent or other intellectual property rights of any other party specifically relating to such Third Party Component, or the process of its manufacture by a Non-Seller Supplier or its use by Buyer or affiliates,
except to the extent the damage is caused by Seller's gross negligence, willful misconduct or breach of any existing agreement between Buyer and Seller.
Seller is responsible to complete incoming inspection requirements.
Buyer's obligation under this section is subject to the following conditions: Seller shall give Buyer prompt written notification of any such claim so as not to prejudice Seller's performance, and shall cooperate in the defense of such claim at Buyer's expense. Further, Seller agrees that Buyer shall have sole control over the defense or settlement of any such claim, action or proceedings, including, but not limited to, the right to select defense counsel, and that neither Seller nor its officers, directors, employees, agents, or contractors shall enter into any agreement with respect to such claim, action or proceeding for which indemnification is or may be sought without receipt of Buyer's prior written approval. Seller shall have the right to retain separate counsel at its sole expense. Such separate counsel shall function solely to advise Seller and shall have no right to control the defense of any lawsuit or to effect any settlement, other than at Seller's sole expense."
The Parties have caused this Amendment No. 6 to be executed by their respective duly authorized representatives as of the Effective Date.

BUYER:                     SELLER:                     SELLER:

PACESETTER, INC.           GREATBATCH, INC.            GREATBATCH, INC.

By: /s/ Jeff Chateau       By: /s/ Susan Campbell      By: /s/ Mauricio Arellano
    --------------------       ---------------------       ---------------------
                                  Vice President              Vice President
Title: VP Supply Lines     Title: Medical Power        Title: Medical Solutions
       -----------------          ------------------          ------------------

Date: 2-26-07              Date: 2-28-07               Date: 2-28-07
      ------------------         ------------------          -------------------	

Exhibit H
LIST OF THIRD PARTY NON-SELLER SUPPLIERS
A. BalSeal Engineering Co., Inc. - Springs
B. Rolenn Manufacturing - Seals
C. Hirose Electric Group - Connectors
D. UDT Sensors, Inc. - Diodes
E. Noveon - Tecothane
 
Exhibit 31.1
CERTIFICATION
I, Thomas J. Hook, certify that:
1. I have reviewed this report on Form 10-Q for the fiscal quarter ended March 30, 2007 of Greatbatch, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2007                       /s/ Thomas J. Hook
                                        ----------------------------------------

                                        Thomas J. Hook
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)	

-1-
 
Exhibit 31.2
CERTIFICATION
I, Thomas J. Mazza, certify that:
1. I have reviewed this report on Form 10-Q for the fiscal quarter ended March 30, 2007 of Greatbatch, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2007                       /s/ Thomas J. Mazza
                                        ----------------------------------------

                                        Thomas J. Mazza
                                        Senior Vice President and Chief
                                                Financial Officer
                                        (Principal Financial Officer)	

-1-
 
Exhibit 32
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Greatbatch, Inc. (the "Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 30, 2007 (the "Form 10-Q ") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 7, 2007                      /s/ Thomas J. Hook
                                        ----------------------------------------
                                        Thomas J. Hook
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)

Dated: May 7, 2007                      /s/ Thomas J. Mazza
                                        ----------------------------------------
                                        Thomas J. Mazza
                                        Senior Vice President and Chief
                                                Financial Officer
                                        (Principal Financial Officer)	

This certification is being furnished solely to accompany this Form 10-Q pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise, and is not to be deemed incorporated by reference into any filing of the Company except to the extent the company specifically incorporates it by reference therein.
-1-