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

Our Business

• Our business

• Our acquisitions

• Our customers

• Strategic and financial overview

• 2013 financial guidance

• Cost savings and consolidation efforts

• Product development

• Government regulation

Our Critical Accounting Estimates

• Valuation of goodwill and other identifiable intangible assets

• Stock-based compensation

• Inventories

• Tangible long-lived assets

• Provision for income taxes

Our Financial Results

• Results of operations table

• Fiscal 2012 compared with fiscal 2011

• Fiscal 2011 compared with fiscal 2010

• Liquidity and capital resources

• Off-balance sheet arrangements

• Litigation

• Contractual obligations

• Inflation

• Impact of recently issued accounting standards

Our Business

We operate our business in two reportable segments - Implantable Medical and Electrochem Solutions ("Electrochem"). The Company's customers include large multi-national original equipment manufacturers ("OEMs"). The Implantable Medical segment is comprised of our Greatbatch Medical and QiG Group brands and designs and manufactures medical devices and components for the cardiac, neuromodulation, vascular and orthopaedic markets. The Implantable Medical segment offers complete medical devices including design, development, manufacturing, regulatory submission and supporting worldwide distribution, which is facilitated through the QiG Group and leverages the component technology of Greatbatch Medical. The devices designed and developed by the QiG Group are manufactured by Greatbatch Medical. The Implantable Medical segment also offers value-added assembly and design engineering services for its component products.

Electrochem provides industry-leading total power solutions for rechargeable and non-rechargeable battery power systems, charging and docking stations, and power supplies, for critical applications in the portable medical and energy markets, where safety, reliability, quality and innovation are critical. Electrochem's product lines cover a number of highly-customized battery-powered applications in remote and demanding environments, including down hole drilling tools and in life-saving and life-enhancing applications, including automated external defibrillators, portable oxygen concentrators, ventilators and powered surgical tools, among others.

Our Acquisitions

On December 15, 2011, Electrochem acquired all of the outstanding stock of Micro Power Electronics, Inc. ("Micro Power") headquartered in Beaverton, OR. Micro Power is a leading supplier of custom battery solutions, serving the portable medical, military and handheld automatic identification and data collection markets. Micro Power's commercial portfolio is highly complementary to the products and services offered by Electrochem. The results of Micro Power were included in our Electrochem segment from the date of acquisition. The aggregate purchase price of Micro Power was $71.8 million, which we funded with cash on hand and $45 million borrowed under our revolving credit facility. Total assets acquired from Micro Power were $88.2 million. Total liabilities assumed from Micro Power were $16.4 million. For 2012, Micro Power added approximately $82.4 million to our revenue.

On February 16, 2012, Greatbatch purchased all of the outstanding common stock of NeuroNexus Technologies, Inc. ("NeuroNexus") headquartered in Ann Arbor, MI. NeuroNexus is an active implantable medical device design firm specializing in developing and commercializing neural interface technology, components and systems for neuroscience and clinical markets. NeuroNexus has an extensive intellectual property portfolio, core technologies and capabilities to support the development and manufacturing of innovative neural interface devices across a wide range of functions including neuromodulation, sensing, optical stimulation and targeted drug delivery applications. The results of NeuroNexus were included in our Implantable Medical segment from the date of acquisition. The aggregate purchase price of NeuroNexus was $13.2 million, which we funded with cash on hand and $10 million borrowed under our revolving credit facility. Total assets acquired from NeuroNexus were $14.6 million. Total liabilities assumed from NeuroNexus were $1.4 million. For 2012, NeuroNexus added approximately $2.5 million to our revenue.

Going forward, we will continue to pursue potential acquisitions.

Our Customers

Our products are designed to provide reliable, long-lasting solutions that meet the evolving requirements and needs of our customers and the end users of their products. The nature and extent of our selling relationships with each customer are different in terms of breadth of products purchased, purchased product volumes, length of contractual commitment, ordering patterns, inventory management and selling prices.

Our Implantable Medical customers include large multi-national OEMs, such as Biotronik, Boston Scientific, Johnson & Johnson, Medtronic, Smith & Nephew, Sorin Group, St. Jude Medical, Stryker and Zimmer. During 2012, Boston Scientific, Johnson & Johnson, Medtronic and St. Jude Medical collectively accounted for 52% of our total sales.

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

Strategic and Financial Overview

Since 2007, we have been implementing a strategy centered on continually strengthening three aspects of our business that can most affect profitable growth: our top line, our bottom line and our pipeline. This strategy includes three facets; growth in our core business, growth through acquisitions and growth through the development and commercialization of complete medical devices. As a result of this strategy, sales increased 14% for 2012 and 7% for 2011. Sales growth for 2012 and 2011 included the benefit from our acquisitions of $84.8 million and $2.5 million, respectively. Additionally, sales include the impact from foreign currency exchange rate fluctuations, which decreased 2012 sales by $6 million in comparison to 2011 and increased 2011 sales by $8 million in comparison to 2010. On a constant currency, organic basis sales were consistent from 2011 to 2012 and increased 5% from 2010 to 2011 as growth from our vascular and portable medical product lines more than offset the impact the declining cardiac rhythm management ("CRM") market had on our cardiac and neuromodulation product line. Our portable medical product line is benefiting from new product introductions and market shift in patient care from clinical settings to the home, and an aging population, which is driving the need for lightweight and portable devices for patients and caregivers. Our vascular product line growth is being driven by growth in the underlying market, market share gains and the commercialization of our medical devices. Despite the declining CRM market, we were able to grow our cardiac business faster than the underlying market through innovation as well as deepening customer relationships. For 2013, we expect revenue, after adjusting for the sale of a portion of our orthopaedic product line, to organically grow 5-8% driven primarily by our portable medical, vascular and orthopaedic product lines along with above market growth in cardiac and neuromodulation.

Simultaneous with the initiation of our growth strategy, we began evolving our product offerings to include the development of complete medical devices in order to raise the growth and profitability profile of the Company. This medical device strategy is being facilitated through our QiG Group and leverages the component technology of Greatbatch Medical. More specifically, this strategy includes the development of a neuromodulation platform that can be used to support several devices most notably of which is our spinal cord stimulator for the treatment of chronic pain in the trunk and limbs, which we call Algostim. We currently expect to submit this device to regulatory authorities in the second half of 2013. Incremental investments in all of our medical device products, including Algostim, totaled $33.9 million, $27.3 million and $21.9 million for 2012, 2011 and 2010, respectively, and included charges to selling, general and administrative expenses ("SG&A") and research, development and engineering, net ("RD&E"). As a result of this strategy, as well as our acquisitions, SG&A increased 12% during both 2012 and 2011 while RD&E increased 15% and 1%, respectively, for the same periods.

During the second half of 2012, we began a process to more fully optimize our research and development efforts. This included the reallocation of research and development resources to higher priority projects, the postponement of some research and development projects, and the decision to pursue various alternatives to monetize our existing non-core intellectual property and entering into more co-development arrangements with our customers. As a result, RD&E for the second half of 2012 was $3.7 million lower than the first half of 2012. These reductions are also expected to benefit 2013.

We have a longstanding history of operational excellence, which is one of our core competencies. As we move forward, investing in our operations will continue to be critical to the success of our growth and medical device strategies. Since 2007, we have invested substantial resources in integrating our acquisitions and streamlining our operations. This strategy continued during 2012 as we worked diligently to resolve the operational issues we were experiencing at our Swiss orthopaedic facilities, expanded our manufacturing infrastructure to support the commercialization of our medical devices and upgraded our global ERP system in order to support our future growth. As a result of these initiatives, our other operating expense totaled $47.5 million over the last three years, $42.3 million of which was incurred during 2012. These expenses are expected to be reduced significantly in 2013 and to range from $6.7 million to $8.2 million, which will improve the overall earnings of Greatbatch. While we continually identify and implement cost improvement initiatives, we have now completed all of our major plant consolidations, which began in 2007, so our leadership team can focus on achieving sustainable organic growth to leverage our available capacity.

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Additionally, we consistently report and discuss in our quarterly earnings releases and investor presentations adjusted operating income and margin, adjusted net income and adjusted earnings per diluted share, which are non-GAAP measures. These adjusted amounts consist of GAAP amounts and, to the extent occurring during a period, excludes (i) acquisition-related charges,
(ii) facility consolidation, optimization, manufacturing transfer and system integration charges, (iii) asset write-down and disposition charges,
(iv) severance charges in connection with corporate realignments or a reduction in force (v) litigation charges and gains, (vi) the impact of non-cash charges to interest expense due to the accounting change governing convertible debt, (vii) unusual or infrequently occurring items, (viii) certain RD&E expenditures, such as design verification testing ("DVT") expenses incurred in connection with the development of our neuromodulation platform, (ix) gain/loss on the sale of investments, (x) the income tax (benefit) related to these adjustments and (xi) certain tax charges related to the consolidation of our Swiss Orthopaedic facility. We believe that reporting these amounts provides important supplemental information to our investors and creditors seeking to understand the financial and business trends relating to our financial condition and results of operations. Additionally, the performance based compensation of our executive management is determined utilizing these adjusted amounts.

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

                                           Implantable Medical               Electrochem                   Unallocated                      Total
                                         Dec. 28,       Dec. 30,       Dec. 28,       Dec. 30,       Dec. 28,       Dec. 30,       Dec. 28,       Dec. 30,
                                           2012           2011           2012           2011           2012           2011           2012           2011
Total sales                              $ 483,165      $ 489,065      $ 163,012      $  79,757      $      -       $      -       $ 646,177      $ 568,822

Operating income (loss) as reported      $  24,908      $  62,461      $  21,631      $  14,965      $ (20,718 )    $ (15,727 )    $  25,821      $  61,699
Adjustments:
Inventory step-up amortization (COS)            -              -             532            177             -              -             532            177
Medical device DVT expenses (RD&E)           5,190          5,133             -              -              -              -           5,190          5,133
Consolidation and optimization costs        34,378            425             -              -           4,670             -          39,048            425
Integration expenses                           167             -           1,287             -               6             -           1,460             -
Asset dispositions, severance and
other                                          247             51            883            117            708             -           1,838            168

Adjusted operating income (loss)         $  64,890      $  68,070      $  24,333      $  15,259      $ (15,334 )    $ (15,727 )    $  73,889      $  67,602

Adjusted operating margin                     13.4 %         13.9 %         14.9 %         19.1 %          N/A            N/A           11.4 %         11.9 %
Medical device related adjusted
expenses (excluding DVT)                 $  28,453      $  22,080      $      -       $      -       $      -       $      -       $  28,453      $  22,080

Adjusted operating income excluding
medical device initiatives               $  93,343      $  90,150      $  24,333      $  15,259      $ (15,334 )    $ (15,727 )    $ 102,342      $  89,682

Adjusted operating margin excluding
medical device initiatives                    19.3 %         18.4 %         14.9 %         19.1 %          N/A            N/A           15.8 %         15.8 %

                                           Implantable Medical               Electrochem                   Unallocated                      Total
                                         Dec. 30,       Dec. 31,       Dec. 30,       Dec. 31,       Dec. 30,       Dec. 31,       Dec. 30,       Dec. 31,
                                           2011           2010           2011           2010           2011           2010           2011           2010
Total sales                              $ 489,065      $ 460,269      $  79,757      $  73,156      $      -       $      -       $ 568,822      $ 533,425

Operating income (loss) as reported      $  62,461      $  62,477      $  14,965      $  22,195      $ (15,727 )    $ (15,678 )    $  61,699      $  68,994
Adjustments:
Inventory step-up amortization (COS)            -              -             177             -              -              -             177             -
Executive death benefits (SG&A)                 -             885             -              -              -              -              -             885
Medical device DVT expenses (RD&E)           5,133             -              -              -              -              -           5,133             -
Electrochem litigation gain                     -              -              -          (9,500 )           -              -              -          (9,500 )
Consolidation and optimization costs           425            573             -           1,000             -              -             425          1,573
Integration expenses                            -              (4 )           -              -              -              46             -              42
Asset dispositions, severance and
other                                           51          2,517            117            100             -             326            168          2,943

Adjusted operating income (loss)         $  68,070      $  66,448      $  15,259      $  13,795      $ (15,727 )    $ (15,306 )    $  67,602      $  64,937

Adjusted operating margin                     13.9 %         14.4 %         19.1 %         18.9 %          N/A            N/A           11.9 %         12.2 %
Medical device related adjusted
expenses (excluding DVT)                 $  22,080      $  21,878      $      -       $      -       $      -       $      -       $  22,080      $  21,878

Adjusted operating income excluding
medical device initiatives               $  90,150      $  88,326      $  15,259      $  13,795      $ (15,727 )    $ (15,306 )    $  89,682      $  86,815

Adjusted operating margin excluding
medical device initiatives                    18.4 %         19.2 %         19.1 %         18.9 %          N/A            N/A           15.8 %         16.3 %

GAAP operating income for 2012 was $25.8 million compared to $61.7 million for 2011 and $69.0 million for 2010. These decreases were primarily due to the costs incurred in connection with our medical device and consolidation and productivity initiatives discussed above, as well as the litigation settlement gain recorded in 2010. Adjusted operating income, which excludes these items, was $73.9 million for 2012, compared to $67.6 million for 2011 and $64.9 million for 2010. This represents an increase of 9% for 2012 and 4% for 2011 as the Company continues to leverage its operating infrastructure and is beginning to see the benefits of its productivity and consolidation initiatives.

Beginning in 2012, we are showing adjusted operating income excluding the incremental costs from our medical device initiatives. This information is provided in order to enhance the reader's understanding of our core business, which is being impacted by these medical device investments and has not meaningfully impacted our revenue or gross margins. Sales of complete medical devices developed under the Greatbatch name were $6.6 million during 2012 compared to $4.5 million for 2011, an increase of 47%.

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

                                                                          Year Ended
                                             December 28,                December 30,                December 31,
                                                 2012                        2011                        2010
                                                       Impact                      Impact                      Impact
                                          Net           Per           Net           Per           Net           Per
                                         Income       Diluted        Income       Diluted        Income       Diluted
                                         (Loss)        Share         (Loss)        Share         (Loss)        Share
Net income (loss) as reported           $ (4,799 )    $  (0.20 )    $ 33,122      $   1.40      $ 33,138      $   1.40
Adjustments:(a)
Inventory step-up amortization (COS)         346          0.01           115            -             -             -
Executive death benefits (SG&A)               -             -             -             -            575          0.02
Medical device DVT expenses (RD&E)         3,374          0.14         3,336          0.14            -             -
Electrochem litigation gain                   -             -             -             -         (6,175 )       (0.26 )
Consolidation and optimization costs      28,934          1.21           276          0.01         1,022          0.04
Integration expenses                         949          0.04            -             -             27            -
Asset dispositions, severance and
other                                      1,186          0.05           109            -          1,913          0.08
(Gain) loss on cost and equity method
investments, net(b )                          69            -         (2,751 )       (0.12 )          98            -
CSN conversion option discount
amortization(c )                           6,234          0.26         5,515          0.23         5,119          0.22
Swiss tax impact(d)                        6,190          0.26            -             -             -             -

Adjusted net income and diluted
EPS(e)                                  $ 42,483      $   1.77      $ 39,722      $   1.68      $ 35,718      $   1.51

Adjusted diluted weighted average
shares (f)                                23,947                      23,636                      23,802

(a) Net of tax amounts computed using the applicable U.S. and foreign statutory tax rates of 35% and 22.5%, respectively, for items incurred in those geographic locations.

(b) Pre-tax amount is a loss of $106 thousand, gain of $4.2 million and loss of $150 thousand for 2012, 2011 and 2010, respectively.

(c) Pre-tax amount is $9.6 million, $8.5 million and $7.9 million for 2012, 2011 and 2010, respectively.

(d) Relates to the loss of our Swiss tax holiday due to our decision to transfer manufacturing out of Switzerland, as well as the establishment of a valuation allowance on our Swiss deferred tax assets as it is more likely than not that they will not be fully realized.

(e) The per share data in this table has been rounded to the nearest $0.01 and therefore may not sum to the total.

(f) Adjusted diluted weighted average shares for 2012 include 363 thousand shares of dilution related to outstanding stock incentive awards that were not dilutive for GAAP diluted EPS purposes.

GAAP net income (loss) and diluted EPS include the impact of costs incurred in connection with our medical device and consolidation and productivity initiatives, as well as the litigation settlement gain recorded in 2010. Excluding these items, adjusted diluted EPS increased 5% in 2012 and 11% in 2011. In aggregate we estimate that our Swiss operational issues had a negative $0.16 per share of adjusted diluted earnings impact for 2012.

For 2013, we expect our performance to improve as we progress through the year, as the first quarter of 2013 will be impacted by the startup of our recently transferred orthopaedic production lines. The second half of the year is expected to improve as the orthopaedic backlog is relieved and new product introductions in our portable medical business commercialize. As a result of our consolidation initiatives and refocused medical device RD&E investment, we expect improved performance each quarter when compared to the prior year and expect to achieve adjusted diluted EPS growth of 7-13% for 2013.

2013 Financial Guidance

For 2013, we estimate annual revenue growth rates for our product lines as
follows:



                                 Estimated 2013 Annual   2013 Estimated Revenue
     Product Line                   Growth Rate (%)            (millions)
     Cardiac & Neuromodulation          0% - 2%               $309 - $315
     Vascular                          7% - 13%                $55 - $59
     Orthopaedic(1)                    (5%) - 0%              $116 - $122
     Portable Medical                  15% - 20%               $94 - $98
     Energy & Other                       6%                   $86 - $86

     Total Sales(1)                     2% - 5%               $660 - $680

(1) Organic revenue growth for orthopaedic product line is 8%-14% due to disposition of approximately $15 million of non-core product lines at the end of 2012. Total consolidated organic revenue growth is expected to be 5%-8%.

Adjusted Operating Income as a % of Sales 12.0% - 12.5% Adjusted Diluted EPS $1.90 - $2.00

Adjusted operating income for 2013 is expected to consist of GAAP operating income minus non-recurring, unusual or infrequently occurring items such as acquisition, consolidation and integration charges, certain RD&E expenditures and asset disposition/write-down charges, totaling approximately $11.5 million to $14.0 million. This range has been significantly reduced from the 2012 level as we have essentially completed our current productivity and consolidation initiatives. Included in the above range are residual DVT costs in the range of $4.8 to $5.8 million to complete our Algostim project.

Cost Savings and Consolidation Efforts

In 2012, 2011 and 2010, we recorded charges in Other Operating Expenses, Net related to cost savings and consolidation efforts. These initiatives were undertaken to improve our operational efficiencies and profitability. Additional information regarding the timing, cash flow impact and amount of future expenditures is set forth in Note 13 "Other Operating Expenses, Net" of the Notes to the Consolidated Financial Statements contained in Item 8 of this report, as well as the "Liquidity and Capital Resources" section of this Item.

Over the last two years, we have been implementing a multi-faceted plan to further enhance, optimize and leverage our orthopaedics operations. This plan includes the construction of an orthopaedic manufacturing facility in Fort Wayne, IN, updating our Indianapolis, IN facility to streamline operations, increase capacity, and further expand capabilities, and the transfer of most major functions currently performed at our facilities in Orvin and Corgemont, Switzerland into our Fort Wayne, IN and Tijuana, Mexico facilities. The total capital investment expected for these initiatives is between $25 million and $35 million, of which $21 million has been expended to date. Total expense expected . . .