**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x********QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the quarterly period ended                March 29, 2008**

 

**or**

 

**o********TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACTOF 1934**

 

**For the transition period from                                                                            to**

 

**Commission File Number: 001-32374**

 

**SYMMETRYMEDICAL INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **35-1996126**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |
|                                                            |       |                                  |
| **3724 North State Road 15, Warsaw, Indiana**                   | ** ** | **46582**                             |
| (Address  of principal executive offices)                       |       | (Zip  Code)                           |
|                                                            |       |                                  |
| **(574) 268-2252**                                              |
| (Registrant’s  telephone number, including area code)      |

 

 

(Formername, former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.                       x****Yes   o**** No

 

Indicate by checkmark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
| Large accelerated filer  o                                             |   | Accelerated filer x          |
|------------------------------------------------------------------------|--------|-----------------------------------|
|                                                                   |   |                              |
| Non-accelerated filer o  (Do not check if a smaller reporting company) |   | Smaller reporting  company o |

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

 

The number of sharesoutstanding of the registrant’s common stock as of June 13, 2008 was35,467,154.

 

** **

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** **

**TABLE OF CONTENTS**

 
| **PART I  FINANCIAL INFORMATION** |                                                                                                                   |
|----------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                                   |                                                                                                                   |   |
| Item 1                            | Financial  Statements:                                                                                                 |   |
|                                   |                                                                                                                   |   |
|                                   | Condensed  Consolidated Balance Sheets: As of March 29, 2008 and  December 29, 2007                     |   |
|                                   |                                                                                                                   |   |
|                                   | Condensed  Consolidated Statements of Operations: Three Months Ended March 29,  2008 and March 31, 2007 |   |
|                                   |                                                                                                                   |   |
|                                   | Condensed  Consolidated Statements of Cash Flows: Three Months Ended March 29, 2008  and March 31, 2007      |   |
|                                   |                                                                                                                   |   |
|                                   | Notes  to Condensed Consolidated Financial Statements                                                                  |   |
|                                   |                                                                                                                   |   |
| Item 2                            | Management’s  Discussion and Analysis of Results of Operations and Financial Condition                            |   |
|                                   |                                                                                                                   |   |
| Item 3                            | Quantitative  and Qualitative Disclosures about Market Risks                                                           |   |
|                                   |                                                                                                                   |   |
| Item 4                            | Controls and Procedures                                                                                                |   |
|                                   |                                                                                                                   |   |
| **PART II OTHER  INFORMATION**    |                                                                                                                   |
|                                   |                                                                                                                   |   |
| Item 1                                 | Legal Proceedings                                                                                                      |   |
|                                   |                                                                                                                   |   |
| Item 1A                           | Risk  Factors                                                                                                          |   |
|                                   |                                                                                                                   |   |
| Item 5                            | Other Information                                                                                                      |   |
|                                   |                                                                                                                   |   |
| Item 6                            | Exhibits                                                                                                               |   |
|                                   |                                                                                                                   |   |
| Signatures                             |                                                                                                                   |   |

 

2

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**Cautionary Note Regarding Forward-LookingStatements**

 

Throughout this QuarterlyReport on Form 10-Q or in other reports or registration statements filedfrom time to time with the Securities and Exchange Commission under theSecurities Exchange Act of 1934, or under the Securities Act of 1933, as wellas in documents we incorporate by reference or in press releases or oralstatements made by our officers or representatives, we may make statements thatexpress our opinions, expectations or projections regarding future events orfuture results, in contrast with statements that reflect historical facts.These predictive statements, which we generally precede or accompany by suchtypical conditional words such as “anticipate,” “intend,” “believe,” “estimate,”“plan,” “seek,” “project,” “potential,” or “expect,” or by the words “may,” “will,”“could,” or “should,” and similar expressions or terminology are intended tooperate as “forward-looking statements” of the kind permitted by the PrivateSecurities Litigation Reform Act of 1995. That legislation protects suchpredictive statements by creating a “safe harbor” from liability in the eventthat a particular prediction does not turn out as anticipated.

 

Forward-lookingstatements convey our current expectations or forecast future events. While wealways intend to express our best judgment when we make statements about whatwe believe will occur in the future, and although we base these statements onassumptions that we believe to be reasonable when made, these forward-lookingstatements are not a guarantee of performance, and you should not place unduereliance on such statements. Forward-looking statements are subject to manyuncertainties and other variable circumstances, many of which are outside ofour control, that could cause our actual results and experience to differmaterially from those we thought would occur.

 

We also refer you to andbelieve that you should carefully read the “Risk Factors” portion of our AnnualReport for fiscal 2007 on Form 10-K, to better understand the risks anduncertainties that are inherent in our business and in owning our securities.

 

Any forward-lookingstatements which we make in this report or in any of the documents that areincorporated by reference herein speak only as of the date of such statement,and we undertake no ongoing obligation to update such statements. Comparisonsof results between current and any prior periods are not intended to expressany future trends or indications of future performance, unless expressed assuch, and should only be viewed as historical data.

 

3

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**PART IFINANCIAL INFORMATION**

**ITEMI. FINANCIAL STATEMENTS**

 

**Symmetry Medical Inc.**

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                                     | ** ** | **March 29,**                                                 | ** ** | **December 29,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                     | ** ** | **2008**                                                           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                     | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| ** **                                                                                                                                     | ** ** | **(unaudited)**                                                    | ** ** | ** **            | ** ** |
| **Assets:**                                                                                                                                    |       |                                                               |       |                  |       |
| Current Assets:                                                                                                                                |       |                                                               |       |                  |       |
| Cash and cash  equivalents                                                                                                                     |       | $                                                                  | 9,346      |                  | $          | 12,089 |   |
| Accounts  receivables, net                                                                                                                     |       | 62,943                                                             |       | 42,992                |       |
| Inventories                                                                                                                                    |       | 56,483                                                             |       | 45,353                |       |
| Refundable  income taxes                                                                                                                       |       | 5,698                                                              |       | 6,516                 |       |
| Deferred income  taxes                                                                                                                         |       | 3,286                                                              |       | 2,551                 |       |
| Derivative  valuation asset                                                                                                                    |       | 40                                                                 |       | 2                     |       |
| Other current  assets                                                                                                                          |       | 3,418                                                              |       | 2,940                 |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total current  assets                                                                                                                          |       | 141,214                                                            |       | 112,443               |       |
| Property and  equipment, net                                                                                                                   |       | 121,739                                                            |       | 100,424               |       |
| Goodwill                                                                                                                                       |       | 154,962                                                            |       | 141,985               |       |
| Intangible  assets, net of accumulated amortization                                                                                            |       | 48,402                                                             |       | 44,567                |       |
| Other assets                                                                                                                                   |       | 2,437                                                              |       | 1,011                 |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total Assets                                                                                                                                   |       | $                                                                  | 468,754    |                  | $          | 400,430 |   |
|                                                                                                                                           |       |                                                               |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                                |       |                                                               |       |                  |       |
| Current  Liabilities:                                                                                                                          |       |                                                               |       |                  |       |
| Accounts payable                                                                                                                               |       | $                                                                  | 37,411     |                  | $          | 34,518 |   |
| Accrued wages  and benefits                                                                                                                    |       | 10,606                                                             |       | 10,922                |       |
| Other accrued  expenses                                                                                                                        |       | 8,231                                                              |       | 8,096                 |       |
| Income tax  payable                                                                                                                            |       | 4,433                                                              |       | 2,394                 |       |
| Derivative  valuation liability                                                                                                                |       | —                                                             |       | 74                    |       |
| Deferred income  taxes                                                                                                                         |       | 460                                                                |       | 407                   |       |
| Revolving line  of credit                                                                                                                      |       | 7,645                                                              |       | 6,511                 |       |
| Current portion  of capital lease obligations                                                                                                  |       | 2,052                                                              |       | 2,487                 |       |
| Current portion  of long-term debt                                                                                                             |       | 12,150                                                             |       | 10,900                |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total current  liabilities                                                                                                                     |       | 82,988                                                             |       | 76,309                |       |
| Deferred income  taxes                                                                                                                         |       | 12,330                                                             |       | 12,136                |       |
| Derivative  valuation liability                                                                                                                |       | 3,220                                                              |       | 1,917                 |       |
| Capital lease  obligations, less current portion                                                                                               |       | 3,623                                                              |       | 4,032                 |       |
| Long-term debt,  less current portion                                                                                                          |       | 122,000                                                            |       | 68,500                |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total  Liabilities                                                                                                                             |       | 224,161                                                            |       | 162,894               |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                                                        |       |                                                               |       |                  |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Shareholders’  Equity:                                                                                                                    |       |                                                               |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued March 29,  2008—35,467; December 29, 2007—35,444) |       | 4                                                                  |       | 4                     |       |
| Additional  paid-in capital                                                                                                                    |       | 272,971                                                            |       | 272,623               |       |
| Retained  earnings (deficit)                                                                                                                   |       | (41,559                                                            | )          | (45,526               | )          |
| Accumulated  other comprehensive income                                                                                                        |       | 13,177                                                             |       | 10,435                |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total  Shareholders’ Equity                                                                                                               |       | 244,593                                                            |       | 237,536               |       |
|                                                                                                                                           |       |                                                               |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                                               |       | $                                                                  | 468,754    |                  | $          | 400,430 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

4

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**Symmetry Medical Inc.**

**CondensedConsolidated Statements of Operations**

 
| ** **                                                         | ** ** | **Three Months Ended**          | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **March 29,**                        | ** ** | **March 31,** | ** ** |
| ** **                                                         | ** ** | **2008**                                  | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                           | ** ** |
| ** **                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| Revenue                                                            |       | $                                         | 101,862    |   | $ | 64,724 |   |
| Cost of Revenue                                                    |       | 77,916                                    |       | 53,010 |   |
|                                                               |       |                                      |       |   |   |
| Gross Profit                                                       |       | 23,946                                    |       | 11,714 |   |
| Selling,  general, and administrative expenses                     |       | 14,382                                    |       | 7,651 |   |
|                                                               |       |                                      |       |   |   |
| Operating Income                                                   |       | 9,564                                     |       | 4,063 |   |
| Other (income)  expense:                                           |       |                                      |       |   |   |
| Interest expense                                                   |       | 2,700                                     |       | 1,587 |   |
| Derivatives  valuation (gain)/loss                                 |       | 1,165                                     |       | (295 | ) |
| Other (income)  expense                                            |       | (162                                      | )          | 659 |   |
|                                                               |       |                                      |       |   |   |
| Income before  income taxes                                        |       | 5,861                                     |       | 2,112 |   |
| Income tax  expense                                                |       | 1,894                                     |       | 497 |   |
|                                                               |       |                                      |       |   |   |
| Net income                                                         |       | $                                         | 3,967      |   | $ | 1,615 |   |
|                                                               |       |                                      |       |   |   |
| Net income per  share:                                             |       |                                      |       |   |   |
| Basic                                                              |       | $                                         | 0.11       |   | $ | 0.05 |   |
|                                                               |       |                                      |       |   |   |   |   |
| Diluted                                                            |       | $                                         | 0.11       |   | $ | 0.05 |   |
|                                                               |       |                                      |       |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                      |       |   |   |
| Basic                                                              |       | 35,153                                    |       | 34,973 |   |
| Diluted                                                            |       | 35,335                                    |       | 35,194 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

5

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**Symmetry Medical Inc.**

**Condensed Consolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **                                                                                   | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                  | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**          | ** ** |
| **Operating activities**                                                                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Income                                                                                   |       | $                                | 3,967      |   | $ | 1,615 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation                                                                                 |       | 4,635                            |       | 4,179 |   |
| Amortization                                                                                 |       | 712                              |       | 474 |   |
| Foreign currency  transaction (gain) loss                                                    |       | 177                              |       | 102 |   |
| Net (gain) loss  on sale of assets                                                           |       | 40                               |       | 2 |   |
| Deferred income  tax provision                                                               |       | (500                             | )          | (2,473 | ) |
| Excess tax  benefit from stock-based compensation                                            |       | (92                              | )          | (796 | ) |
| Stock-based  compensation                                                                    |       | 140                              |       | 42 |   |
| Derivative  valuation change                                                                 |       | 1,191                            |       | (295 | ) |
| Change in  operating assets and liabilities:                                                 |       |                             |       |   |   |
| Accounts  receivable                                                                         |       | (19,185                          | )          | (3,906 | ) |
| Other assets                                                                                 |       | (1,832                           | )          | 102 |   |
| Inventories                                                                                  |       | (2,894                           | )          | 2,195 |   |
| Current income  taxes                                                                        |       | 2,710                            |       | 615 |   |
| Accounts payable                                                                             |       | 2,567                            |       | 523 |   |
| Accrued expenses  and other                                                                  |       | (86                              | )          | 2,906 |   |
|                                                                                         |       |                             |       |   |   |
| Net cash  provided by (used in) operating activities                                         |       | (8,450                           | )          | 5,285 |   |
|                                                                                         |       |                             |       |   |   |
| **Investing  activities**                                                                    |       |                             |       |   |   |
| Purchases of  property and equipment                                                         |       | (4,097                           | )          | (990 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 117                              |       | 28 |   |
| Acquisitions,  net of cash received                                                          |       | (46,109                          | )          | (10,317 | ) |
|                                                                                         |       |                             |       |   |   |
| Net cash used in  investing activities                                                       |       | (50,089                          | )          | (11,279 | ) |
|                                                                                         |       |                             |       |   |   |
| **Financing  activities**                                                                    |       |                             |       |   |   |
| Proceeds from  bank revolver                                                                 |       | 36,431                           |       | 16,473 |   |
| Payments on bank  revolver                                                                   |       | (38,788                          | )          | (16,502 | ) |
| Issuance of  long-term debt                                                                  |       | 60,000                           |       | — |   |
| Payments on  long-term debt and capital lease obligations                                    |       | (2,588                           | )          | (903 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                 |       | 116                              |       | 549 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 92                               |       | 796 |   |
|                                                                                         |       |                             |       |   |   |
| Net cash  provided by financing activities                                                   |       | 55,263                           |       | 413 |   |
| Effect of  exchange rate changes on cash                                                     |       | 533                              |       | (46 | ) |
|                                                                                         |       |                             |       |   |   |
| Net decrease in  cash and cash equivalents                                                   |       | (2,743                           | )          | (5,627 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 12,089                           |       | 11,721 |   |
|                                                                                         |       |                             |       |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                                | 9,346      |   | $ | 6,094 |   |
|                                                                                         |       |                             |       |   |   |
| Supplemental  disclosures:                                                                   |       |                             |       |   |   |
| Cash paid for  interest                                                                      |       | $                                | 2,027      |   | $ | 1,606 |   |
|                                                                                         |       |                             |       |   |   |
| Cash paid  (recovered) for income taxes                                                      |       | $                                | (329       | ) | $ | 812 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

6

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**Symmetry Medical Inc.**

**Notes to Condensed Consolidated Financial Statements**

**(Unaudited)**

**(InThousands, Except Per Share Data)**

 

**1. Basis of Presentation**

 

The condensedconsolidated financial statements include the accounts of Symmetry Medical, Inc.and its wholly-owned subsidiaries (collectively referred to as the Corporation),Symmetry Medical USA Inc., Jet Engineering, Inc., Ultrexx, Inc.,Riley Medical Inc., Symmetry Medical Switzerland SA (formerly known as RileyMedical Europe, SA), Symmetry Medical Everest LLC, Everest Metal InternationalLimited, Symmetry Medical Cheltenham Limited, Symmetry Medical PolyVac, SAS,Thornton Precision Components Limited, Symmetry Medical Malaysia SDN, ClamontaLimited, Specialty Surgical Instrumentation, Inc., UCA, LLC., TNCO, Inc.and Symmetry Medical New Bedford, LLC.  The Corporation is a globalsupplier of integrated products consisting primarily of surgical implants,instruments and cases to orthopedic and other medical device companies.

 

The condensedconsolidated financial statements of the Corporation have been prepared withoutaudit, pursuant to the rules and regulations of the Securities andExchange Commission. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to such rules andregulations. In the opinion of management, the accompanying condensedconsolidated financial statements contain all adjustments of a normal recurringnature considered necessary to present fairly, the consolidated financialposition of the Corporation, its results of operations and cash flows. TheCorporation’s results are subject to seasonal fluctuations. Interim results arenot necessarily indicative of results for a full year. The condensedconsolidated financial statements included herein should be read in conjunctionwith the fiscal year 2007 consolidated financial statements and the notesthereto included in the Corporation’s Annual Report on Form 10-K forfiscal year 2007.

 

The Corporation’s yearend is the 52 or 53 week period ending the Saturday closest to December 31.Fiscal year 2008 is a 53 week year. The Corporation’s first two interimquarters for 2008 are 13 weeks long ending the Saturday closest to March 31,and June 30 and the third quarter is 14 weeks long ending the Saturdayclosest to September 30. Fiscal Year 2007 was a 52 week year. TheCorporation’s interim quarters for 2007 were 13 weeks long ending the Saturdayclosest to March 31, June 30, or September 30. Referencesin these condensed consolidated financial statements to the three months endedrefer to these financial periods, respectively.

 

On January 25, 2008,the Corporation acquired DePuy Orthopaedics, Inc.’s (“DePuy”) New Bedford,Massachusetts instrument manufacturing facility (“New Bedford”), for $45,127 incash, subject to certain post closing adjustments.  This facility manufactures orthopedicinstruments as well as general surgical instruments and small implants.

 

On August 31, 2007,the Corporation acquired all of the stock of Specialty Surgical Instrumentation, Inc.(“SSI”) and UCA, LLC (“UCA”), privately owned companies based in Nashville,Tennessee, for $15,088, in cash, subject to certain post closing adjustments.SSI distributes surgical instruments directly to hospitals while UCAdistributes sterilization containers directly to hospitals.

 

On April 3, 2007,the Corporation acquired all of the stock of TNCO, Inc. (“TNCO”) aprivately owned company based in Whitman, Massachusetts for $7,262 in cash.TNCO designs and supplies precision instruments for arthroscopic, laparoscopic,sinus and other minimally invasive procedures.

 

On January 9, 2007,the Corporation acquired all of the stock of Whedon Limited, a privately ownedcompany based in Warwickshire, UK and the holding company of Clamonta Limited(collectively “Clamonta Ltd”), for $10,352 in cash, subject to certain postclosing adjustments.  Clamonta Ltd manufactures aerospace products for theglobal aerospace industry.

 

7

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**2. Inventories**

 

Inventories consist ofthe following:

 
| ** **                 | ** ** | **March 29,** | ** ** | **December 29,** | ** ** |
|----------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Raw material and  supplies |       | $                  | 10,833     |                  | $          | 9,244 |   |
| Work-in-process            |       | 30,689             |       | 21,412                |       |
| Finished goods             |       | 14,961             |       | 14,697                |       |
|                       |       |               |       |                  |       |
|                       |       | $                  | 56,483     |                  | $          | 45,353 |   |

 

**3. Property and Equipment**

 

Property and equipment,including depreciable lives, consists of the following:

 
| ** **                                   | ** ** | **March 29,** | ** ** | **December 29,** | ** ** |
|----------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Land                                         |       | $                  | 8,349      |                  | $          | 6,759 |   |
| Buildings and  improvements (20 to 40 years) |       | 43,598             |       | 44,274                |       |
| Machinery and  equipment (5 to 15 years)     |       | 121,152            |       | 98,974                |       |
| Office equipment  (3 to 5 years)             |       | 10,207             |       | 8,909                 |       |
| Construction-in-progress                     |       | 4,296              |       | 2,786                 |       |
|                                         |       |               |       |                  |       |
|                                         |       | 187,602            |       | 161,702               |       |
| Less accumulated  depreciation               |       | (65,863            | )          | (61,278               | )          |
|                                         |       |               |       |                  |       |
|                                         |       | $                  | 121,739    |                  | $          | 100,424 |   |

 

**4. Intangible Assets**

 

Intangible assets wereacquired in connection with our business acquisitions.  The increase in intangibles from December 29,2007 is due to the Corporation’s acquisition of Symmetry Medical New Bedford,LLC in January 2008.

 

As of March 29,2008, the balances of intangible assets, other than goodwill, were as follows:

 
| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| Acquired  technology and patents                         |       | 10 years             |       | $              | 2,440      |             | $          | (579           | )          | $ | 1,861 |   |
| Acquired  customers                                      |       | 18 years             |       | 42,624         |       | (4,777           | )          | 37,847         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 593            |       | (162             | )          | 431            |       |
| Intangible  assets subject to amortization               |       |                 |       | 45,657         |       | (5,518           | )          | 40,139         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,909          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 4,354          |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                 |       |           |       |             |       | 8,263          |       |
|                                                     |       |                 |       |           |       |             |       |           |       |   |
| Total                                                    |       |                 |       |           |       |             |       | $              | 48,402     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

As of December 29,2007, the balances of intangible assets, other than goodwill, were as follows:

 

8

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| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| Acquired  technology and patents                         |       | 10 years             |       | $              | 2,442      |             | $          | (507           | )          | $ | 1,934 |   |
| Acquired  customers                                      |       | 18 years             |       | 38,070         |       | (4,168           | )          | 33,902         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 593            |       | (131             | )          | 462            |       |
| Intangible  assets subject to amortization               |       |                 |       | 41,105         |       | (4,806           | )          | 36,298         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,913          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 4,356          |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                 |       |           |       |             |       | 8,269          |       |
|                                                     |       |                 |       |           |       |             |       |           |       |   |
| Total                                                    |       |                 |       |           |       |             |       | $              | 44,567     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

**5. Debt Arrangements**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                                       | ** ** | **March 29,** | ** ** | **December 29,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                       | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (7.625%  at March 29, 2008), through December 2009 |       | $                  | 19,250     |                  | $          | 21,000 |   |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (7.4375%  at March 29, 2008), through June 2011    |       | 39,400             |       | 39,400                |       |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (6.0625%  at March 29, 2008), through June 2011    |       | 60,000             |       | —                |       |
| Revolving line  of credit, due June 2011                                                                                                    |       | 15,500             |       | 19,000                |       |
|                                                                                                                                             |       |               |       |                  |       |
|                                                                                                                                             |       | 134,150            |       | 79,400                |       |
| Less current  portion                                                                                                                            |       | (12,150            | )          | (10,900               | )          |
|                                                                                                                                             |       |               |       |                  |       |
|                                                                                                                                             |       | $                  | 122,000    |                  | $          | 68,500 |   |

 

 As of December 29,2007, the Corporation’s revolving credit facility had a total capacity of up to$40,000 and the Corporation pays a 0.375% annual commitment fee for the averageunused portion of the revolving line of credit facility. There were $19,000 ofborrowings under this line of credit at December 29, 2007. Additionalborrowings on the facility are restricted and not currently available asdisclosed below.

 

 The bank term loanand revolving Line of credit (Senior Credit Agreement) contain variousfinancial covenants, including covenants requiring a maximum total debt to EBITDAratio, minimum EBITDA to interest ratio and a minimum EBITDA to fixed chargesratio. The Senior Credit Agreement also contains covenants restricting certaincorporate actions, including asset dispositions, acquisitions, paying dividendsand certain other restricted payments, changes of control, incurringindebtedness incurring liens, making loans and investments and transactionswith affiliates. The senior credit facility is secured by substantially all ofthe Corporation’s assets. The Corporation’s Senior Credit Agreement alsocontains customary events of default.

 

 On December 14,2007, the Corporation, certain of the Corporation’s subsidiaries, and WachoviaBank, National Association, as Administrative Agent, entered into a Waiver,Amendment and Term A-2 Loan Incremental Term Loan Amendment to Amended andRestated Credit Agreement (“Waiver”). Pursuant to the terms of the Waiver, the Administrative Agentpermanently waived specified events of default existing under the Senior CreditAgreement. In addition, the Administrative Agent, on behalf of itself andcertain other lenders, (i) consented to the New Bedford acquisition, (ii) committedto extend additional senior secured credit in the aggregate amount of $60,000(the “Incremental Term Loan”), and (iii) modified the terms of the SeniorCredit Agreement accordingly. Proceeds of the Incremental Term Loan were usedto fund the New Bedford acquisition; to pay, in part, the Corporation’sexisting revolving credit facility; and to pay fees and expenses in connectionwith the Waiver.

 

 On January 25,2008, the New Bedford acquisition was completed and the Incremental Term Loanwas funded. The Incremental Term Loan will mature June 13, 2011. Quarterlyinstallments of principal are to be paid so as to reduce the principal balanceby approximately five percent (5%) in 2008, ten percent (10%) in 2009, fifteenpercent (15%) in 2010 and seventy percent (70%) in 2011. We retained the rightto have borrowed funds bear interest at the London Interbank Offered Rate(LIBOR) plus an applicable margin or at a “Base Rate” plus an applicablemargin. The applicable margins have been modified under the Waiver, and untilsuch time as the Corporation is current in filing its reports under Section 13and 15(d) of the Securities Exchange Act, as amended, all applicable marginsare increased by 0.50% and the margins are to be determined as though theCorporation’s Total Leverage Ratio is greater than or equal to 2.0 to 1.0. Inaddition, until such time as the Corporation is current in filing its reportsunder the Securities Exchange Act, the Corporation is limited in its ability toborrow under its current revolving credit facility.

 

        Otherterms of the Senior Credit Agreement remained substantially unchanged by theWaiver.

 

        OnMarch 27, 2008, the Corporation and its lenders entered into a SecondAmendment and Waiver to the Amended and Restated Credit Agreement (“SecondAmendment”) for purposes of waiving events of default under the Senior CreditAgreement relating to the Sheffield accounting irregularities and theCorporation’s required financial statement filing deadlines. The SecondAmendment modified the calculation of the financial impact of the Sheffieldirregularities and extended the deadline for the Corporation to file itsfinancial statements as required under Sections 13 and 15(d) of theExchange Act to April 14, 2008.

 

        OnApril 14, 2008, the Corporation notified its Administrative Agent that thefiling of its Annual Report on Form 10-K would be

 

9

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extended beyond the April 14,2008 target date; certain other financial statements as required by the Senior CreditAgreement would be provided beyond the time established by the Senior CreditAgreement; and the Corporation would be unable to comply with a financialcovenant of the Senior Credit Agreement. The Administrative Agent, for theCorporation’s lenders, informed the Corporation that an event of defaultoccurred due to these circumstances. Under the circumstances, theAdministrative Agent had the right to accelerate the financial obligations ofthe Corporation under the Senior Credit Agreement, but did not.

 

        OnApril 22, 2008, the Corporation and Wachovia Bank, National Association,as Administrative Agent, entered into a Third Amendment and Waiver to Amendedand Restated Credit Agreement for the purposes of waiving the describeddefaults. Accordingly, the Corporation obtained from the lenders (i) awaiver for its Event of Default, (ii) an extension of the deadline bywhich the Corporation was required to file its 2007 Form 10-K, and (iii) anextension of the deadline by which the Corporation is required to file its 2008first quarter filing on Form 10-Q. In addition, the Corporation obtainedchanges to the Senior Credit Agreement which includes temporary adjustments toits financial statement covenants. The Corporation is in compliance with theamended covenants under the Senior Credit Agreement as of March 29, 2008.

 

Maturities of long-termdebt for the five years succeeding March 29, 2008 are as follows:

 
| 2008—remaining  fiscal year |   | $      | 12,150  |   |
|----------------------------------|--------|--------|---------|--------|
| 2009                             |   | 16,900 |    |
| 2010                             |   | 20,400 |    |
| 2011                             |   | 84,700 |    |
| 2012                             |   | — |    |
|                             |   |   |    |
|                             |   | $      | 134,150 |   |

 

**6. New Accounting Pronouncements**

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141(R),*Business Combinations*. This statementamends SFAS 141, and provides revised guidance for recognizing andmeasuring identifiable assets and goodwill acquired, liabilities assumed, andany non-controlling interest in the acquiree. It also provides disclosurerequirements to enable users of the financial statements to evaluate the natureand financial effects of the business combination. The provisions ofSFAS 141(R) are effective for our business combinations occurring onor after January 1, 2009. The Corporation is currently evaluating thepotential impacts of the adoption of SFAS 141(R).

 

**7. Segment Reporting**

 

The Corporation primarilydesigns, develops and manufactures implants and related surgical instrumentsand cases for orthopedic device companies and companies in other medical devicemarkets such as dental, osteobiologic and endoscopy. The Corporation also sellsproducts to the aerospace industry. The Corporation manages its business inmultiple operating segments. Because of the similar economic characteristics ofthese operations, including the nature of the products, comparable level of FDAregulations, same or similar customers, those operations have been aggregatedfollowing the provisions of SFAS 131 for segment reporting purposes. The resultsof one segment which sells exclusively to aerospace customers has not beendisclosed separately as it does not meet the quantitative disclosurerequirements.

 

        TheCorporation is a multi-national Corporation with operations in the United States,United Kingdom, France, Switzerland, Ireland and Malaysia. As a result, theCorporation’s financial results can be impacted by currency exchange rates inthe foreign markets in which the Corporation sells its products. Revenues areattributed to geographic locations based on the location to which we ship ourproducts.

 

10

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*Revenuefrom External Customers:*

 
| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| United States            |       | $                                | 67,907     |   | $ | 38,659 |   |
| United Kingdom           |       | 16,580                           |       | 11,995 |   |
| Ireland                  |       | 8,597                            |       | 5,796 |   |
| Other foreign  countries |       | 8,778                            |       | 8,274 |   |
|                     |       |                             |       |   |   |   |   |
| Total net  revenues      |       | $                                | 101,862    |   | $ | 64,724 |   |

 

*Concentrationof Credit Risk:*

 

A substantial portion ofthe Corporation’s revenue is derived from a limited number of customers. TheCorporation’s revenue includes revenue from customers of the Corporation whichindividually account for 10% or more of revenue as follows:

 

Quarter ended March 29,2008—Two customers represented approximately 32.2% and 10.8% of revenue,respectively.

 

Quarterended March 31, 2007—Four customers represented approximately 16.5%,12.1%. 11.2% and 11.0% of revenue, respectively.

 

Following is a summary ofthe composition by product category of the Corporation’s revenue to externalcustomers. Revenues from aerospace products are included in the “other”category.

 
| ** **          | ** ** | **Three Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|
| ** **          | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **          | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Implants            |       | $                                | 30,295     |   | $ | 22,673 |   |
| Instruments         |       | 39,289                           |       | 15,243 |   |
| Cases               |       | 21,518                           |       | 17,586 |   |
| Other               |       | 10,760                           |       | 9,222 |   |
|                |       |                             |       |   |   |   |   |
| Total net  revenues |       | $                                | 101,862    |   | $ | 64,724 |   |

 

**8. Net Income Per Share**

 

Thefollowing table sets forth the computation of earnings per share.

 
| ** **                                                          | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **                                                          | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                          |       | $                                | 3,967      |   | $ | 1,615 |   |
|                                                                |       |                             |       |   |   |
| Weighted-average  common shares outstanding basic                   |       | 35,153                           |       | 34,973 |   |
| Effect of stock  options, restricted stock and stock warrants       |       | 182                              |       | 221 |   |
| Weighted-average  common shares outstanding and assumed conversions |       | 35,335                           |       | 35,194 |   |
|                                                                |       |                             |       |   |   |
| Net income per  share:                                              |       |                             |       |   |   |
| Basic                                                               |       | $                                | 0.11       |   | $ | 0.05 |   |
|                                                                |       |                             |       |   |   |   |   |
| Diluted                                                             |       | $                                | 0.11       |   | $ | 0.05 |   |

 

During the three monthperiod ended March 29, 2008 the Corporation issued 7 shares of commonstock through the exercise of stock options.

 

11

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**9. Commitments and Contingencies**

 

*Environmental and Legal*

 

The Corporation isinvolved, from time to time, in various contractual, product liability, patent(or intellectual property) and other claims and disputes incidental to itsbusiness. Currently, there is no environmental or other litigation pending or,to the knowledge of the Corporation, threatened, that the Corporation expectsto have a material adverse effect on its financial condition, results ofoperations or liquidity. While litigation is subject to uncertainties and theoutcome of litigated matters is not predictable with assurance, the Corporationcurrently believes that the disposition of all pending or, to the knowledge ofthe Corporation threatened, claims and disputes, individually or in theaggregate, should not have a material adverse effect on the Corporation’sconsolidated financial condition, results of operations or liquidity.

 

Following the discoveryof the accounting irregularities at our Sheffield, UK operating unit, the AuditCommittee self-reported the matter to the staff of the Securities and ExchangeCommission (SEC). Thereafter, the SEC commenced an informal inquiry into thismatter. The Corporation intends to fully cooperate with the SEC in itsinvestigation. At this time, the Corporation is unable to predict the timing ofthe ultimate resolution of this investigation or the impact thereof.

 

**10. Comprehensive Income**

 

Comprehensive income iscomprised of net income and gains and losses resulting from currencytranslations of foreign entities. Comprehensive income consists of thefollowing:

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **                                | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                                | ** ** | **(unaudited)**                  | ** ** |
| Net Income                                |       | $                                | 3,967      |   | $ | 1,615 |   |
| Foreign currency  translation adjustments |       | 2,742                            |       | 359 |   |
|                                      |       |                             |       |   |   |   |   |
| Comprehensive  income                     |       | $                                | 6,709      |   | $ | 1,974 |   |

 

**11. Acquisitions**

 

On January 9, 2007,the Corporation acquired all of the stock of Whedon Limited, a privately ownedCorporation based in Warwickshire, UK and the holding Corporation of ClamontaLimited (collectively “Clamonta Ltd”), for $10,352 in cash.  Clamonta Ltdmanufactures aerospace products for the global aerospace industry.

 

As of March 29,2008, the aggregate purchase price was allocated to the opening balance sheetas follows:

 
| Current assets                                   |   | $      | 3,445  |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Property, plant &  equipment            |   | 3,695  |   |
| Acquired  customers (amortized over 15 years)    |   | 3,070  |   |
| Non-compete  agreements (amortized over 5 years) |   | 120    |   |
| Trademarks  (indefinite-lived)                   |   | 1,330  |   |
| Goodwill                                         |   | 2,970  |   |
| Current  liabilities                             |   | (1,765 | )      |
| Deferred taxes                                   |   | (1,963 | )      |
| Capital leases                                   |   | (550   | )      |
|                                             |   |   |   |   |
| Purchase price,  net                             |   | $      | 10,352 |   |

 

On April 3, 2007,the Corporation acquired all of the stock of TNCO, Inc. (“TNCO”), aprivately owned Corporation based in Whitman, Massachusetts for$7,262.   TNCO designs and suppliesprecision instruments for arthroscopic, laparoscopic, sinus, and otherminimally invasive procedures.

 

As of March 29,2008, the aggregate purchase price was allocated to the opening balance sheetas follows:

 

12

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| Current assets                                                 |   | $      | 2,570  |   |
|----------------------------------------------------------------|--------|--------|--------|--------|
| Property,  plant & equipment                          |   | 1,740  |   |
| Acquired  technology (amortized over average weighted 8 years) |   | 510    |   |
| Acquired  customers (amortized over 15 years)                  |   | 1,170  |   |
| Non-compete  agreements (amortized over 5 years)               |   | 80     |   |
| Trademarks  (indefinite-lived)                                 |   | 190    |   |
| Goodwill                                                       |   | 1,471  |   |
| Current  liabilities                                           |   | (469   | )      |
|                                                           |   |   |   |   |
| Purchase price,  net                                           |   | $      | 7,262  |   |

 

On August 31, 2007,the Corporation acquired Specialty Surgical Instrumentation, Inc. (“SSI”)and UCA, LLC (“UCA”), privately owned companies based in Nashville,Tennessee.  SSI distributes surgicalinstruments directly to hospitals while UCA distributes sterilizationcontainers directly to hospitals.  SSIand UCA were acquired for approximately $15,088 in cash.

 

As of March 29,2008, the aggregate purchase price was allocated to the opening balance sheetas follows:

 
| Current assets                                                  |   | $      | 6,509  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|
| Property,  plant & equipment                           |   | 1,687  |   |
| Acquired  technology (amortized over average weighted 13 years) |   | 350    |   |
| Acquired  customers (amortized over 15 years)                   |   | 6,630  |   |
| Non-compete  agreements (amortized over 5 years)                |   | 100    |   |
| Trademarks  (indefinite-lived)                                  |   | 1,500  |   |
| Goodwill                                                        |   | 5,517  |   |
| Current  liabilities                                            |   | (4,525 | )      |
| Deferred income  taxes                                          |   | (2,680 | )      |
|                                                            |   |   |   |   |
| Purchase price,  net                                            |   | $      | 15,088 |   |

 

On January 25, 2008,the Corporation acquired DePuy Orthopaedics, Inc.’s (“DePuy”) New Bedford,Massachusetts instrument manufacturing facility (“New Bedford”).  This facility manufactures orthopedicinstruments as well as general surgical instruments and small implants.  The aggregate purchase price is preliminary,subject to adjustment and is expected to be finalized in 2008.  As of March 29, 2008, the aggregatepurchase price of $45,127 was allocated to the opening balance sheet asfollows:

 
| Current assets                                |   | $      | 7,552  |   |
|-----------------------------------------------|--------|--------|--------|--------|
| PP&E                                      |   | 21,960 |   |
| Acquired  customers (amortized over 15 years) |   | 4,560  |   |
| Goodwill                                      |   | 11,055 |   |
|                                          |   |   |   |   |
| Purchase price,  net                          |   | $      | 45,127 |   |

 

On May 2, 2006, theCorporation completed the acquisition of Riley Medical, a privately-ownedcompany based in Auburn, Maine for approximately $46,677 in net cash, subjectto adjustment for contingent purchase price. The final contingent payment of$880 was made in the first quarter of 2008.

 

***UnauditedProforma Results***  The following table represents theproforma results of the Corporation’s operations had the acquisitions ofClamonta Ltd, TNCO, SSI, UCA and New Bedford been completed as of the beginningof the periods presented:

 
| ** **                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| ** **                       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Revenue                          |       | $                                | 104,539    |   | $ | 79,953 |   |
| Net income                       |       | 4,033                            |       | 1,456 |   |
| Earnings per  share—basic   |       | $                                | 0.11       |   | $ | 0.04 |   |
| Earnings per  share—diluted |       | $                                | 0.11       |   | $ | 0.04 |   |

 

13

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**12. Fair Value of Financial Instruments**

 

In September 2006,the FASB issued statement No. 157, *Fair Value Measurements*(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuringfair value in accordance with accounting principles generally accepted in theUnited States, and expands disclosures about fair value measurements. The Corporationhas adopted the provisions of SFAS 157 as of January 1, 2008 for financialinstruments. Although the adoption of SFAS 157 did not materially impact itsfinancial condition, results of operations, or cash flow, the Corporation isnow required to provide additional disclosures as part of its financialstatements. In February 2008, the FASB agreed to defer for one year theeffective date of SFAS 157 for certain nonfinancial assets and liabilities,except for those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis.

 

SFAS 157 establishes athree-tier fair value hierarchy, which prioritizes the inputs used in measuringfair value. These tiers include: Level 1, defined as observable inputs such asquoted prices in active markets; Level 2, defined as inputs other than quotedprices in active markets that are either directly or indirectly observable, andLevel 3, defined as unobservable inputs in which little or no market dataexists, therefore requiring an entity to develop its own assumptions.

 

As of March 29,2008, the Corporation held certain assets that are required to be measured atfair value on a recurring basis. These included the Corporation’s derivativeinstruments related to interest rate swaps and foreign currency forwardcontracts.

 

The Corporation’sderivative instruments consist of contracts that are not traded on a publicexchange. The fair values of interest rate swap contracts and foreign currencyforward contracts are determined based on inputs that are readily available inpublic markets or can be derived from information available in publicly quotedmarkets. Therefore, the Corporation has categorized these derivative instrumentsas Level 2.

 

The Corporation’s assetsmeasured at fair value on a recurring basis subject ot the disclosurerequirements of SFAS 157 at March 29, 2008 were as follows:

 
| ** **                 | ** ** | **March 29, 2008**          | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Fair Value Measurements** | ** ** |
| ** **                 | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets**                 |       |                                  |       |   |   |   |   |   |   |
| Foreign currency  forwards |       | $                                     | —     |   | $ | 40 |   | $ | — |   | $ | 40 |   |
|                       |       |                                  |       |   |   |   |   |   |   |
| **Liabilities**            |       |                                  |       |   |   |   |   |   |   |
| Interest rate  swaps       |       | $                                     | —     |   | $ | (3,220 | ) | $ | — |   | $ | (3,220 | ) |

 

**13. Taxes**

 

The provision for incometaxes differs from that computed at the Federal statutory rate of 35% in 2008and 34% in 2007 as follows:

 
| ** **                                          | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **March 29,**     | ** ** | **March 31,** | ** ** |
| ** **                                          | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Tax at Federal  statutory rate                      |       | $                      | 2,051      |   | $ | 718 |   |
| State income  taxes                                 |       | 200                    |       | 80 |   |
| State tax  credits                                  |       | (26                    | )          | (45 | ) |
| Foreign income  taxes                               |       | (105                   | )          | 50 |   |
| Qualified  production activities deduction          |       | (105                   | )          | (71 | ) |
| Research and  development credits—current year |       | (102                   | )          | (256 | ) |
| Other                                               |       | (19                    | )          | 21 |   |
|                                                |       |                   |       |   |   |   |   |
|                                                |       | $                      | 1,894      |   | $ | 497 |   |

 

At  March 29, 2008, the Corporation hadforeign net operating loss carry forwards of approximately $14,121 and anassociated deferred tax asset of $3,955. The foreign carry forwards have noexpiration date.  However, due touncertainty of the realization of the full benefit of the foreign net operatingloss carry forwards, the Corporation has established a valuation allowance of$1,826.

 

On January 1, 2007,the Corporation adopted the Financial Accounting Standards Board (FASB)Interpretation No. 48 (FIN48),*Accounting for Uncertaintyin Income Taxes* aninterpretation of FASB Statement No. 109. The standard had no impact onthe financial position or results of operations of the Company at the date ofadoption.

 

14

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The Corporation’s policywith respect to interest and penalties associated with reserves for uncertaintax positions is to classify such interest and penalties in income tax expensein the Statements of Operations. As of March 29, 2008, the total amount ofunrecognized income tax benefits computed under FIN 48 was approximately$1,610, all of which, if recognized, would impact the effective income tax rateof the Corporation. As of March 29, 2008, the Corporation had recorded atotal of $93 of accrued interest and penalties related to uncertain taxpositions. The Corporation foresees possible changes in its reserves foruncertain income tax positions as reasonably possible during the next12 months that could result in an increase or decrease in the reserves of$1,400. As of March 29, 2008, the Corporation is subject to unexpiredstatutes of limitation for U.S. federal income taxes for the years 2003-2007.The Corporation is also subject to unexpired statutes of limitation for variousstates including most significantly Indiana, Michigan, and New Hampshiregenerally for the years 2003-2007.

 

15

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**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIALCONDITION**

 

**Business Overview**

 

We are a leadingindependent provider of implants and related instruments and cases toorthopedic device manufacturers and other medical markets.  We also design, develop and produce theseproducts for companies in other segments of the medical device market,including dental, osteobiologic and endoscopy sectors, and provide limitedspecialized products to non-healthcare markets, such as the aerospace industry.

 

We offer our customersTotal Solution® for complete implant systems—implants, instruments andcases. While our revenue to date has been derived primarily from the sale ofimplants, instruments and cases separately, or instruments and cases together,our ability to provide Total Solutions® for complete implant systems hasalready proven to be attractive to our customers, and we expect this capabilitywill provide us with growth opportunities. In addition, we expect that ourTotal Solutions® capability will increase the relative percentage of valueadded products that we supply to our customers.

 

Our Annual Report on Form 10-Kfor the fiscal year ended December 29, 2007, provides additionalinformation about our business, operations and financial condition.

 

During the first quarter2008, our revenue growth of 26.3% over the fourth quarter of 2007 was driven bya ramp-up in our core orthopedics business and continued momentum from theintegration of our acquisitions.  Revenue increased 57.4% in the firstquarter 2008 compared to the first quarter 2007 as revenue from our top fiveorthopedic customers increased 76.8% and represented 62.0% of totalrevenues.  Quarterly revenue from all other customers increased 33.5%compared to the same period last year.  Our long-term strategy is todiversify our customer base and expand into other medical device marketsoutside of our core hip and knee business; however, at this time we are seeinga recovery of demand in the core hip and knee business which drove growth ,excluding the impact of acquisitions, by 33.4% in the first quarter of 2008.

 

In January 2007, weacquired Clamonta Ltd located in Warwickshire, UK for approximately $10.4million in cash.  Clamonta Ltd. was aprivately held corporation that has a 50-year history of supplying precisionmachined products to the global aerospace industry.  Clamonta Ltd’s products will help bridgeSymmetry’s Total Solutions® business model into the aerospace industry.  Clamonta Ltd reported 2006 revenue ofapproximately $9.8 million.  Thisacquisition expanded our added value operation within our existing productexpertise and supports a major customer by providing a more complete TotalSolution®.  Clamonta is well known in theindustry for producing quality engineered products for aircraft engines.  Clamonta Ltd’s pre-acquisition managementteam continues to lead this business unit. This acquisition helps to diversify us and allows us to capitalize on along term growth cycle in the aerospace industry.

 

In April 2007, weacquired TNCO, Inc. (“TNCO”) located in Whitman, Massachusetts forapproximately $7.3 million in cash.  TNCOwas a privately held corporation with a 40-year history of designing andsupplying precision instruments for arthroscopic, laparoscopic, sinus and otherminimally invasive procedures. TNCO’s strong intellectual product portfolio andcustomer relationships extend our product offering into these other medicalfields. TNCO reported 2006 revenues of approximately $7.5 million.  TNCO is well known in the industry fordesigning and producing quality engineered products for minimally invasiveprocedures. Its operating philosophy closely mirrors our own with its highlyskilled engineering team that partners with its clients during the productdevelopment cycle and moves efficiently from concept and prototype toproduction. TNCO sales are expected to benefit significantly as a result ofmarketing its products through our global sales and distribution network.  TNCO’s pre-acquisition management teamcontinues to lead this business unit. This acquisition is consistent with our strategy to enhance our productoffering into medical markets beyond our existing products and allows us tooffer our Total Solutions® model to an expanded customer base.

 

In August 2007, weacquired Specialty Surgical Instruments, Inc. (“SSI”) and UCA, LLC (“UCA”)located in Nashville, Tennessee for approximately $15.1 million in cash and atthe same time entered into a two year earn-out agreement with the twoprincipals of SSI and UCA who will receive additional consideration if SSI andUCA meet certain earnings levels for the following two years.  SSI was a privately held Corporation with a30-year history of offering targeted sales, marketing and distribution programsto serve the key surgical specialties of neurological, spine, cardiovascular,ENT, laparoscopy, ophthalmology and orthopedics.  SSI’s portfolio includes its own line ofUltra Instruments and include the UCA – Ultra Container sterilization system, ahospital proven, closed container system that is designed to store andtransport sterilized instruments.  TheUltra Instruments, UCA containers and multiple other product lines are offeredthrough SSI’s distribution channels and sell directly into hospitals with their25 strong sales staff.  The SSI and UCApre-acquisition management team continues to lead this business unit.  This acquisition is consistent with ourstrategy to enhance Symmetry Medical’s product offering into medical marketsbeyond our existing products and provides a direct access to hospital anddoctors to accelerate our own product designs.

 

In January 2008, weacquired DePuy Orthopaedics, Inc.’s (“DePuy”) New Bedford, Massachusettsinstrument manufacturing facility (“New Bedford”).  We purchased substantially all of the assetsand real estate of New Bedford for approximately $45.1 million 

 

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in cash.  New Bedford produces orthopedic instruments,general medical instruments and some small spine related implants.  Currently, 100% of the products produced atthe facility are for DePuy.  In thefuture, we plan to utilize this facility to serve our other medical customers.  In connection with the acquisition, weentered into a supply agreement which requires DePuy to make minimum purchasesfrom New Bedford for a four year period. The agreement stipulates that these purchases are incremental to otherproducts we presently or previously produced on DePuy’s behalf.  The commitment from DePuy totals $106.0million over the four year period. Certain key members of New Bedford’s pre-acquisition management teamcontinue to lead this business unit. Revenues from New Bedford increased our exposure to one of our topcustomers in the first quarter of 2008. We believe this acquisition strengthens our position as a leadingprovider to the orthopedic industry and provides additional manufacturingcapacity to better serve our broad customer base, builds on our relationshipwith DePuy, expands our east coast presence and allows us to move forward withan existing skilled workforce to service our growing market.

 

Our acquisitions haveafforded us the opportunity to offer a comprehensive line of implants, surgicalinstruments and cases for orthopedic device manufacturers on a global basis,instruments and cases into other medical markets and specialized parts into theaerospace industry.

 

Our focus remains onbeing well positioned for a resurgence of growth in our core orthopedicbusiness, while capitalizing on our market leadership to extend our TotalSolutions® approach into other markets.  To this point, we have seenincreased customer activity during the first quarter and believe volume willcontinue to increase into 2008.  In particular, we continue to expand ourengineering resources that produce and provide closer and critical customerrelationships on the development of new products.  This local presence inthe global marketplace allows us to be closer to our customer base, providequicker response times and increase our value added services.

 

**First Quarter Results of Operations**

 

*Revenue.*  Revenue for the period ended March 29, 2008 increased $37.1 million, or57.4%, to $101.9 million from $64.7 million for the comparable 2007period.  Revenue for each of our principal product categories in theseperiods was as follows:

 
| ** **                | ** ** | **Three Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **March 29,**               | ** ** | **March 31,** | ** ** |
| **Product Category** | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                                | 30.3       |   | $ | 22.7 |   |
| Instruments               |       | 39.3                             |       | 15.2 |   |
| Cases                     |       | 21.5                             |       | 17.6 |   |
| Other                     |       | 10.8                             |       | 9.2 |   |
|                      |       |                             |       |   |   |   |   |
| Total                     |       | $                                | 101.9      |   | $ | 64.7 |   |

 

The $37.1 millionincrease in revenue resulted from higher revenue across all productcategories.  Instrument revenue increased$24.0 million.  This increase was drivenby an increase in organic customer demand of $10.0 million due to thecompletion of several projects for our largest customers.  In addition, 2008 instrument revenue wasincreased by our recent acquisitions. Symmetry Medical New Bedford added $6.3 million, the SSI acquisitionadded $5.9 million and the TNCO acquisition added $1.8 million of revenue.  Implant revenue increased $7.6 million andCase revenue increased $3.9 million. Both product categories were driven by organic growth as our top customersreturned to a more normalized pattern of ordering compared to 2007 when theywere using excess inventory. Additionally, Symmetry Medical New Bedford added$1.4 million of implant sales as compared to 2007. Other product revenueincreased $1.5 million driven by organic growth from the continued strength inthe aerospace industry.

 

*GrossProfit.*  Gross profit for the three month periodended March 29, 2008 increased $12.2 million, or 104.4%, to $23.9 millionfrom $11.7 million for the comparable 2007 period.  The increase in grossprofit was driven by the 57.4% increase in revenue coupled with higher grossprofit as a percentage of revenue which increased to 23.5% for the three monthperiod ended March 29, 2008 compared to 18.1% for the comparable 2007period.  The increase in gross margin as a percentage of revenue wasprimarily driven by more large volume projects from our top customers, whichresulted in decreased overhead costs as a percentage of revenue as well as morefavorable product mix.  We view our global infrastructure as a competitivestrength, and made a deliberate decision to keep our infrastructure in place,enabling us to respond quickly to our customers’ needs and produce high volumeorders on short notice which allowed us to achieve 33.4% organic growth in thefirst quarter of 2008.

 

*Selling,General and Administrative Expenses.*  Selling,general and administrative expenses (“SG&A”) for the three month periodended March 29, 2008 increased $6.7 million, or 88.0%, to $14.3 millionfrom $7.7 million for the comparable 2007 period.  SG&A expenses fromour TNCO, SSI and New Bedford acquisitions resulted in an increase of $2.7million.  During the first quarter of2008, we incurred approximately $2.2 million of professional fees and expensesto complete the Sheffield, UK investigation, resulting in increased SG&A inthe first quarter of 2008.  As apercentage of revenue, selling, general and administrative expenses increasedto 14.1% of revenue for the three month period ended March 29, 2008 from11.8% of revenue for the comparable 2007 period. This 

 

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increase as a percentageof sales is driven by the Sheffield, UK investigation fees as well as theaddition of the SSI distribution acquisition which has a higher SG&A as apercentage of sales than our traditional business model.

 

*OtherExpense.*   Interest expense for the three monthperiod ended March 29, 2008 increased $1.1 million, or 70.1%, to $2.7million from $1.6 million for the comparable 2007 period. This increasereflects the cost of the additional $60.0 million senior term debt related tothe acquisition of New Bedford and SSI.  The increase was also driven byapproximately $7.3 million in revolving debt which was drawn to facilitate theTNCO acquisition.

 

The derivatives valuation(gains) losses consist of interest rate swap valuations used to mitigate theeffect of changing interest rates on net income and foreign currency forwardcontracts used to mitigate the effect of changes in the foreign exchange rateson net income. For our interest rate hedge, we recorded a loss of $1.3 millionfor the first quarter 2008 versus a loss of $0.3 million for the comparable2007 period.  These losses are due tomarket fluctuations in these contracts, which are not designated as hedges underSFAS 133, *Accounting for Derivative Instruments and HedgingActivities.* For our foreign currency forward contracts, werecorded a gain of $0.1 million in the first quarter of 2008 versus a gain of$0.6 million during the comparable 2007 period. These gains were a result of fluctuation in the British pound versus theUS dollar.

 

*Provisionfor Income Taxes.*   Our effective tax rate was32.3% for the three month period ended March 29, 2008 as compared to 23.5%for the comparable 2007 period.  The increase in the effective rate wasdue to an increase in tax bracket from 34% to 35% in the United States, higherpre-tax income from higher taxing jurisdictions and less of a rate impact frompermanent tax differences and tax credits. Provision for income taxes increased by $1.4 million, or 281.1%, to $1.9million for the three month period ended March 29, 2008 from $0.5 millionfor the comparable 2007 period. This increase was primarily due to higherpre-tax income as well as the increase in the effective tax rate.

 

**Liquidity and Capital Resources**

 

Our principal source ofcash in the three month period ended March 29, 2008 was borrowings underour senior credit loan facility.  Principal uses of cash in the threemonth period ended March 29, 2008 included the acquisition of New Bedford,increased working capital related to our recent acquisitions, capitalexpenditures and debt service. We expect that our principal uses of cash in thefuture will be to finance working capital, to pay for capital expenditures, toservice debt and to fund possible future acquisitions.

 

*OperatingActivities  * Operating activities used cash of $8.5million in the three month period ended March 29, 2008 compared togenerating cash of $5.3 million for the three month period ended March 31,2007 a decrease of $13.8 million.  The decrease in cash from operations isprimarily a result of cash provided for working capital as increases inaccounts receivable and inventory significantly exceeded the increase incurrent liabilities. Accounts receivable and inventory increased as a result ofour significant increase in organic revenue growth, partially offset by anincrease in net income of $2.4 million.

 

*InvestingActivities* Capitalexpenditures of $4.1 million were higher by $3.1 million in the three monthperiod ended March 29, 2008 compared to the three month period ended March 31,2007.  The acquisition of New Bedford used $45.1 million of cash in thefirst quarter of 2008 while the acquisition of Clamonta Ltd used $10.3 millionof cash in the first quarter of 2007.

 

*FinancingActivities  * Financing activities generated $55.3million of cash due primarily to the incremental $60.0 million of borrowingsunder our senior credit loan facility to fund the New Bedford acquisitionpartially offset by payments on long-term debt and capital leases.

 

***Capital Expenditures***

 

Capital expenditurestotaled $4.1 million for the three months ended March 29, 2008, comparedto $1.0 million for the three month period ended March 31, 2007.Expenditures were primarily used to replace existing equipment.  Expenditures also were used to expandselective capacity in our Malaysia and USA facilities.

 

***Debt and Credit Facilities***

 

As of March 29,2008, we had an aggregate of $147.5 million of outstanding indebtedness, whichconsisted of $118.7 million of term loan borrowings outstanding under our SeniorCredit Agreement, $15.5 million of borrowings outstanding under our revolvingcredit facility, $7.6 million of borrowings under our UK short-term creditfacility and $5.7 million of capital lease obligations. We had no outstandingletters of credit as of March 29, 2008.

 

Our Senior Credit Agreementcontains various financial covenants, including covenants requiring a maximumtotal debt to EBITDA ratio, minimum EBITDA to interest ratio and a minimumEBITDA to fixed charges ratio. On April 22, 2008, the Corporation andWachovia Bank, National Association, as Administrative Agent, entered into aThird Amendment and Waiver to Amended and Restated Credit Agreement at whichtime the Corporation obtained changes to the Senior Credit Agreement whichincludes temporary adjustments to its financial statement covenants.  We are in compliance with the amendedcovenants under the Senior Credit Agreement as of March 29, 2008.

 

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We believe that cash flowfrom operating activities and borrowings under our Senior Credit Agreement willbe sufficient to fund currently anticipated working capital, planned capitalspending and debt service requirements for the foreseeable future, including atleast the next 12 months. We also review technology, manufacturing and otherstrategic acquisition opportunities regularly, which may require additionaldebt or equity financing.

 

**Contractual Obligations and Commercial Commitments**

 
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                      | ** ** | **(in millions)**                    | ** ** |
| Long-term debt  obligations (1) |       | $                                         | 134.2      |   | $ | 12.2 |   | $ | 37.3 |   | $ | 84.7 |   | $ | — |   |
| Capital lease  obligations      |       | 9.2                                       |       | 2.1 |   | 2.5 |   | 1.6 |   | 3.0 |   |
| Operating lease  obligations    |       | 5.5                                       |       | 1.4 |   | 2.3 |   | 1.5 |   | 0.3 |   |
| Purchase  obligations (2)       |       | 4.8                                       |       | 2.5 |   | 2.3 |   | — |   | — |   |
| Total                           |       | $                                         | 153.7      |   | $ | 18.2 |   | $ | 44.4 |   | $ | 87.8 |   | $ | 3.3 |   |

 

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* Less than 1 year isdefined as the remainder of fiscal 2008. Following periods are whole fiscalyears.

 

(1) Representsprincipal maturities only and, therefore excludes the effects of interest andinterest rate swaps.

 

(2) Representspurchase agreements to buy minimum quantities of titanium and cobalt chromethrough December 2008.

 

**Off-BalanceSheet Arrangements**

 

Our off-balance sheetarrangements include our operating leases and letters of credit, which areavailable under the senior credit facility. We had no letters of creditoutstanding as of March 29, 2008.

 

**Environmental**

 

Our facilities andoperations are subject to extensive federal, state, local and foreignenvironmental and occupational health and safety laws and regulations. Theselaws and regulations govern, among other things, air emissions; wastewaterdischarges; the generation, storage, handling, use and transportation ofhazardous materials; the handling and disposal of hazardous wastes; the cleanupof contamination; and the health and safety of our employees. Under such lawsand regulations, we are required to obtain permits from governmentalauthorities for some of our operations. If we violate or fail to comply withthese laws, regulations or permits, we could be fined or otherwise sanctionedby regulators. We could also be held responsible for costs and damages arisingfrom any contamination at our past or present facilities or at third-partywaste disposal sites. We cannot completely eliminate the risk of contaminationor injury resulting from hazardous materials, and we may incur materialliability as a result of any contamination or injury.

 

We incurred approximately$0.1 million and $0.1 million in capital expenditures for environmental, healthand safety in the first quarter of 2008 and 2007, respectively.

 

In connection with ourrecent acquisitions, we completed Phase I assessments and did not find anysignificant issues that need to be remediated.  We cannot be certain thanenvironmental issues will not be discovered or arise in the future related tothese acquisitions.

 

In conjunction with theNew Bedford acquisition in January 2008, we purchased $5.0 million ofenvironmental insurance coverage for this facility.  This policy expires January 25,2013.  In 2000, we purchased pollutionlegal liability insurance that covers certain environmental liabilities thatmay arise at our Warsaw, Indiana facility, at a former facility located inPeru, Indiana, and at certain non-owned locations that we use for the disposalof waste. The insurance has a $5.0 million aggregate limit and is subject to adeductible and certain exclusions. The policy period expires in 2010. While theinsurance may mitigate the risk of certain environmental liabilities, we cannotguarantee that a particular liability will be covered by this insurance.

 

Based on informationcurrently available, we do not believe that we have any material environmentalliabilities.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of ourfinancial statements requires management to make estimates, judgments andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses during the periods presented. Our Annual Report on Form 10-Kfor fiscal year ended December 29, 2007, includes a summary of thecritical accounting policies we believe are the most important to aid inunderstanding its financial results. There have been no material changes tothese critical accounting policies that impacted our reported 

 

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amounts of assets,liabilities, revenues or expenses during the three months ended March 29,2008.

 

**NewAccounting Pronouncements**

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141(R),*Business Combinations*. This statementamends SFAS 141, and provides revised guidance for recognizing andmeasuring identifiable assets and goodwill acquired, liabilities assumed, andany non-controlling interest in the acquiree. It also provides disclosurerequirements to enable users of the financial statements to evaluate the natureand financial effects of the business combination. The provisions ofSFAS 141(R) are effective for our business combinations occurring onof after January 1, 2009. We are currently evaluating the potentialimpacts of the adoption of SFAS 141(R).

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

 

For financial marketrisks related to changes in interest rates, foreign currency exchange rates,commodity prices and the effects of inflation, reference is made toItem 7a “Quantitative and Qualitative Disclosures About Market Risk”contained in Part II of our Annual Report on Form 10-K for the fiscalyear ended December 29, 2007. Our exposure to these risks, at the end ofthe first quarter covered by this report, has not changed materially since December 29,2007.

 

**ITEM 4.  CONTROLS AND PROCEDURES.**

 

(a)   Evaluation of disclosurecontrols and procedures. 

 

Our ChiefExecutive Officer and Chief Financial Officer, after evaluating theeffectiveness of our “disclosure controls and procedures” (as defined inRule 13a-15(e) of the Securities Exchange Act of 1934), concludedthat, for the reasons described below, as of the end of the fiscal quartercovered by this report, and in conjunction with remedial actions put in placeduring the fourth quarter of 2007 and the first quarter of 2008 as a result ofthe Sheffield, UK investigation and more fully described in Item 9A in ourAnnual Report on form 10-K for fiscal year ended December 29, 2007, ourdisclosure controls and procedures were not effective and designed to ensurethat material information relating to the Corporation and its consolidatedsubsidiaries would be made known to them by others within those entities.  

 

Despite theconclusion that disclosure controls and procedures were not effective as of theend of the period covered by this report, the Chief Executive Officer and ChiefFinancial Officer believe that the financial statements and other informationcontained in this quarterly report present fairly, in all material respects,our business, financial condition and results of operations.

 

(b)   Changesin internal control over financial reporting.

 

During thefiscal quarter covered by this report, there were no changes in our “internalcontrol over financial reporting” (as defined in Rule 13a-15(f) of theSecurities Exchange Act of 1934) that materially affected, or were reasonablylikely to materially affect, our internal control over financial reporting,except that, during the fiscal quarter covered by this report, we were still inthe process of integrating the Clamonta Limited, TNCO, Inc., Specialty SurgicalInstruments Inc., UCA, LLC and New Bedford acquisitions and were incorporatingthese operations as part of our internal controls.  For purposes of this evaluation, the impactof these acquisitions on our internal controls over financial reporting was excluded.See Note 11 to the condensed consolidated financial statements included in Item1 for a discussion of the Clamonta Limited, Specialty Surgical InstrumentsInc., UCA, LLC and New Bedford acquisitions.

 

In connectionwith the filing of our Annual Report on Form 10-K for the year ended December29, 2007, we identified material weaknesses in internal control over financialreporting and identified a remediation plan. During the fourth quarter of 2007 and the first quarter of 2008, severalremedial measures were identified and implemented in response to the conclusionreached by our Chief Executive and Chief Financial Officer as a result of theSheffield, UK investigation.  Although wehave made progress towards remediation, as of June 25, 2008, we were unable toconclude that the material weaknesses described above were remediated as ofMarch 29, 2008.  See our Annual Report onForm 10-K for fiscal year ended December 29, 2007.

 

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**PART IIOTHER INFORMATION**

 

**ITEM1.    LEGAL PROCEEDINGS**

 

***SEC Informal  Inquiry***

 

On October 4, 2007,we announced that, due to the apparent overstatement of revenues by ourSheffield, UK operating unit, it may be necessary for us to restate ourfinancial statements for the periods subsequent to June 2003. On November 12,2007, we announced that the irregularities in the financial reporting by ourSheffield, UK operating unit also included the overstatement of inventoryand other matters. These matters were reported to our Audit Committee, whichengaged special legal counsel, who in turn retained independent forensicaccountants, to investigate and report to the Audit Committee. Based oninformation obtained in that investigation and information reported to theAudit Committee by management, the Audit Committee accepted management’srecommendation that we restate our financial statements.

 

Upon discovering theirregularities, the Audit Committee self-reported the matter to the Staff ofthe Securities and Exchange Commission. The SEC staff has initiated an informalinquiry with respect to this matter. We are cooperating fully with the SEC inits informal inquiry. We cannot predict when the SEC will conclude its reviewand the outcome or impact thereof.

 

**ITEM 1ARISK FACTORS**

 

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in Part I, Item 1A “Risk Factors” contained in our Annual Reporton Form 10-K for the fiscal year ended December 29, 2007, which couldmaterially affect our business, financial condition or future results.

 

**ITEM 5OTHER INFORMATION**

 

(b)                 There have beenno material changes to the procedures by which security holders may recommendnominees to our Board of Directors since our Schedule 14A filed April 25,2008.

 

**ITEM 6EXHIBITS**

** **
| 10.40  |   | Form of Restricted  Stock Agreement (Key Employees) (incorporated by reference to  Exhibit 10.1 to our Form 8-K filed May 30, 2008.)                                                          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| 10.41  |   | Form of Restricted  Stock Agreement (Non- Employee Directors) (Incorporated by reference to  Exhibit 10.2 of our Form 8-K filed May 30, 2008.)                                                |
|   |   |                                                                                                                                                                                                              |
| 31.1   |   | Certification of Chief  Executive Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.** |
|   |   |                                                                                                                                                                                                              |
| 31.2   |   | Certification of Chief  Financial Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.** |
|   |   |                                                                                                                                                                                                              |
| 32.1   |   | 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.**                     |

 

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** Filed or furnishedherewith

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   | SYMMETRY MEDICAL INC. |
|--------|-----------------------|
|   |                  |
|   | By                    | /s/ Brian S. Moore |
|   |                  | Brian S. Moore, |
|   |                  | *President and Chief Executive  Officer* |
|   |                  | *(Principal Executive Officer)* |
|   |                  |
|   | By                    | /s/ Fred L. Hite |
|   |                  | Fred L. Hite, |
|   |                  | *Senior Vice President and Chief  Financial Officer* |
|   |                  | *(Principal Financial and  Accounting Officer)* |

 

 

June 24, 2008

 

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