**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 1O-Q/A**

**(Amendment No. 1)**

 

**(Mark One)**

 

**xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 
| **For the quarterly period ended** | ** ** | **June 30, 2007** |
|------------------------------------|------------|------------------------|

** **

**or**

 

**oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition period from                                                                            to**

 

**Commission File Number: 001-32374**

 

**SYMMETRY MEDICAL INC.**

(Exact name 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) |

 

 

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.                       o Yes   x No

 

Indicate by checkmark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

o Yes x No

 

APPLICABLE ONLY TO ISSUERS INVOLVED INBANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filedall documents and reports required to be filed by Sections 12, 13 or 15(d) ofthe Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court.

o Yes o No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

The number of sharesoutstanding of the registrant’s common stock as of April 3, 2008 was35,466,654.

 

 

 

----

 

**TABLE OF CONTENTS**

 
| **PART I  FINANCIAL INFORMATION** | ** ** |
|----------------------------------------|------------|
|                                   |       |   |   |
| Item 1                            |       | Financial Statements: |   |
|                                   |       |   |   |
|                                   |       | Condensed Consolidated  Balance Sheets: As of June 30, 2007 and December 30, 2006 |   |
|                                   |       |   |   |
|                                   |       | Condensed  Consolidated Statements of Operations: Three and Six Months Ended June 30,  2007 and July 1, 2006 |   |
|                                   |       | Condensed Consolidated  Statements of Cash Flows: Six Months Ended June 30, 2007 and July 1,  2006 |   |
|                                   |       |   |   |
|                                   |       | 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 1A                           |       | Risk Factors |   |
|                                   |       |   |   |
| Item 4                                 |       | Submission of  Matter to a Vote Of Security Holders |   |
|                                   |       |   |   |
| Item 5                            |       | Other Information |   |
|                                   |       |   |   |
| Item 6                            |       | Exhibits |   |
|                                   |       |   |   |
| Signatures                             |       |

 

2

----

 

**Cautionary Note Regarding Forward-LookingStatements**

 

Throughout this AmendedQuarterly Report on Form 10-Q/A or in other reports or registrationstatements filed from time to time with the Securities and Exchange Commissionunder the Securities Exchange Act of 1934, or under the Securities Act of 1933,as well as in documents we incorporate by reference or in press releases ororal statements made by our officers or representatives, we may make statementsthat express our opinions, expectations or projections regarding future eventsor future 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-looking statementsconvey our current expectations or forecast future events. While we alwaysintend to express our best judgment when we make statements about what webelieve 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, filed contemporaneously with this Form 10-Q/A,to better understand the risks and uncertainties that are inherent in ourbusiness 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.

 

**Explanatory Note Regarding OurRestatement**

 

On October 4, 2007,we issued a press release and filed a related Current Report on Form 8-Kwith the Securities and Exchange Commission (the “SEC”) in which we announcedthat, due to the apparent overstatement of revenues by our Sheffield, UKoperating unit, it may be necessary for us to restate our financial statementsfor the periods subsequent to June 2003, and that as a result ourhistorical financial statements for those periods can no longer be reliedupon.  On November 12, 2007, weissued a press release and filed a related Current Report on Form 8-K withthe SEC in which we announced that the potential irregularities in the financial reporting by our Sheffield, UKoperating unit also includes the overstatement of inventory and other matters.The Sheffield, UK operating unit is part of our Thornton Precision ComponentsLimited subsidiary.

 

This Form 10-Q/Areflects the restatement of: i) our previously issued consolidated financialstatements for the three months and six months ended July 1, 2006 and June 30,2007 and the year ended December 30, 2006; and ii) Management’s Discussionand Analysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 tothe condensed consolidated financial statements.  Along with this report, we are filing ouramended Quarterly Report on Form 10-Q/A for the first quarter of fiscal2007 and the delayed third quarter of fiscal 2007 on Form 10-Q as well asour Annual Report for fiscal 2007 on Form 10-K. We do not intend to amendour previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Qfor the periods prior to fiscal 2007. The financial information that was presented in previous filings orotherwise reported for these periods is amended by the information in ourAnnual Report for fiscal 2007 on Form 10-K.  The financial statements and relatedfinancial information contained in such previously filed reports should nolonger be relied upon.

 

Upon discovery of theaccounting irregularities, the Audit Committee engaged special legal counsel,who in turn retained independent forensic accountants, to investigate andreport to the Audit Committee.  Thatinvestigation has concluded that the irregularities were isolated to ourSheffield, UK operating unit.

 

Wehave quantified the impact of the irregularities identified at our Sheffield,UK operating unit, and are restating our financial statements to correct thoseirregularities.  The restatements correctmisstatements within accounts receivable, inventory, accounts payable,property, plant and equipment and the corresponding income tax profit and lossimpact. Furthermore, once the restated financial performance was known, animpairment of goodwill and certain other intangibles at that subsidiaryoccurred in fiscal 2005.  The Audit Committee engaged Ernst &Young LLP to audit our restated consolidated financial statements for fiscal 2005 and 2006, whilesimultaneously completing its audit of our 2007 fiscal year. Ernst &Young LLP was also engaged to re-review our quarterly consolidated financialstatements for fiscal 2006 and 2007. The adjustments made as a result of therestatements are more fully discussed in Note 2 to the consolidated financialstatements.

 

3

----

 

**PART IFINANCIAL INFORMATION**

**ITEM1. FINANCIAL STATEMENTS**

 

**Symmetry Medical Inc.**

 

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                         | ** ** | **June 30,**                                                  | ** ** | **December 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | **2007**                                                           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                         | ** ** | **(Restated)**                                                     | ** ** | **(Restated)**        | ** ** |
| ** **                                                                                                                         | ** ** | **(unaudited)**                                                    | ** ** | ** **            | ** ** |
| ** **                                                                                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| **Assets:**                                                                                                                        |       |                                                               |       |                  |       |
| Current Assets:                                                                                                                    |       |                                                               |       |                  |       |
| Cash and cash  equivalents                                                                                                         |       | $                                                                  | 10,991     |                  | $          | 11,721 |   |
| Accounts  receivables, net                                                                                                         |       | 37,995                                                             |       | 32,909                |       |
| Inventories                                                                                                                        |       | 35,163                                                             |       | 33,134                |       |
| Refundable  income taxes                                                                                                           |       | 4,253                                                              |       | 4,374                 |       |
| Deferred income  taxes                                                                                                             |       | 2,418                                                              |       | 2,826                 |       |
| Other current  assets                                                                                                              |       | 4,025                                                              |       | 3,965                 |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Total current  assets                                                                                                              |       | 94,845                                                             |       | 88,929                |       |
| Property and  equipment, net                                                                                                       |       | 103,595                                                            |       | 102,907               |       |
| Goodwill                                                                                                                           |       | 132,791                                                            |       | 129,966               |       |
| Intangible  assets, net of accumulated amortization                                                                                |       | 37,077                                                             |       | 31,613                |       |
| Other assets                                                                                                                       |       | 1,098                                                              |       | 981                   |       |
|                                                                                                                               |       |                                                               |       |                  |       |   |   |
| Total Assets                                                                                                                       |       | $                                                                  | 369,406    |                  | $          | 354,396 |   |
| ** **                                                                                                                         |       |                                                               |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                    |       |                                                               |       |                  |       |
| Current  Liabilities:                                                                                                              |       |                                                               |       |                  |       |
| Accounts payable                                                                                                                   |       | $                                                                  | 26,754     |                  | $          | 20,683 |   |
| Accrued wages  and benefits                                                                                                        |       | 8,055                                                              |       | 7,816                 |       |
| Other accrued  expenses                                                                                                            |       | 4,647                                                              |       | 4,104                 |       |
| Income tax  payable                                                                                                                |       | 95                                                                 |       | 970                   |       |
| Deferred income  taxes                                                                                                             |       | 752                                                                |       | 249                   |       |
| Derivative  valuation liability                                                                                                    |       | 58                                                                 |       | 1,184                 |       |
| Revolving line  of credit                                                                                                          |       | 1,062                                                              |       | —                |       |
| Current portion  of capital lease obligations                                                                                      |       | 2,895                                                              |       | 3,500                 |       |
| Current portion  of long-term debt                                                                                                 |       | 8,275                                                              |       | 5,550                 |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Total current  liabilities                                                                                                         |       | 52,593                                                             |       | 44,056                |       |
| Deferred income  taxes                                                                                                             |       | 8,132                                                              |       | 8,392                 |       |
| Derivative  valuation liability                                                                                                    |       | 175                                                                |       | 549                   |       |
| Capital lease  obligations, less current portion                                                                                   |       | 4,498                                                              |       | 5,142                 |       |
| Long-term debt,  less current portion                                                                                              |       | 62,575                                                             |       | 63,650                |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Total  Liabilities                                                                                                                 |       | 127,973                                                            |       | 121,789               |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                                            |       |                                                               |       |                  |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Shareholders’  Equity:                                                                                                        |       |                                                               |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 sharesauthorized; shares issued June 30,  2007—35,435; December 30, 2006—35,107) |       | 4                                                                  |       | 4                     |       |
| Additional  paid-in capital                                                                                                        |       | 272,294                                                            |       | 270,716               |       |
| Retained  earnings (deficit)                                                                                                       |       | (39,066                                                            | )          | (45,377               | )          |
| Accumulated  other comprehensive income                                                                                            |       | 8,201                                                              |       | 7,264                 |       |
|                                                                                                                               |       |                                                               |       |                  |       |
| Total  Shareholders’ Equity                                                                                                   |       | 241,433                                                            |       | 232,607               |       |
|                                                                                                                               |       |                                                               |       |                  |       |   |   |
| Total  Liabilities and Shareholders’ Equity                                                                                   |       | $                                                                  | 369,406    |                  | $          | 354,396 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

4

----

 

**Symmetry Medical Inc.**

 

**Condensed Consolidated Statements of Operations**

 
| ** **                                                        | ** ** | **Three Months Ended**           | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **June 30,**                          | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                                        | ** ** | **2007**                                   | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                        | ** ** | **(Restated)**                             | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**                            | ** ** |
| ** **                                                        |       | **(In  Thousands, Except Per Share Data)** |       |
| Revenue                                                           |       | $                                          | 69,713     |                           | $          | 63,181 |   | $ | 134,436 |   | $ | 131,505 |   |
| Cost of Revenue                                                   |       | 54,997                                     |       | 46,427                         |       | 108,007 |   | 96,096 |   |
| Gross Profit                                                      |       | 14,716                                     |       | 16,754                         |       | 26,429 |   | 35,409 |   |
| Selling, general  and administrativeexpenses                      |       | 8,030                                      |       | 6,873                          |       | 15,681 |   | 13,908 |   |
|                                                              |       |                                       |       |                           |       |   |   |   |   |
| Operating Income                                                  |       | 6,686                                      |       | 9,881                          |       | 10,748 |   | 21,501 |   |
| Other  (income)/expense:                                          |       |                                       |       |                           |       |   |   |   |   |
| Interest expense                                                  |       | 1,607                                      |       | 925                            |       | 3,194 |   | 1,586 |   |
| Derivatives  valuation (gain)/loss                                |       | (278                                       | )          | 408                            |       | (16 | ) | 407 |   |
| Other                                                             |       | (765                                       | )          | (2,174                         | )          | (665 | ) | (2,557 | ) |
|                                                              |       |                                       |       |                           |       |   |   |   |   |
| Income before  income taxes                                       |       | 6,122                                      |       | 10,722                         |       | 8,235 |   | 22,065 |   |
| Income tax  expense                                               |       | 1,426                                      |       | 2,982                          |       | 1,924 |   | 6,359 |   |
| Net income                                                        |       | $                                          | 4,696      |                           | $          | 7,740 |   | $ | 6,311 |   | $ | 15,706 |   |
|                                                              |       |                                       |       |                           |       |   |   |   |   |
| Net income per  share:                                            |       |                                       |       |                           |       |   |   |   |   |
| Basic                                                             |       | $                                          | 0.13       |                           | $          | 0.22 |   | $ | 0.18 |   | $ | 0.45 |   |
|                                                              |       |                                       |       |                           |       |   |   |   |   |   |   |   |   |
| Diluted                                                           |       | $                                          | 0.13       |                           | $          | 0.22 |   | $ | 0.18 |   | $ | 0.45 |   |
|                                                              |       |                                       |       |                           |       |   |   |   |   |
| Weighted average  common sharesand equivalent shares outstanding: |       |                                       |       |                           |       |   |   |   |   |
| Basic                                                             |       | 35,119                                     |       | 34,830                         |       | 35,046 |   | 34,774 |   |
| Diluted                                                           |       | 35,277                                     |       | 35,177                         |       | 35,237 |   | 35,157 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

5

----

 

**Symmetry Medical Inc.**

 

**Condensed Consolidated Statements of Cash Flows**

 
| ** **                                                                                  | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                  | ** ** | **June 30,**              | ** ** | **July 1,** | ** ** |
| ** **                                                                                  | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                                                                                  | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** |
| ** **                                                                                  | ** ** | **(unaudited)**                | ** ** |
| ** **                                                                                  |       | **(In  Thousands)**            |       |
| **Operating  activities**                                                                   |       |                           |       |   |   |
| Net Income                                                                                  |       | $                              | 6,311      |   | $ | 15,706 |   |
| Adjustments to  reconcile net income to net cash provided by(used in) operating activities: |       |                           |       |   |   |
| Depreciation                                                                                |       | 8,591                          |       | 7,677 |   |
| Amortization                                                                                |       | 1,012                          |       | 386 |   |
| Foreign currency  transaction (gain) loss                                                   |       | (279                           | )          | (1,534 | ) |
| Net (gain) loss  on sale of assets                                                          |       | (348                           | )          | (1,233 | ) |
| Deferred income  tax provision                                                              |       | (695                           | )          | 2,275 |   |
| Excess tax  benefit from stock-based compensation                                           |       | (796                           | )          | (1,062 | ) |
| Stock-based  compensation                                                                   |       | 142                            |       | 212 |   |
| Derivative  valuation change                                                                |       | (1,500                         | )          | 407 |   |
| Change in  operating assets and liabilities:                                                |       |                           |       |   |   |
| Accounts  receivable                                                                        |       | (2,019                         | )          | 2,759 |   |
| Other assets                                                                                |       | 132                            |       | 834 |   |
| Inventories                                                                                 |       | 1,263                          |       | (208 | ) |
| Current income  taxes                                                                       |       | 399                            |       | (3,923 | ) |
| Accounts payable                                                                            |       | 4,259                          |       | (6,180 | ) |
| Accrued expenses  and other                                                                 |       | 623                            |       | (1,861 | ) |
|                                                                                        |       |                           |       |   |   |
| Net cash  provided by operating activities                                                  |       | 17,095                         |       | 14,255 |   |
|                                                                                        |       |                           |       |   |   |
| **Investing  activities**                                                                   |       |                           |       |   |   |
| Purchases of  property and equipment                                                        |       | (3,963                         | )          | (11,487 | ) |
| Proceeds from  the sale of fixed assets                                                     |       | 1,589                          |       | 2,434 |   |
| Acquisition, net  of cash received                                                          |       | (17,621                        | )          | (45,629 | ) |
|                                                                                        |       |                           |       |   |   |
| Net cash used in  investing activities                                                      |       | (19,995                        | )          | (54,682 | ) |
|                                                                                        |       |                           |       |   |   |
| **Financing  activities**                                                                   |       |                           |       |   |   |
| Proceeds from  bank revolver                                                                |       | 49,013                         |       | 47,598 |   |
| Payments on bank  revolver                                                                  |       | (44,471                        | )          | (45,373 | ) |
| Issuance of  long-term debt                                                                 |       | —                         |       | 40,000 |   |
| Payments on  long-term debt and capital lease obligations                                   |       | (3,742                         | )          | (5,130 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                |       | 641                            |       | 547 |   |
| Excess tax  benefit from stock-based compensation                                           |       | 796                            |       | 1,062 |   |
| Debt issuance  costs paid                                                                   |       | —                         |       | (322 | ) |
|                                                                                        |       |                           |       |   |   |
| Net cash provided  by financing activities                                                  |       | 2,237                          |       | 38,382 |   |
| Effect of  exchange rate changes on cash                                                    |       | (67                            | )          | 260 |   |
|                                                                                        |       |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                       |       | (730                           | )          | (1,785 | ) |
| Cash and cash  equivalents at beginning of period                                           |       | 11,721                         |       | 12,471 |   |
|                                                                                        |       |                           |       |   |   |
| Cash and cash  equivalents at end of period                                                 |       | $                              | 10,991     |   | $ | 10,686 |   |
|                                                                                        |       |                           |       |   |   |
| Supplemental  disclosures:                                                                  |       |                           |       |   |   |
| Cash paid for  interest                                                                     |       | $                              | 3,204      |   | $ | 1,284 |   |
|                                                                                        |       |                           |       |   |   |   |   |
| Cash paid for  income taxes                                                                 |       | $                              | 2,221      |   | $ | 6,996 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

6

----

 

**Symmetry Medical Inc.**

 

**Notes to Condensed Consolidated FinancialStatements**

 

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

**(unaudited)**

 

**1. Basis of Presentation**

 

The condensed consolidatedfinancial statements include the accounts of Symmetry Medical, Inc. andits 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, and TNCO, Inc.  The Corporation is a global supplier ofintegrated products consisting primarily of surgical implants, instruments andcases 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 as well as all adjustments discussed in Note 2, “Restatement” considerednecessary to present fairly, the consolidated financial position of theCorporation, its results of operations and cash flows. The Corporation’sresults are subject to seasonal fluctuations. Interim results are notnecessarily indicative of results for a full year. The condensed consolidatedfinancial statements included herein should be read in conjunction with thefiscal year 2006 restated consolidated financial statements and the notesthereto included in the Corporation’s Annual Report on Form 10-K forfiscal year 2007 filed contemporaneously with this Form 10-Q/A.

 

The Corporation’s yearend is the 52 or 53 week period ending the Saturday closest to December 31.Fiscal year 2007 and 2006 are 52 week years. As such, interim quarters are 13weeks long ending the Saturday closest to March 31, June 30, or September 30.References in these consolidated financial statements to the three months endedrefer to these financial periods, respectively.

 

Riley Medical Inc. andSymmetry Medical Switzerland SA (formerly known as Riley Medical Europe SA)were acquired on May 2, 2006 and are collectively referred to as “RileyMedical.”  The Corporation acquired certain assets of Everest Finishing, LLCand all of the issued and outstanding stock of Everest Metal InternationalLimited on August 31, 2006 and are collectively referred to as “EverestMetal.

 

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 $10,331 in cash, subject to certain postclosing adjustments.  Clamonta Ltd manufactures aerospace products for theglobal aerospace industry.

 

On April 3, 2007,the Corporation acquired all of the stock of TNCO, Inc. (“TNCO”), aprivately owned company based in Whitman, Massachusetts for $7,223 in cash,subject to certain post closing adjustments.   TNCO designs and supplies precision instrumentsfor arthroscopic, laparoscopic, sinus, and other minimally invasive procedures.

 

**2.  Restatement**

 

**Background of the Investigation**

 

On October 4, 2007,we issued a press release and filed a Current Report on Form 8-K with theSecurities and Exchange Commission (the “SEC”) in which we announced that, dueto the apparent overstatement of revenues by our Sheffield, United Kingdom (“UK”)operating unit, it may be necessary for us to restate our financial statementsfor the periods subsequent to June 2003, and that as a result ourhistorical financial statements for those periods can no longer be reliedupon.  On November 12, 2007, wefiled a Current Report on Form 8-K with the SEC in which we announced thatthe potential irregularities in the financial reporting by the Sheffield, UKoperating unit also includes the overstatement of inventory and other matters.The Sheffield, UK operating unit is part of the Thornton Precision ComponentsLimited subsidiary.

 

This Form 10-Q/A reflectsthe restatement of our previously issued condensed consolidated financialstatements for the three months and six months ended July 1, 2006 and June 30,2007 and the year ended December 30, 2006. Along with this report, we are filing our amended Quarterly Report on Form 10-Q/Afor the first quarter of fiscal 2007 and 

 

7

----

 

the delayed third quarterof fiscal 2007 on Form 10-Q as well as our Annual Report for fiscal 2007on Form 10-K. We do not intend to amend our previously filed AnnualReports on Form 10-K or Quarterly Reports on Form 10-Q for theperiods prior to fiscal 2007.  Thefinancial information that was presented in previous filings or otherwisereported for these periods is amended by the information in our Annual Reportfor fiscal 2007 on Form 10-K.  Thefinancial statements and related financial information contained in suchpreviously filed reports should no longer be relied upon.

 

Upon discovery of the accounting irregularities, theAudit Committeeengaged special legal counsel who in turn retained independent forensic accountants,to investigate and report to the Audit Committee. That investigation hasconcluded that the irregularities were isolated to our Sheffield, UK operating unit.

 

Wehave quantified the impact of the irregularities identified at our Sheffield,UK operating unit, and are restating our financial statements to correct thoseirregularities.  The restatements correctmisstatements within accounts receivable, inventory, accounts payable,property, plant and equipment and the corresponding income tax and profit andloss impacts. Furthermore, once the restated financialperformance was known, an impairment of goodwill and certain other intangiblesat that subsidiary occurred in fiscal 2005. The cumulative impact to beginningretained earnings as of December 31, 2005 was $46.5 million.

 

**Restatement Adjustments**

 

The following tablerepresents the effect of the restatement on the condensed consolidatedstatements of operations for the three months ended June 30, 2007 and July 1,2006 and should be reviewed in conjunction with the descriptions of theadjustments following the condensed consolidated balance sheets:

 
| ** **                                                        | ** ** | **Three Months Ended**           | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **June 30,**                          | ** ** | **June 30,**                | ** ** | **June 30,** | ** ** | **July 1,** | ** ** | **July 1,** | ** ** | **July 1,** | ** ** |
| ** **                                                        | ** ** | **2007**                                   | ** ** | **2007**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                                        | ** ** | **(Reported)**                             | ** ** | **(Adjustment)**                 | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**                            | ** ** |
| ** **                                                        |       | **(In  Thousands, Except per Share Data)** |       |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Revenue                                                           |       | $                                          | 69,566     |                             | $          | 147 |   | $ | 69,713 |   | $ | 64,760 |   | $ | (1,579 | ) | $ | 63,181 |   |
| Cost of Revenue                                                   |       | 54,093                                     |       | 904                              |       | 54,997 |   | 47,873 |   | (1,446 | ) | 46,427 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Gross Profit                                                      |       | 15,473                                     |       | (757                             | )          | 14,716 |   | 16,887 |   | (133 | ) | 16,754 |   |
| Selling,  general, and administrative expenses                    |       | 8,365                                      |       | (335                             | )          | 8,030 |   | 6,892 |   | (19 | ) | 6,873 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Operating Income                                                  |       | 7,108                                      |       | (422                             | )          | 6,686 |   | 9,995 |   | (114 | ) | 9,881 |   |
| Other expense:                                                    |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Interest expense                                                  |       | 1,607                                      |       | —                           |       | 1,607 |   | 925 |   | — |   | 925 |   |
| Derivatives  valuation (gain)/loss                                |       | (278                                       | )          | —                           |       | (278 | ) | 408 |   | — |   | 408 |   |
| Other                                                             |       | (730                                       | )          | (35                              | )          | (765 | ) | (2,059 | ) | (115 | ) | (2,174 | ) |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Income before  income taxes                                       |       | 6,509                                      |       | (387                             | )          | 6,122 |   | 10,721 |   | 1 |   | 10,722 |   |
| Income tax  expense                                               |       | 2,078                                      |       | (652                             | )          | 1,426 |   | 3,042 |   | (60 | ) | 2,982 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Net income                                                        |       | $                                          | 4,431      |                             | $          | 265 |   | $ | 4,696 |   | $ | 7,679 |   | $ | 61 |   | $ | 7,740 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Net income per  share:                                            |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Basic                                                             |       | $                                          | 0.13       |                             | $          | 0.00 |   | $ | 0.13 |   | $ | 0.22 |   | $ | 0.00 |   | $ | 0.22 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Diluted                                                           |       | $                                          | 0.13       |                             | $          | 0.00 |   | $ | 0.13 |   | $ | 0.22 |   | $ | 0.00 |   | $ | 0.22 |   |
|                                                              |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares and equivalentshares outstanding: |       |                                       |       |                             |       |   |   |   |   |   |   |   |   |
| Basic                                                             |       | 35,119                                     |       | —                           |       | 35,119 |   | 34,830 |   | — |   | 34,830 |   |
| Diluted                                                           |       | 35,277                                     |       | —                           |       | 35,277 |   | 35,177 |   | — |   | 35,177 |   |

 

8

----

 

The following tablerepresents the effect of the restatement on the condensed consolidatedstatements of operations for the six months ended June 30, 2007 and July 1,2006 and should be reviewed in conjunction with the descriptions of theadjustments following the condensed consolidated balance sheets:

 
| ** **                                                        | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **June 30,  2007**        | ** ** | **June 30,  2007**        | ** ** | **June 30,  2007** | ** ** | **July 1,  2006** | ** ** | **July 1,  2006** | ** ** | **July 1,  2006** | ** ** |
| ** **                                                        | ** ** | **(Reported)**                 | ** ** | **(Adjustment)**               | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**                | ** ** |
| ** **                                                        | ** ** | ** **                     | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                           |       | $                              | 137,085    |                           | $          | (2,649 | ) | $ | 134,436 |   | $ | 134,373 |   | $ | (2,868 | ) | $ | 131,505 |   |
| Cost of Revenue                                                   |       | 106,651                        |       | 1,356                          |       | 108,007 |   | 97,145 |   | (1,049 | ) | 96,096 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Gross Profit                                                      |       | 30,434                         |       | (4,005                         | )          | 26,429 |   | 37,228 |   | (1,819 | ) | 35,409 |   |
| Selling,  general, and administrative expenses                    |       | 16,238                         |       | (557                           | )          | 15,681 |   | 13,932 |   | (24 | ) | 13,908 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Operating Income  (loss)                                          |       | 14,196                         |       | (3,448                         | )          | 10,748 |   | 23,296 |   | (1,795 | ) | 21,501 |   |
| Other (income)  expense:                                          |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Interest expense                                                  |       | 3,194                          |       | —                         |       | 3,194 |   | 1,586 |   | — |   | 1,586 |   |
| Derivatives  valuation (gain)/loss                                |       | (16                            | )          | —                         |       | (16 | ) | 407 |   | — |   | 407 |   |
| Other                                                             |       | (741                           | )          | 76                             |       | (665 | ) | (2,280 | ) | (277 | ) | (2,557 | ) |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Income before  income taxes                                       |       | 11,759                         |       | (3,524                         | )          | 8,235 |   | 23,583 |   | (1,518 | ) | 22,065 |   |
| Income tax  expense                                               |       | 3,618                          |       | (1,694                         | )          | 1,924 |   | 7,526 |   | (1,167 | ) | 6,359 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                |       | $                              | 8,141      |                           | $          | (1,830 | ) | $ | 6,311 |   | $ | 16,057 |   | $ | (351 | ) | $ | 15,706 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net income  (loss) per share:                                     |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Basic                                                             |       | $                              | 0.23       |                           | $          | (0.05 | ) | $ | 0.18 |   | $ | 0.46 |   | $ | (0.01 | ) | $ | 0.45 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Diluted                                                           |       | $                              | 0.23       |                           | $          | (0.05 | ) | $ | 0.18 |   | $ | 0.46 |   | $ | (0.01 | ) | $ | 0.45 |   |
|                                                              |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares and equivalentshares outstanding: |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Basic                                                             |       | 35,046                         |       | —                         |       | 35,046 |   | 34,774 |   | — |   | 34,774 |   |
| Diluted                                                           |       | 35,237                         |       | —                         |       | 35,237 |   | 35,157 |   | — |   | 35,157 |   |

 

9

----

The following tablerepresents the effect of the restatement on the condensed consolidated balancesheets as of June 30, 2007 and December 30, 2006 and should bereviewed in conjunction with the descriptions of the adjustments following thecondensed consolidated balance sheets:

 
| ** **                                                                                                                       | ** ** | **June 30,  2007**                                            | ** ** | **June 30,  2007** | ** ** | **June 30,  2007** | ** ** | **December30,  2006** | ** ** | **December 30,  2006** | ** ** | **December 30,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------------|------------|------------------------|------------|
| ** **                                                                                                                       | ** ** | **(Reported)**                                                     | ** ** | **(Adjustment)**        | ** ** | **(Restated)**          | ** ** | **(Reported)**        | ** ** | **(Adjustment)**            | ** ** | **(Restated)**         | ** ** |
| ** **                                                                                                                       | ** ** | **(unaudited)**                                                    | ** ** | **(unaudited)**         | ** ** | **(unaudited)**         | ** ** | ** **            | ** ** | ** **                  | ** ** | ** **             | ** ** |
| ** **                                                                                                                       | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| **Assets:**                                                                                                                      |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Current Assets:                                                                                                                  |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Cash and cash  equivalents                                                                                                       |       | $                                                                  | 10,991     |                    | $          | —                  |       | $                     | 10,991     |                        | $          | 11,721                 |       | $ | — |   | $ | 11,721 |   |
| Accounts  receivables, net                                                                                                       |       | 53,101                                                             |       | (15,106                 | )          | 37,995                  |       | 47,506                |       | (14,597                     | )          | 32,909                 |       |
| Inventories                                                                                                                      |       | 50,208                                                             |       | (15,045                 | )          | 35,163                  |       | 47,392                |       | (14,258                     | )          | 33,134                 |       |
| Refundable  income taxes                                                                                                         |       | 32                                                                 |       | 4,221                   |       | 4,253                   |       | 111                   |       | 4,263                       |       | 4,374                  |       |
| Deferred income  taxes                                                                                                           |       | 2,418                                                              |       | —                  |       | 2,418                   |       | 2,826                 |       | —                      |       | 2,826                  |       |
| Other current  assets                                                                                                            |       | 5,457                                                              |       | (1,432                  | )          | 4,025                   |       | 3,965                 |       | —                      |       | 3,965                  |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total current  assets                                                                                                            |       | 122,207                                                            |       | (27,362                 | )          | 94,845                  |       | 113,521               |       | (24,592                     | )          | 88,929                 |       |
| Property and  equipment, net                                                                                                     |       | 110,030                                                            |       | (6,435                  | )          | 103,595                 |       | 106,147               |       | (3,240                      | )          | 102,907                |       |
| Goodwill                                                                                                                         |       | 159,706                                                            |       | (26,915                 | )          | 132,791                 |       | 156,241               |       | (26,275                     | )          | 129,966                |       |
| Intangible assets,  net of accumulated amortization                                                                              |       | 38,719                                                             |       | (1,642                  | )          | 37,077                  |       | 33,257                |       | (1,644                      | )          | 31,613                 |       |
| Other assets                                                                                                                     |       | 1,098                                                              |       | —                  |       | 1,098                   |       | 981                   |       | —                      |       | 981                    |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total Assets                                                                                                                     |       | $                                                                  | 431,760    |                    | $          | (62,354                 | )          | $                     | 369,406    |                        | $          | 410,147                |       | $ | (55,751 | ) | $ | 354,396 |   |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| **Liabilities and Shareholders’ Equity:**                                                                                   |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |
| Current  Liabilities:                                                                                                            |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Accounts payable                                                                                                                 |       | $                                                                  | 23,010     |                    | $          | 3,744                   |       | $                     | 26,754     |                        | $          | 14,860                 |       | $ | 5,823 |   | $ | 20,683 |   |
| Accrued wages  and benefits                                                                                                      |       | 8,055                                                              |       | —                  |       | 8,055                   |       | 7,816                 |       | —                      |       | 7,816                  |       |
| Other accrued  expenses                                                                                                          |       | 4,647                                                              |       | —                  |       | 4,647                   |       | 4,104                 |       | —                      |       | 4,104                  |       |
| Income tax  payable                                                                                                              |       | 386                                                                |       | (291                    | )          | 95                      |       | 850                   |       | 120                         |       | 970                    |       |
| Deferred income  taxes                                                                                                           |       | 332                                                                |       | 420                     |       | 752                     |       | 249                   |       | —                      |       | 249                    |       |
| Derivative  valuation liability                                                                                                  |       | 58                                                                 |       | —                  |       | 58                      |       | 1,184                 |       | —                      |       | 1,184                  |       |
| Revolving line  of credit                                                                                                        |       | 1,062                                                              |       | —                  |       | 1,062                   |       | —                |       | —                      |       | —                 |       |
| Current portion  of capital lease obligations                                                                                    |       | 2,895                                                              |       | —                  |       | 2,895                   |       | 3,500                 |       | —                      |       | 3,500                  |       |
| Current portion  of long-term debt                                                                                               |       | 8,275                                                              |       | —                  |       | 8,275                   |       | 5,550                 |       | —                      |       | 5,550                  |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total current liabilities                                                                                                        |       | 48,720                                                             |       | 3,873                   |       | 52,593                  |       | 38,113                |       | 5,943                       |       | 44,056                 |       |
| Deferred income  taxes                                                                                                           |       | 12,310                                                             |       | (4,178                  | )          | 8,132                   |       | 11,832                |       | (3,440                      | )          | 8,392                  |       |
| Derivative  valuation liability                                                                                                  |       | 175                                                                |       | —                  |       | 175                     |       | 549                   |       | —                      |       | 549                    |       |
| Capital lease  obligations, less current portion                                                                                 |       | 4,498                                                              |       | —                  |       | 4,498                   |       | 5,142                 |       | —                      |       | 5,142                  |       |
| Long-term debt,  less current portion                                                                                            |       | 62,575                                                             |       | —                  |       | 62,575                  |       | 63,650                |       | —                      |       | 63,650                 |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total  Liabilities                                                                                                               |       | 128,278                                                            |       | (305                    | )          | 127,973                 |       | 119,286               |       | 2,503                       |       | 121,789                |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Commitments and contingencies  (Note 9)                                                                                          |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Shareholders’  Equity:                                                                                                      |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Common Stock,  $.0001 par value; 72,410 sharesauthorized; shares issued June 30, 2007—35,435;December 30, 2006—35,107) |       | 4                                                                  |       | —                  |       | 4                       |       | 4                     |       | —                      |       | 4                      |       |
| Additional  paid-in capital                                                                                                      |       | 273,482                                                            |       | (1,188                  | )          | 272,294                 |       | 271,388               |       | (672                        | )          | 270,716                |       |
| Retained  earnings (deficit)                                                                                                     |       | 14,912                                                             |       | (53,978                 | )          | (39,066                 | )          | 6,771                 |       | (52,148                     | )          | (45,377                | )          |
| Accumulated  other comprehensive income (loss)                                                                                   |       | 15,084                                                             |       | (6,883                  | )          | 8,201                   |       | 12,698                |       | (5,434                      | )          | 7,264                  |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total  Shareholders’ Equity                                                                                                 |       | 303,482                                                            |       | (62,049                 | )          | 241,433                 |       | 290,861               |       | (58,254                     | )          | 232,607                |       |
|                                                                                                                             |       |                                                               |       |                    |       |                    |       |                  |       |                        |       |                   |       |
| Total  Liabilities and Shareholders’ Equity                                                                                 |       | $                                                                  | 431,760    |                    | $          | (62,354                 | )          | $                     | 369,406    |                        | $          | 410,147                |       | $ | (55,751 | ) | $ | 354,396 |   |

 

The adjustments resultingin the restatements are described as follows:

 

*Revenue and Accounts ReceivableAdjustments* -Revenue adjustments include the correction of revenue recognized in incorrectperiods and the elimination of fictitious transactions.

 

*Cost of Revenue, Inventory andAccounts Payable Adjustments* - Adjustments include the correction of cost of salesrelated to revenue adjustments discussed above in addition to the eliminationsof fictitious work in process inventory which had been previously sold orscrapped and adjustments to properly reflect the timing of inventory receiptsand related disbursements.

 

*Selling General andAdministrative and Additional Paid in Capital Adjustments* - Selling, general and administrativeadjustments include the reversal of amortization expense related to performancebased restricted stock awards which are no longer probable of vesting due tothe lower restated financial results at Sheffield.

 

*Other Expense Adjustments* - Other expense adjustments are dueprimarily to revised the foreign currency transaction gains and lossesassociated with the restated accounts receivable balances.

 

*Income Tax Expense, RefundableIncome Taxes, Deferred Income Taxes and Income Taxes Payable Adjustments* - Income tax expense adjustments resultfrom the tax impacts of the restatement adjustments to pre-tax income at the UKstatutory rate of 30%.

 

*Property & Equipment, Net**Adjustments* – Removecosts in construction in progress related to costs associated with tools anddies that were capitalized erroneously.

 

*Goodwill, Intangible Assets andRetained Earnings Adjustments* – Certain of the above mentioned errors andirregularities date back to prior periods including the opening balance sheetestablished at the time of the acquisition of the Sheffield operation in 2003.The adjustments to the opening balance sheet result in an increase to goodwillof approximately $8,242.  In addition,utilizing the restated operating results we determined that carrying value ofthe Sheffield reporting unit as well as a customer related intangible were inexcess of their fair value.  Theimpairment analysis resulted in the write-off of goodwill and intangibles of$33,580 in 2005.

 

10

----

The following tablerepresents the effect of the restatement on the condensed consolidatedstatements of cash flows for the six months ended June 30, 2007 and July 1,2006 and should be reviewed in conjunction with the descriptions following thecondensed consolidated balance sheets:

 
| ** **                                                                                   | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                                                   | ** ** | **June 30,  2007**        | ** ** | **June 30,  2007**        | ** ** | **June 30,  2007** | ** ** | **July 1,  2006** | ** ** | **July 1,  2006** | ** ** | **July 1,  2006** | ** ** |
| ** **                                                                                   | ** ** | **(Reported)**                 | ** ** | **(Adjustment)**               | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**        | ** ** |
| **Operating  activities**                                                                    |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net Income (loss)                                                                            |       | $                              | 8,141      |                           | $          | (1,830 | ) | $ | 6,311 |   | $ | 16,057 |   | $ | (351 | ) | $ | 15,706 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                                 |       | 8,591                          |       | —                         |       | 8,591 |   | 7,677 |   | — |   | 7,677 |   |
| Amortization                                                                                 |       | 1,053                          |       | (41                            | )          | 1,012 |   | 424 |   | (38 | ) | 386 |   |
| Foreign currency  transaction (gain) loss                                                    |       | (355                           | )          | 76                             |       | (279 | ) | (1,257 | ) | (277 | ) | (1,534 | ) |
| Net (gain) loss  on sale of assets                                                           |       | (348                           | )          | —                         |       | (348 | ) | (1,233 | ) | — |   | (1,233 | ) |
| Deferred income  tax provision                                                               |       | 944                            |       | (1,639                         | )          | (695 | ) | 253 |   | 2,022 |   | 2,275 |   |
| Excess tax  benefit from stock-based                                                         |       | (796                           | )          | —                         |       | (796 | ) | (1,062 | ) | — |   | (1,062 | ) |
| Stock-based  compensation                                                                    |       | 658                            |       | (516                           | )          | 142 |   | 212 |   | — |   | 212 |   |
| Derivative  valuation change                                                                 |       | (1,500                         | )          | —                         |       | (1,500 | ) | 407 |   | — |   | 407 |   |
| Change in  operating assets and liabilities:                                                 |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Accounts  receivable                                                                         |       | (2,055                         | )          | 36                             |       | (2,019 | ) | 1,614 |   | 1,145 |   | 2,759 |   |
| Other assets                                                                                 |       | (1,288                         | )          | 1,420                          |       | 132 |   | 834 |   | — |   | 834 |   |
| Inventories                                                                                  |       | 872                            |       | 391                            |       | 1,263 |   | (1,034 | ) | 826 |   | (208 | ) |
| Current income  taxes                                                                        |       | 1,007                          |       | (608                           | )          | 399 |   | (735 | ) | (3,188 | ) | (3,923 | ) |
| Accounts payable                                                                             |       | 6,369                          |       | (2,110                         | )          | 4,259 |   | (5,730 | ) | (450 | ) | (6,180 | ) |
| Accrued expenses  and other                                                                  |       | (1,158                         | )          | 1,781                          |       | 623 |   | (1,863 | ) | 2 |   | (1,861 | ) |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net cash provided  by operating activities                                                   |       | 20,135                         |       | (3,040                         | )          | 17,095 |   | 14,564 |   | (309 | ) | 14,255 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| **Investing  activities**                                                                    |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Purchases of  property and equipment                                                         |       | (7,007                         | )          | 3,044                          |       | (3,963 | ) | (11,783 | ) | 296 |   | (11,487 | ) |
| Proceeds from the  sale of fixed assets                                                      |       | 1,589                          |       | —                         |       | 1,589 |   | 2,434 |   | — |   | 2,434 |   |
| Acquisition, net  of cash received                                                           |       | (17,621                        | )          | —                         |       | (17,621 | ) | (45,629 | ) | — |   | (45,629 | ) |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net cash used in  investing activities                                                       |       | (23,039                        | )          | 3,044                          |       | (19,995 | ) | (54,978 | ) | 296 |   | (54,682 | ) |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| **Financing  activities**                                                                    |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Proceeds from  bank revolver                                                                 |       | 49,013                         |       | —                         |       | 49,013 |   | 47,598 |   | — |   | 47,598 |   |
| Payments on bank  revolver                                                                   |       | (44,471                        | )          | —                         |       | (44,471 | ) | (45,373 | ) | — |   | (45,373 | ) |
| Issuance of  long-term debt                                                                  |       | —                         |       | —                         |       | — |   | 40,000 |   | — |   | 40,000 |   |
| Payments on  long-term debt and capital lease obligations                                    |       | (3,742                         | )          | —                         |       | (3,742 | ) | (5,130 | ) | — |   | (5,130 | ) |
| Proceeds from the  issuance of common stock, net of expenses                                 |       | 641                            |       | —                         |       | 641 |   | 547 |   | — |   | 547 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 796                            |       | —                         |       | 796 |   | 1,062 |   | — |   | 1,062 |   |
| Debt issuance  costs paid                                                                    |       | —                         |       | —                         |       | — |   | (322 | ) | — |   | (322 | ) |
| Net cash provided  by financing activities                                                   |       | 2,237                          |       | —                         |       | 2,237 |   | 38,382 |   | — |   | 38,382 |   |
| Effect of  exchange rate changes on cash                                                     |       | (63                            | )          | (4                             | )          | (67 | ) | 247 |   | 13 |   | 260 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | (730                           | )          | —                         |       | (730 | ) | (1,785 | ) | — |   | (1,785 | ) |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents at beginning of period                                            |       | 11,721                         |       | —                         |       | 11,721 |   | 12,471 |   | — |   | 12,471 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                              | 10,991     |                           | $          | — |   | $ | 10,991 |   | $ | 10,686 |   | $ | — |   | $ | 10,686 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Supplemental  disclosures:                                                                   |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Cash paid for  interest                                                                      |       | $                              | 3,184      |                           | $          | 20 |   | $ | 3,204 |   | $ | 1,284 |   | $ | — |   | $ | 1,284 |   |
|                                                                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Cash paid for income  taxes                                                                  |       | $                              | 2,858      |                           | $          | (637 | ) | $ | 2,221 |   | $ | 6,996 |   | $ | — |   | $ | 6,996 |   |

 

*Consolidated Statement of CashFlow Adjustments*—Forthe income statement and balance sheet adjustments described above,corresponding adjustments were made to the condensed consolidated statement ofcash flows.

 

11

----

 

**3. Inventories**

 

Inventories consist ofthe following:

 
| ** **                 | ** ** | **June 30,  2007** | ** ** | **December 30,  2006** | ** ** |
|----------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                 |
| ** **                 | ** ** | **(Restated)**          | ** ** | **(Restated)**              | ** ** |
| Raw material and  supplies |       | $                       | 9,969      |                        | $          | 10,661 |   |
| Work-in-process            |       | 13,979                  |       | 10,561                      |       |
| Finished goods             |       | 11,215                  |       | 11,912                      |       |
|                       |       | $                       | 35,163     |                        | $          | 33,134 |   |

 

**4. Property and Equipment**

 

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

 
| ** **                                   | ** ** | **June 30,  2007** | ** ** | **December 30,  2006** | ** ** |
|----------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                   |
| ** **                                   | ** ** | **(Restated)**          | ** ** | **(Restated)**              | ** ** |
| Land                                         |       | $                       | 6,504      |                        | $          | 6,735 | ** ** |
| Buildings and  improvements (20 to 40 years) |       | 46,897                  |       | 44,430                      | ** ** |
| Machinery and  equipment (5 to 15 years)     |       | 103,617                 |       | 96,192                      | ** ** |
| Office equipment  (3 to 5 years)             |       | 8,218                   |       | 7,895                       | ** ** |
| Construction-in-progress                     |       | 324                     |       | 1,560                       | ** ** |
|                                         |       | 165,560                 |       | 156,812                     | ** ** |
| Less accumulated  depreciation               |       | (61,965                 | )          | (53,905                     | )          |
|                                         |       | $                       | 103,595    |                        | $          | 102,907 | ** ** |

 

**5. Intangible Assets**

 

Intangible assets wereacquired in connection with our business acquisitions.

 

As of June 30, 2007, thebalances of intangible assets, other than goodwill, were as follows:

 
| ** **                                               | ** ** | **Weighted-average  Amortization  Period** | ** ** | **Gross  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|-----------------------------|------------|
|                                                     |       | **(Restated)**                             | ** ** | **(Restated)**                | ** ** | **(Restated)**                | ** ** | **(Restated)**              |       |
| Acquired  technology and patents                         |       | 11 years                                   |       | $                             | 2,095      |                          | $          | (372                        | )          | $ | 1,723 |   |
| Acquired  customers                                      |       | 19 years                                   |       | 31,295                        |       | (3,123                        | )          | 28,172                      |       |
| Non-compete  agreements                                  |       | 5 years                                    |       | 484                           |       | (71                           | )          | 413                         |       |
| Intangible  assets subject to amortization               |       |                                       |       | 33,874                        |       | (3,566                        | )          | 30,308                      |       |
|                                                     |       |                                       |       |                          |       |                          |       |                        |       |
| Proprietary  processes                                   |       | Indefinite                                 |       |                          |       |                          |       | 3,924                       |       |
| Trademarks                                               |       | Indefinite                                 |       |                          |       |                          |       | 2,845                       |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                                       |       |                          |       |                          |       | 6,769                       |       |
| Total                                                    |       |                                       |       |                          |       |                          |       | $                           | 37,077     |   |
|                                                          |            |                                            |            |                               |            |                               |            |                             |            |  |  |  |

 

12

----

 

As of December 30,2006, the balances of intangible assets, other than goodwill were as follows:

 
| ** **                                               | ** ** | **Weighted-average  Amortization  Period** | ** ** | **Gross  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | **(Restated)**                             | ** ** | **(Restated)**                | ** ** | **(Restated)**                | ** ** | **(Restated)**              | ** ** |
| Acquired  technology and patents                         |       | 12 years                                   |       | $                             | 1,573      |                          | $          | (363                        | )          | $ | 1,210 | ** ** |
| Acquired  customers                                      |       | 19 years                                   |       | 27,116                        |       | (2,159                        | )          | 24,957                      | ** ** |
| Non-compete  agreements                                  |       | 5 years                                    |       | 290                           |       | (27                           | )          | 263                         | ** ** |
| Intangible  assets subject to amortization               |       |                                       |       | 28,979                        |       | (2,549                        | )          | 26,430                      | ** ** |
|                                                     |       |                                       |       |                          |       |                          |       |                        | ** ** |
| Proprietary  processes                                   |       | Indefinite                                 |       |                          |       |                          |       | 3,883                       | ** ** |
| Trademarks                                               |       | Indefinite                                 |       |                          |       |                          |       | 1,300                       | ** ** |
| Indefinite-lived  intangible assets, other than goodwill |       |                                       |       |                          |       |                          |       | 5,183                       | ** ** |
| Total                                                    |       |                                       |       |                          |       |                          |       | $                           | 31,613     | ** ** |
|                                                          |            |                                            |            |                               |            |                               |            |                             |            |  |  |  |

 

The increase inintangibles is due to our acquisition of Clamonta Ltd. in January 2007 aswell as TNCO acquired in April 2007.

 

**6. New Accounting Pronouncements**

 

In July 2006, theFASB issued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes– an interpretation of FASB Statement No. 109*.This statement prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This statement was adopted by theCorporation on December 31, 2006. The implementation of FIN 48 had noimpact on the Corporation’s financial position or results of operations. As of the beginning of fiscal year 2007, the Corporation had unrecognized taxbenefits of $248.  There has been no significant change in theunrecognized tax benefits through the second quarter ending June 30, 2007.

 

The Corporationrecognizes interest and penalties related to unrecognized tax benefits throughincome tax expense. 

 

The Corporation issubject to periodic audits by domestic and foreign tax authorities. Currently, the Corporation is undergoing routine periodic audits in bothdomestic and foreign tax jurisdictions.  It is reasonably possible thatthe amounts of unrecognized tax benefits could change in the next 12 months asa result of the audits.  It is impossible to estimate the significance ofsuch a potential change at this time.  For the majority of taxjurisdictions, the Corporation is no longer subject to U.S. federal, state andlocal, or non-U.S. income tax examinations by tax authorities for fiscal yearsbefore 2003.

 

In September 2006,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,*Fair Value Measurements.* The Statement provides guidance for using fair value to measure assetsand liabilities and only applies when other standards require or permit thefair value measurement of assets and liabilities. It does not expand the use offair value measurement. This Statement is effective for fiscal years beginningafter November 15, 2007. The adoption of this Statement is not expected tohave a material impact on the Corporation’s financial position, results ofoperations and cash flows.

 

In February 2007,the FASB issued Statement of Financial Accounting Standard (SFAS) No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities*. This Statement allows entities to measuremany financial instruments and certain other instruments at fair value. ThisStatement is effective for fiscal years beginning after November 15, 2007.The Company does not anticipate adopting this standard.

 

**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 ofthe operations, including the nature of the products, comparable level of FDAregulations, same or similar customers, those operations have been aggregated followingthe provisions of SFAS No. 131 for segment reporting purposes. The results ofone segment which sells exclusively to aerospace customers has not beendisclosed separately as it does not meet the quantitative disclosurerequirements.

 

The Corporation is amulti-national corporation with operations in the United States, the UnitedKingdom, Ireland, Switzerland, France 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. Revenue isattributed to geographic locations based on the location to which we ship ourproducts.

 

13

----

 

*Revenuefrom External Customers:*

 
| ** **               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **               | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **               | ** ** | **(Restated)**                   | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **               | ** ** | **(unaudited)**                  | ** ** |
| United States            |       | $                                | 40,571     |                           | $          | 40,995 |   | $ | 79,230 |   | $ | 86,979 |   |
| United Kingdom           |       | 12,234                           |       | 7,344                          |       | 24,229 |   | 14,414 |   |
| Ireland                  |       | 7,397                            |       | 5,048                          |       | 13,193 |   | 12,578 |   |
| Other foreign  countries |       | 9,511                            |       | 9,794                          |       | 17,784 |   | 17,534 |   |
|                     |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues      |       | $                                | 69,713     |                           | $          | 63,181 |   | $ | 134,436 |   | $ | 131,505 |   |

 

*Concentrationof Credit Risk:*

 

A substantial portion ofthe Corporation’s net revenues is derived from a limited number of customers.Net revenues include revenues from customers of the Corporation whichindividually account for 10% or more of net revenues as follows:

 

Three months ended June 30,2007—Three customers represented approximately 20.1%, 11.7% and 10.0% of netrevenues, respectively.

 

Six months ended June 30,2007—Four customers represented approximately 18.4%, 11.9%, 10.6% and 10.1% ofnet revenues, respectively.

 

Three months ended July 1,2006—Three customers represented approximately 23.7%, 12.5% and 12.2% of netrevenues, respectively.

 

Sixmonths ended July 1, 2006—Four customers represented approximately 26.7%,11.4%, 10.6% and 10.5% of net revenues, respectively.

 

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

 
| ** **          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **          | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **          | ** ** | **(Restated)**                   | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **          | ** ** | **(unaudited)**                  | ** ** |
| Implants            |       | $                                | 27,120     |                           | $          | 23,202 |   | $ | 49,792 |   | $ | 49,851 |   |
| Instruments         |       | 15,451                           |       | 18,032                         |       | 30,694 |   | 39,610 |   |
| Cases               |       | 18,790                           |       | 16,489                         |       | 36,376 |   | 31,160 |   |
| Other               |       | 8,352                            |       | 5,458                          |       | 17,574 |   | 10,884 |   |
|                |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues |       | $                                | 69,713     |                           | $          | 63,181 |   | $ | 134,436 |   | $ | 131,505 |   |

 

14

----

 

**8. Net Income Per Share**

 

Thefollowing table sets forth the computation of earnings per share.

 
| ** **                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                                         | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                         | ** ** | **(Restated)**                   | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **                                                         | ** ** | ** **                       | ** ** | **(unaudited)**                | ** ** | ** ** | ** ** |
| Net income                                                         |       | $                                | 4,696      |                           | $          | 7,740 |   | $ | 6,311 |   | $ | 15,706 | ** ** |
|                                                               |       |                             |       |                           |       |   |   |   | ** ** |
| Weighted-average  common sharesoutstanding basic                   |       | 35,119                           |       | 34,830                         |       | 35,046 |   | 34,774 | ** ** |
| Effect of stock  options, restricted stock andstock warrants       |       | 158                              |       | 347                            |       | 191 |   | 383 | ** ** |
| Weighted-average  common sharesoutstanding and assumed conversions |       | 35,277                           |       | 35,177                         |       | 35,237 |   | 35,157 | ** ** |
|                                                               |       |                             |       |                           |       |   |   |   | ** ** |
| Net income per  share:                                             |       |                             |       |                           |       |   |   |   | ** ** |
| Basic                                                              |       | $                                | 0.13       |                           | $          | 0.22 |   | $ | 0.18 |   | $ | 0.45 | ** ** |
| Diluted                                                            |       | $                                | 0.13       |                           | $          | 0.22 |   | $ | 0.18 |   | $ | 0.45 | ** ** |

 

During the six monthperiod ended June 30, 2007, the Corporation issued 178 shares of commonstock through the exercise of stock options.

 

**9. Commitments and Contingencies**

 

*Environmental and Legal*

 

The Corporation isinvolved, from time to time, in various contractual, product liability, patent (orintellectual 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 affect 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.

 

*Unconditional PurchaseObligations*

 

The Corporation hascontracts to purchase minimum quantities of cobalt chrome through December 2007.  Based on contractual pricing at June 30,2007, the minimum purchase obligations totaled $6,800. Purchases under 2007contracts totaled approximately $5,249 as of June 30, 2007. Thesepurchases are not in excess of our forecasted requirements.

 

15

----

 

**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** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(Restated)**                   | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **                                | ** ** | ** **                       | ** ** | **(unaudited)**                | ** ** | ** ** | ** ** |
| Net Income                                |       | $                                | 4,696      |                           | $          | 7,740 |   | $ | 6,311 |   | $ | 15,706 | ** ** |
| Foreign currency  translation adjustments |       | 578                              |       | 2,065                          |       | 937 |   | 2,480 | ** ** |
| Comprehensive  income                     |       | $                                | 5,274      |                           | $          | 9,805 |   | $ | 7,248 |   | $ | 18,186 | ** ** |

 

**11. Acquisitions**

 

On January 9, 2007,the Corporation’s subsidiary Thornton Precision Components Limited (“Thornton”)acquired all of the stock of Whedon Limited, a privately owned company based inWarwickshire, UK and the holding company of Clamonta Limited (collectively “ClamontaLtd”), for $10,331 in cash, subject to certain post closing adjustments. The acquisition of Clamonta Ltd expands the Corporation’s Total Solutions®business model into the global aerospace industry and further strengthens ourrelationship with a key aerospace customer.  Results of Clamonta Ltd areincluded from the date of acquisition.

 

As of June 30, 2007,the aggregate purchase price was allocated to the opening balance sheet asfollows:

 
| Current assets                                   |   | $      | 3,365  |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Property, plant  & equipment                 |   | 3,695  |   |
| Acquired  customers (amortized over 15 years)    |   | 2,910  |   |
| Non-compete  agreements (amortized over 5 years) |   | 110    |   |
| Trademarks  (indefinite-lived)                   |   | 1,310  |   |
| Goodwill                                         |   | 1,256  |   |
| Current  liabilities                             |   | (1,765 | )      |
| Capital leases                                   |   | (550   | )      |
| Purchase price,  net                             |   | $      | 10,331 |   |

 

On April 3, 2007,the Corporation’s subsidiary Symmetry Medical USA Inc. acquired all of thestock of TNCO, Inc. (“TNCO”), a privately owned company based in Whitman,Massachusetts for $7,223 in cash, subject to certain post closingadjustments.   TNCO designs andsupplies precision instruments for arthroscopic, laparoscopic, sinus, and otherminimally invasive procedures.

 

As of June 30, 2007,the aggregate purchase price was allocated to the opening balance sheet asfollows:

 
| Current assets                                                 |   | $     | 2,700  |   |
|----------------------------------------------------------------|--------|-------|--------|--------|
| 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                                                       |   | 1,313 |   |
| Current  liabilities                                           |   | (480  | )      |
| Purchase price,  net                                           |   | $     | 7,223  |   |

 

On May 2, 2006, theCorporation completed the acquisition of Riley Medical, a privately-ownedcompany based in Auburn, Maine, for approximately $45,797 in net cash, subjectto adjustment for tax impacts to the previous owners. Riley Medical is amanufacturer of standard and custom cases, trays and containers for the medicaldevice industry with locations in the United States and Switzerland.  Theacquisition expands the Corporation’s geographic footprint in Europe and thecase product line, including several new patents and trademarks.

 

On August 31, 2006,the Corporation completed the acquisition of Everest Metal for approximately$9,214 in net cash, plus an earn-out provision.  The earn-out provisionrequires payments of up to approximately $1,081 after the end of 2007 ifcertain revenue targets are met.

 

16

----

 

***UnauditedProforma Results*** The following table represents the proforma results of the Corporation’soperations had the acquisitions of Riley Medical, Everest Metal, Clamonta Ltdand TNCO been completed as of the beginning of the periods presented:

 
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                       | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(Restated)**                   | ** ** | **(Restated)**                 | ** ** | **(Restated)** | ** ** | **(Restated)** | ** ** |
| ** **                       | ** ** | ** **                       | ** ** | **(unaudited)**                | ** ** | ** ** | ** ** |
| Revenue                          |       | $                                | 69,713     |                           | $          | 71,025 |   | $ | 136,254 |   | $ | 150,027 | ** ** |
| Net income  (loss)               |       | 4,696                            |       | 8,148                          |       | 6,229 |   | 16,256 | ** ** |
| Earnings per  share—basic   |       | $                                | 0.13       |                           | $          | 0.23 |   | $ | 0.18 |   | $ | 0.47 | ** ** |
| Earnings per  share—diluted |       | $                                | 0.13       |                           | $          | 0.23 |   | $ | 0.18 |   | $ | 0.46 | ** ** |

 

**12. Subsequent Event**

 

On December 14, 2007, theCorporation entered into a definitive agreement with DePuy Orthopaedics, Inc.,whereby the Corporation purchased DePuy’s orthopedic instrument manufacturingfacility located in New Bedford, Massachusetts for $45,000 in cash, subject tocertain post closing adjustments.  Theacquisition closed on January 25, 2008. Further description of this transaction is contained in the Corporation’sannual financial statements which have been contemporaneously filed on Form10-K.

 

Additionally, theCorporation has amended its debt agreement to address certain covenantviolations.  These amendments are morefully described in the Corporation’s annual consolidated financial statementscontemporaneously filed on Form 10-K.

 

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 SECcommenced an informal inquiry into this matter. The Corporation intends to fully cooperate with the SEC in itsinvestigation.  At this time, theCorporation is unable to predict the timing of the ultimate resolution of thisinvestigation or the impact thereof.

 

17

----

 

**ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

 

**ExplanatoryNote Regarding Our Restatement**

 

On October 4, 2007,we issued a press release and filed a related Current Report on Form 8-Kwith the Securities and Exchange Commission (the “SEC”) in which we announcedthat, due to the apparent overstatement of revenues by our Sheffield, UKoperating unit, it may be necessary for us to restate our financial statementsfor the periods subsequent to June 2003, and that as a result ourhistorical financial statements for those periods can no longer be reliedupon.  On November 12, 2007, weissued a press release and filed a related Current Report on Form 8-K withthe SEC in which we announced that the potential irregularities in thefinancial reporting by our Sheffield, UK operating unit also includes theoverstatement of inventory and other matters. The Sheffield, UK operating unitis part of our Thornton Precision Components Limited subsidiary.

 

This Form 10-Q/Areflects the restatement of: i) our previously issued consolidated financialstatements for the three months and six months ended July 1, 2006 and June 30,2007 and the year ended December 30, 2006; and ii) Management’s Discussionand Analysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 tothe consolidated financial statements. Along with this report, we are filingour amended Quarterly Report on Form 10-Q/A for the first quarter offiscal 2007 and the delayed third quarter of fiscal 2007 on Form 10-Q aswell as our Annual Report for fiscal 2007 on Form 10-K.  We do not intend to amend our previouslyfiled Annual Reports on Form 10-K or Quarterly Reports on Form 10-Qfor the periods prior to fiscal 2007. The financial information that was presented in previous filings orotherwise reported for these periods is amended by the information in ourAnnual Report for fiscal 2007 on Form 10-K.  The financial statements and relatedfinancial information contained in such previously filed reports should nolonger be relied upon.

 

Upon discovery of theaccounting irregularities, the Audit Committee engaged special legal counsel,who in turn retained independent forensic accountants, to investigate andreport to the Audit Committee. That investigation has concluded that theirregularities were isolated to our Sheffield, UK operating unit.

 

We have quantified theimpact of the irregularities identified at our Sheffield, UK operating unit,and are restating our financial statements to correct thoseirregularities.  The restatements correctmisstatements within accounts receivable, inventory, accounts payable,property, plant and equipment and the corresponding income tax and profit and lossimpact.  Furthermore, once the restated financialperformance was known, an impairment of goodwill and certain other intangiblesat that subsidiary occurred in fiscal 2005.  The Audit Committee engaged Ernst &Young LLP to audit our restated consolidated financial statements for fiscal 2005 and 2006, whilesimultaneously completing its audit of our 2007 fiscal year. Ernst &Young LLP was also engaged to re-review our quarterly consolidated financialstatements for fiscal 2006 and 2007.  Theadjustments made as a result of the restatements are more fully discussed inNote 2 to the consolidated financial statements.

 

**BusinessOverview**

 

We are a leadingindependent provider of implants and related instruments and cases to globalorthopedic device manufacturers and other medical markets. We also design,develop and produce these products for companies in other segments of themedical device market, including the dental, osteobiologic and endoscopysegments, and we also provide limited specialized products to non-healthcaremarkets, such as the aerospace market.

 

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, filed contemporaneously withthis Form 10-Q/A provides additional information about our business,operations and financial condition.

 

During the second quarter2007, our revenue growth of 7.7% over the first quarter of 2007 was driven by acontinued ramp-up in our core orthopedics business, continued momentum from theintegration of our 2006 acquisitions and the acquisitions of Clamonta and TNCO. Revenue increased 10.3% in the secondquarter 2007 compared to second quarter 2006 as 2007 includes results from ourClamonta Ltd and TNCO acquisitions. Revenues from our top five orthopediccustomers were 55.6% of total revenue year to date 2007 compared to 66.8% oftotal revenue year to date 2006. Quarterly revenue from all other customersincreased 31.5% compared to the same period last year.  Our long-termstrategy is to diversify our customer base and expand into other medical devicemarkets outside of our core hip and knee business, and we continue to makeprogress on these initiatives.

 

A significant part of ourbusiness strategy has been growth through acquisitions which have enhanced ourproduct offerings and our business model.  We acquired Riley Medical Inc.and Symmetry Medical Switzerland SA (formerly known as Riley Medical Europe SA)(collectively “Riley Medical”) on May 2, 2006 for $45.8 million. Riley Medical is a leading designer and manufacturer of specialty cases andtrays for the global medical market.  We also acquired certain assets ofEverest Metal Finishing, LLC and all of the

 

18

----

 

issued and outstanding stock of Everest Metal International Limited(collectively “Everest Metal”) on August 31, 2006 for $9.2 million,subject to adjustment.  Everest Metal specializes in implantfinishing.  On January 9, 2007, our wholly-owned subsidiary ThorntonPrecision Components Limited (“Thornton”) acquired all of the stock of WhedonLimited, a privately owned company based in Warwickshire, UK and the holdingcompany of Clamonta Limited (collectively “Clamonta Ltd”), for $10.3 million incash, subject to certain post closing adjustments.  Clamonta Ltd machineshigh-precision specialty parts for the global aerospace industry.  On April 3,2007 we acquired TNCO, Inc. (“TNCO”), a privately owned company based inWhitman, Massachusetts for $7.2 million in cash, subject to certain post closingadjustments. TNCO designs and supplies precision instruments for arthroscopic,laparoscopic, sinus, and other minimally invasive procedures.

 

While acquisitions are animportant part of our growth strategy and we have a strong pipeline acrossseveral diverse medical device segments, we continue to invest in our corebusiness with the ramp-up of our Malaysian facility, the introduction of newSymmetry products and innovation with new materials and technologies, such ascarbon fiber.  On April 30, 2007, we announced the introduction of anew proprietary printing technology for our cases, DigiPrint, that will allowus to employ a non-toxic, durable graphic printed below the surface of themetal making it impervious to scratching, peeling and fading.

 

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.  We experienced increased customeractivity near the end of the second quarter of 2007 and into the second half of2007.  In particular, we continue to expand our engineering resources thatproduce and provide closer and critical customer relationships on thedevelopment of new products.  This local presence in the globalmarketplace allows us to be closer to our customer base, provide quickerresponse times and increase our value added services.

 

**SecondQuarter Results of Operations**

 

*Revenue.*  Revenue for the three month period ended June 30, 2007 increased $6.5million, or 10.3% to $69.7 million from $63.2 million for the comparable 2006period.  Revenue for each of our principal product categories in theseperiods was as follows:

 
| **Product Category** | ** ** | **Three  Months Ended** | ** ** |
|----------------------|------------|-------------------------|------------|
|                 | ** ** | **June 30,**            | ** ** | **July 1,** | ** ** |
|                 | ** ** | **2007**                | ** ** | **2006** | ** ** |
|                 | ** ** | **(Restated)**          | ** ** | **(Restated)** | ** ** |
|                 | ** ** | **(unaudited)**         | ** ** |
|                 | ** ** | **(in  millions)**      | ** ** |
| Implants             |       | $                       | 27.1       |   | $ | 23.2 |   |
| Instruments          |       | 15.4                    |       | 18.0 |   |
| Cases                |       | 18.8                    |       | 16.5 |   |
| Other                |       | 8.4                     |       | 5.5 |   |
|                 |       |                    |       |   |   |
| Total                |       | $                       | 69.7       |   | $ | 63.2 |   |

 

The $6.5 million increasein revenue resulted from increased implant, case and other revenue of $3.9million, $2.3 million and $2.9 million, respectively.  The increase inimplant revenue was driven by a $1.6 million increase in customer demand forproducts plus an incremental $2.2 million from our Everest Metal acquisition inAugust 2006.  The increase in case revenue was driven by increase inrevenue from our Riley Medical acquisition in May 2006. These increaseswere partially offset by decreased instrument revenue of $2.6 million, despitethe addition of $1.4 million of revenue from the TNCO acquisition in2007.  This decrease in instrument revenue was driven by a continuedsoftening of market with our top five customers as they reduced theirinventories and maintained smaller product launch quantities. Other productrevenue increased $2.9 million driven by the addition of $2.9 million ofrevenue from Clamonta in 2007.

 

*Gross Profit.*  Grossprofit for the three month period ended June 30, 2007 decreased $2.0million, or 12.2%, to $14.7 million from $16.8 million for the comparable 2006period.  The decrease in gross profit was due to a decrease in grossprofit as a percentage of sales to 21.1% for the three month period ended June 30,2007 compared to 26.5% in the comparable 2006 period. The decline in grossmargin as a percentage of sales was primarily driven by our Sheffield, UKoperations which experienced significantly higher costs as a percentage ofrevenue driven by higher fixed costs for depreciation, the adverse impacts of aflood during the second quarter, and other increased costs of manufacturingrelated to poor operational management. We have commenced a full and complete review of Sheffield’s operationsand anticipate significant improvements in 2008. Gross margin was also impactedby higher fixed costs from our significant investment in 2005 capacityexpansion across our global facilities and a more pronounced sales reduction inour higher margin products within several of our product segments.  We view our global infrastructure as acompetitive strength, enabling us to respond quickly to our customers’ highvolume demand on short notice.

 

*Selling, General andAdministrative Expenses.*  Selling, general andadministrative expenses for the three month period ended 

 

19

----

 

June 30, 2007 increased $1.1 million, or 16.8%, to $8.0 millionfrom $6.9 million for the comparable 2006 period.  As a percentage ofrevenue, selling, general and administrative expenses increased to 11.5% ofrevenue for the three month period ended June 30, 2007 from 10.9% ofrevenue for the comparable 2006 period.  Costs related to Riley Medical,Everest Metal, Clamonta Ltd and TNCO accounted for all of the increase, whichincluded $0.3 million of additional intangible asset amortization.

 

*Other Expense.*  Interest expense for the three month period ended June 30, 2007 increased$0.7 million, or 73.7%, to $1.6 million from $0.9 million for the comparable2006 period. This increase reflects the cost of the additional $40.0 millionsenior term debt related to the acquisition of Riley Medical in May 2006and increased average borrowings on the revolving credit facility to fund theClamonta and TNCO acquisitions.  This increase was partially offset by thereduction in outstanding capital lease obligations and existing senior termdebt through normal amortization.

 

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. The gain of $0.3 million for the three month period ended June 30,2007 is consistent with the loss of $0.4 million in the comparable 2006period. During the second quarter of 2007, we settled two of our foreignexchange rate contracts at a loss of $0.9 million.  No contracts weresettled in the second quarter of 2006.

 

Included in Other is a$0.4 million gain for the three month period ended June 30, 2007 for thesale of surplus land adjacent to our Sheffield, UK facility. The comparable2006 period had a $1.2 million gain on the sale of other surplus land adjacentto our Sheffield, UK facility.

 

*Provision for Income Taxes.*  Our effective tax rate was 23.3% for the three month period ended June 30,2007 as compared to 27.8% for the comparable 2006 period. The provision forincome taxes decreased by $1.6 million, or 52.2%, to $1.4 million for the threemonth period ended June 30, 2007 from $3.0 million for the comparable 2006period primarily due to lower pre-tax income.

 

**SixMonths Results of Operations**

 

*Revenue.*  Revenue for the six month period ended June 30, 2007 increased $2.9million, or 2.2%, to $134.4 million from $131.5 million for the comparable 2006period. Revenue for each of our principal product categories in these periodswas as follows:

 
| **Product Category** | ** ** | **Six Months Ended** | ** ** |
|----------------------|------------|----------------------|------------|
| ** **           | ** ** | **June 30,**         | ** ** | **July 1,** | ** ** |
| ** **           | ** ** | **2007**             | ** ** | **2006** | ** ** |
| ** **           | ** ** | **(Restated)**       | ** ** | **(Restated)** | ** ** |
| ** **           | ** ** | **(unaudited)**      | ** ** |
| ** **           | ** ** | **(in millions)**    | ** ** |
| Implants             |       | $                    | 49.7       |   | $ | 49.8 |   |
| Instruments          |       | 30.7                 |       | 39.6 |   |
| Cases                |       | 36.4                 |       | 31.2 |   |
| Other                |       | 17.6                 |       | 10.9 |   |
|                 |       |                 |       |   |   |
| Total                |       | $                    | 134.4      |   | $ | 131.5 |   |

 

The $2.9 million increasein revenue resulted from increased case and other revenue of $5.2 million, and$6.7 million, respectively. Case revenues include $13.4 million for the sixmonth period ended June 30, 2007 compared to $3.4 million for thecomparable 2006 period from our Riley Medical acquisition offset by a continuedsoft market with large customers as they reduced their inventories andmaintained smaller launch quantities.  Other product revenues increaseddue to the inclusion of $5.7 million from our Clamonta acquisition in2007.  These increases were partially offset by decreased instrument andimplant revenue of $8.9 and $0.1 million, respectively.  The decrease in instrument revenue was due toslower demand from our top five customers, particularly in the first quarter of2007.  Implant revenue increased $4.2million from our Everest Metal acquisition in 2007; however, this increase wasmore than offset by slower growth at our top five customers as they reducedinventories.

 

*Gross Profit.*  Gross profit for the six month period ended June 30, 2007 decreased $9.0million, or 25.4%, to $26.4 million from $35.4 million for the comparable 2006period. This decrease in gross profit was driven primarily by a reduced grossprofit as a percentage of sales which was 19.7% for the six month period ended June 30,2007 compared to 26.9% for the comparable 2006 period. The decline in grossprofit as a percentage of sales of 7.2% was driven by our Sheffield, UKoperations which experienced significantly higher costs as a percentage ofrevenue driven by higher fixed costs for depreciation, the adverse impacts of aflood during the second quarter, and other increased costs of manufacturingrelated to poor operational management. We have commenced a full and complete review of Sheffield’s operationsand anticipate significant improvements in 2008. Gross margin was also impactedby higher fixed costs from our significant investment in 2005 capacityexpansion across our global facilities and a more pronounced sales reduction inour higher margin products within several of our product segments.  We view our global infrastructure as a 

 

20

----

 

competitive strength, enabling us to respond quickly to our customers’high volume demand on short notice.

 

*Selling, General andAdministrative Expenses.*   Selling, general andadministrative (SG&A) expenses for the six month period ended June 30,2007 increased $1.8 million, or 12.7%, to $15.7 million from $13.9 million forthe comparable 2006 period. As a percentage of revenue, SG&A expensesincreased to 11.7% of revenue for the six month period ended June 30, 2007from 10.6% of revenue for the comparable 2006 period.  SG&A expensesfrom our Riley Medical, Everest Metal, Clamonta and TNCO acquisitions totaled$3.2 million for the six month period ended June 30, 2007 compared to $0.7million for the comparable 2006 period.  The $2.5 million increase fromacquired companies was partially offset by initiatives to cut costs across ourglobal facilities.

 

*Other Expense.*  Interest expense for the six month period ended June 30, 2007 increased$1.6 million, or 101.4%, to $3.2 million from $1.6 million for the comparable2006 period. This increase primarily reflects the increase of interest from newsenior term and revolving debt related to our acquisitions in the past year.This increase was offset by reductions in outstanding capital lease obligationsand previously held senior term debt through normal amortization.

 

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. The neglible gain for the six month period ended June 30,2007 versus the loss of $0.4 million in the comparable 2006 period is due tomarket fluctuations in these contracts, which are not designated as hedgesunder Statement of Financial Accounting Standards (SFAS) No. 133, *Accounting for Derivative Instruments and Hedging Activities*. Duringthe six month period ended June 30, 2007, we settled three of our foreignexchange rate contracts at a loss of $1.5 million.  No contracts weresettled in the comparable 2006 period.

 

Also included in Other isa $0.4 million gain for the six month period ended June 30, 2007 for thesale of surplus land adjacent to our Sheffield, UK facility. The comparable2006 also had a $1.2 million gain on the sale of surplus land adjacent to ourSheffield, UK facility.

 

*Provision for Income Taxes.*  Our effective tax rate was 23.4% for the six month period ended June 30,2007 as compared to 28.8% for the comparable 2006 period. The provision forincome taxes decreased by $4.4 million, or 69.7%, to $1.9 million for the sixmonth period ended June 30, 2007 from $6.4 million for the comparable 2006period primarily due to lower pre-tax income.

 

**Liquidityand Capital Resources**

 

Our principal sources ofcash in the six month period ended June 30, 2007 were cash generated fromoperations and borrowings under our senior credit revolving loan facility andUK revolving credit facility.  Principaluses of cash in the six month period ended June 30, 2007 included capitalexpenditures, the acquisition of Clamonta Ltd and TNCO as well as debt service.We expect that our principal uses of cash in the future will be for workingcapital, capital expenditures, debt service and to fund mergers andacquisitions.

 

We completed theacquisition of Clamonta on January 9, 2007 for $10.3 million, subject toadjustment, through the use of the existing cash balances and our$40.0 million senior debt facility.   On April 3, 2007, wecompleted the acquisition of TNCO for approximately $7.2 million, subject toadjustment, through the use of existing cash balances and our $40.0 millionsenior debt facility.

 

*Operating Activities  *We generated cash from operations of $17.1 million in the six month periodended June 30, 2007 compared to $14.3 million for the six month periodended July 1, 2006, an increase of $2.8 million.  Net cash providedby working capital for the six month period ended June 30, 2007 was $13.2million higher than the comparable 2006 period.  This improvement in thenet change in working capital was offset by a decrease in net income of $9.4million.

 

In the six month periodended June 30, 2007, the primary sources of cash for working capital camefrom an increase in accounts payable, offset by increases in accountsreceivable and other assets.  In the six month period ended July 1,2006, the primary uses of cash for working capital came from an increase ininventory and decreases in accounts payable and accrued expenses, offset by adecrease in account receivable and other assets.  The volatility in working capital is a resultof increasing production activity in the second quarter of 2007 compared todecreasing production activity in the second quarter of 2006.

 

*Investing Activities*  Capitalexpenditures of $4.0 million were lower by $7.5 million, or 65.5%, in the sixmonth period ended June 30, 2007 compared to the six month period ended July 1,2006.  The acquisition of Clamonta Ltd and TNCO used $17.6 million of cashin the 2007 period while acquisition activity in the 2006 period used $45.6million for Riley Medical.

 

*Financing Activities  *Financing activities generated $2.2 million of cash due primarily to borrowingson the revolving credit facility, offset by payments on long-term debt andcapital leases.  Borrowings on the revolving credit facility partiallyfunded the Clamonta Ltd and TNCO acquisitions.

 

21

----

 

***CapitalExpenditures***

 

Capital expenditurestotaled $4.0 million for the six months ended June 30, 2007, compared to$11.5 million for the six month period ended July 1, 2006. Expenditureswere primarily related to our Sheffield, UK facility’s increase to forging andmachining capacity and to maintain capacity at our other facilities.

 

***Debtand Credit Facilities***

 

As of June 30, 2007,we had an aggregate of $79.3 million of outstanding indebtedness, whichconsisted of $62.3 million of term loan borrowings outstanding under our seniorcredit facility, $8.5 million of borrowings outstanding under our revolvingcredit facility, $1.1 million of borrowings under our UK short-term creditfacility and $7.4 million of capital lease obligations. We had no outstandingletters of credit as of June 30, 2007.

 

Our senior creditagreement contains various financial covenants, including covenants requiring amaximum total debt to EBITDA ratio, minimum EBITDA to interest ratio and aminimum EBITDA to fixed charges ratio. We were in compliance with our financialand other covenants under the senior credit facility as of June 30, 2007.See note 12 to the condensed consolidated financial statements.

 

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

 

**ContractualObligations and Commercial Commitments**

 
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | ** **                 | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | **More than** | ** ** |
| ** **                      | ** ** | **Total**                  | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **5 years** | ** ** |
| ** **                      | ** ** | **(in millions)**          | ** ** |
| Long-term debt  obligations (1) |       | $                          | 70.9       |   | $ | 3.7 |   | $ | 20.1 |   | $ | 47.1 |   | $ | — |   |
| Capital lease obligations       |       | 11.3                       |       | 1.8 |   | 4.1 |   | 1.6 |   | 3.8 |   |
| Operating lease obligations     |       | 3.7                        |       | 0.4 |   | 2.0 |   | 1.3 |   | — |   |
| Purchase obligations (2)        |       | 6.8                        |       | 6.8 |   | — |   | — |   | — |   |
|                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total                           |       | $                          | 92.7       |   | $ | 12.7 |   | $ | 26.2 |   | $ | 50.0 |   | $ | 3.8 |   |

 

----

  * Less than 1 year is defined as the remainder offiscal 2007. Following periods are whole fiscal years.

 

(1) Represents principal maturities only and, therefore excludesthe effects of interest and interest rate swaps.

 

(2) Represents purchase agreements to buy minimum quantities ofcobalt chrome through December 2007.

 

**Off-Balance Sheet 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 credit outstandingas of June 30, 2007.

 

**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$0.2 million and $0.2 million in capital expenditures for environmental, healthand safety in 2007 and 2006, respectively. During 2007 we upgraded our HVAC anddust collection system at multiple locations.

 

In 2000, we purchasedpollution legal liability insurance that covers certain environmentalliabilities that may arise at our Warsaw, Indiana facility, at a formerfacility located in Peru, Indiana, and at certain non-owned locations that weuse for the disposal 

 

22

----

 

of waste. The insurance has a $5.0 million aggregate limit and issubject to a deductible and certain exclusions. The policy period expires in 2010.While the insurance may mitigate the risk of certain environmental liabilities,we cannot guarantee that a particular liability will be covered by thisinsurance.

 

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

 

**Critical Accounting Policies andEstimates**

 

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, filed contemporaneously with thisForm 10Q/A, includes a summary of the critical accounting policies webelieve are the most important to aid in understanding our financial results.There have been no material changes to these critical accounting policies thatimpacted our reported amounts of assets, liabilities, revenues or expensesduring the six months ended June 30, 2007.

 

**New Accounting Pronouncements**

 

In July 2006, theFASB issued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes*. .  This statement prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. This statement was adopted by the Corporation on December 31,2006. The implementation of FIN 48 had no impact on the Corporation’s financialposition or results of operations.  As of the beginning of fiscal year2007, the Corporation had unrecognized tax benefits of $0.3 million. There has been no significant change in the unrecognized tax benefitsthrough the second quarter ending June 30, 2007

 

We recognize interest andpenalties related to unrecognized tax benefits through income tax expense.

 

We are subject toperiodic audits by domestic and foreign tax authorities.  Currently, weare undergoing routine periodic audits in both domestic and foreign taxjurisdictions.  It is reasonably possible that the amounts of unrecognizedtax benefits could change in the next 12 months as a result of theaudits.  It is impossible to estimate the significance of such a potentialchange at this time.  For the majority of tax jurisdictions, we are nolonger subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities for fiscal years before 2003.

 

In September 2006,the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157,*Fair Value Measurements.* The Statement provides guidance for using fair value to measure assetsand liabilities and only applies when other standards require or permit thefair value measurement of assets and liabilities. It does not expand the use offair value measurement. This Statement is effective for fiscal years beginningafter November 15, 2007. The adoption of this Statement is not expected tohave a material impact on our financial position, results of operations andcash flows.

 

In February 2007,the FASB issued Statement of Financial Accounting Standard (SFAS) No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities*. This Statement allows entities to measuremany financial instruments and certain other instruments at fair value. ThisStatement is effective for fiscal years beginning after November 15, 2007.We do not intend to adopt this voluntary standard.

 

**ITEM 3. QUANTITATIVE ANDQUALITATIVE 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, filed contemporaneously with this Form 10-Q/A.Our exposure to these risks, at the end of the second quarter covered by thisreport, had not changed materially since December 30, 2006.

 

**  ITEM 4. CONTROLSAND PROCEDURES**

 

(a)   Evaluation of disclosure controls andprocedures.

 

At thetime of the filing of our Quarterly Report on Form 10-Q, as filed on August 9,2007, our Chief Executive Officer and Chief Financial Officer, after evaluatingthe effectiveness of our disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934), concluded that ourdisclosure controls and procedures were effective and designed to ensure thatmaterial information relating to the Company and our consolidated subsidiarieswould be made known to them by others within those entities.  At the time of the filing of this Form10-Q/A, as a result of our accounting review and restatement, our ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures were ineffective, as more fully described inItem 9A in our Annual Report on 10-K for fiscal year ended December 29, 2007filed contemporaneously with this Form 10-Q/A.

 

(b)   Changes in internal control overfinancial reporting.

 

23

----

 

Duringthe fiscal quarter covered by this report, there were no changes in our “internalcontrol over financial reporting” (as defined in Rule 13a-15(f) ofthe Securities 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 Everest Metal, Riley Medical, Clamonta Ltd andTNCO operations and were incorporating these operations as part of our internalcontrols.  For purposes of thisevaluation, the impact of these acquisitions on our internal controls overfinancial reporting were excluded. See Note 11 to the condensed consolidatedfinancial statements included in Item 1 for a discussion of the Everest Metal,Riley Medical, Clamonta Ltd and TNCO acquisitions.

 

Inaddition, subsequent to the fiscal quarter covered by this report, but prior tothe filing of this Form 10-Q/A, several remedial measures were identifiedand implemented in response to the conclusion reached by our Chief Executiveand Chief Financial Officer as of December 29, 2007, that our disclosurecontrols and procedures were not effective. The Corporation did not maintain aneffective control environment including a tone of control consciousness thatconsistently emphasized strict adherence to accounting principles generallyaccepted in the United States of America at its Thornton Precision ComponentsLimited (“TPC”) subsidiary.  This controldeficiency included inadequate operation of entity level controls includingmonitoring controls that were not sufficiently sensitive in scope and thereforefailed to detect and prevent on a timely basis management override of controlsat TPC and collusion of TPC’s management team to achieve desired financialaccounting results.  In certaininstances, information critical to an effective review of transactions andaccounting entries was not disclosed to internal and external auditors. See ourAnnual Report on Form 10-K for fiscal year ended December 29, 2007filed contemporaneously with this Form 10-Q/A.

 

**PART II OTHER INFORMATION**

 

**ITEM 1A RISK 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, filedcontemporaneously with this Form 10-Q/A, which could materially affect ourbusiness, financial condition or future results.

 

**ITEM 4 SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Our Annual Meeting ofShareholders was held May 3, 2007.  Proxies were solicited for theAnnual Meeting in accordance with the requirements of The Securities ExchangeAct 1934.  At the Annual Meeting, the following occurred:

 

·                        Withrespect to Item 1 in our Proxy Statement (Election of Directors), James S.Burns was elected to serve as the Class II Director.  Thenewly-elected Class II Director will serve a three-year term, expiring atthe annual shareholder meeting in 2010.  The Class III Directors,Brian S. Moore and Francis T. Nusspickel are continuing Directors servingthree-year terms that expire at the annual shareholder meeting in 2008. The Class I Directors, Stephen B. Oresman and Frank Turner are continuingDirectors serving three-year terms that expire at the annual shareholdermeeting in 2009.  The voting result for the Class II Director was asfollows:

 
| **Class II Director** | ** ** | **Shares Voted  For** | ** ** | **Shares  Voted  Against** | ** ** | **Abstentions** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|-----------------|------------|
| ** **                      | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **      | ** ** |
| James S. Burns                  |       | 32,685,108                 |       | 0                          |       | 677,349         |       |
|                            |       | 97.97                      | %          |                       |       | 2.03            | %          |

 

·                        Withrespect to Item 2 in our Proxy Statement (Ratification of the Appointment ofErnst & Young LLP as Auditors for the Year 2007), Ernst &Young LLP was approved as our independent auditors for the year 2007:

 
| Shares Voted For     |   | 33,225,667 |   | 99.59  | %      |
|----------------------|--------|------------|--------|--------|--------|
|                 |   |       |   |   |   |
| Shares Voted Against |   | 127,235    |   | .38    | %      |
|                 |   |       |   |   |   |
| Abstentions          |   | 9,365      |   | .03    | %      |
|                 |   |       |   |   |   |
| Broker Non-Votes     |   | 0          |   |   |   |

 

**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 March 21,2006.

 

24

----

 

**ITEM 6EXHIBITS**

** **
| 10.30  |   | Form of Restricted Stock Agreement (Key Employees)  issued under the 2004 Equity Incentive Plan (incorporated by reference to  Exhibit 10.1 to our Form 8-K filed May 8, 2007).               |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| 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.**                      |

 

----

** Filed or furnished herewith.

 

25

----

 

**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)* |
|                |                  |   |
|                |                  |   |
| April 23, 2008 |                  |   |

 

26

----