**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 1O-Q**

 

| **(Mark One)**                                                                                            |
|-----------------------------------------------------------------------------------------------------------|
|                                                                                                      |
| **x QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                      |
| **For the quarterly period ended  September 29, 2007**                                               |
|                                                                                                      |
| **or**                                                                                                    |
|                                                                                                      |
| **o TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.                        ̈****Yes   xNo

 

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

 

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 hasfiled all 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.

 

** **

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** **

**TABLE OF CONTENTS**

 
| **PART I  FINANCIAL INFORMATION** |
|----------------------------------------|
|                                   |   |
| Item 1                            | Financial  Statements: |
|                                   |   |
|                                   | Condensed  Consolidated Balance Sheets: As of September 29, 2007 and  December 30, 2006 |
|                                   |   |
|                                   | Condensed  Consolidated Statements of Operations: Three and Nine Months Ended  September 29, 2007 andSeptember 30,  2006 |
|                                   |   |
|                                   | Condensed  Consolidated Statements of Cash Flows: Nine Months Ended September 29,  2007 and September 30, 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 5                            | Other Information |
|                                   |   |
| Item 6                            | Exhibits |
|                                   |   |
| Signatures                             |   |

 

2

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**Cautionary Note Regarding Forward-LookingStatements**

 

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

 

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

 

We also refer you to andbelieve that you should carefully read the “Risk Factors” portion of our AnnualReport for fiscal 2007 on Form 10-K, filed contemporaneously with this Form 10-Q,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 are incorporatedby reference herein speak only as of the date of such statement, and weundertake no ongoing obligation to update such statements. Comparisons ofresults between current and any prior periods are not intended to express anyfuture trends or indications of future performance, unless expressed as such,and should only be viewed as historical data.

 

**Explanatory Note Regarding OurRestatement**

 

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 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-Qreflects the restatement of: i) our previously issued consolidated financialstatements for the three and nine months ended September 30, 2006 and theyear ended December 30, 2006; and ii) Management’s Discussion andAnalysis, based on the restated quarterly financial information. Theseadjustments are discussed in Note 2 to the condensed consolidated financialstatements.   Along with this report, weare filing our amended Quarterly Reports on Form 10-Q/A for the first andsecond quarters of fiscal 2007 as well 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 andrelated financial information contained in such previously filed reports shouldno longer 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 andloss impacts. Furthermore, once the restated financial performancewas known, an impairment of goodwill and certain other intangibles at thatsubsidiary occurred in fiscal 2005. The Audit Committee engaged Ernst & YoungLLP 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

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**PART IFINANCIAL INFORMATION**

**ITEM1. FINANCIAL STATEMENTS**

 

**Symmetry Medical Inc.**

 

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                              | ** ** | **September 29,**                         | ** ** | **December 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------|------------|
| ** **                                                                                                                              | ** ** | **2007**                                  | ** ** | **2006**         | ** ** |
| ** **                                                                                                                              | ** ** | **(unaudited)**                           | ** ** | **(Restated)**   | ** ** |
| ** **                                                                                                                              | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
|                                                                                                                                    |       |                                      |       |             |       |
| **Assets:**                                                                                                                             | ** ** | ** **                                | ** ** | ** **       | ** ** |
| Current Assets:                                                                                                                         |       |                                      |       |             |       |
| Cash and cash equivalents                                                                                                               |       | $                                         | 7,038      |             | $          | 11,721 |   |
| Accounts receivables, net                                                                                                               |       | 42,913                                    |       | 32,909           |       |
| Inventories                                                                                                                             |       | 40,213                                    |       | 33,134           |       |
| Refundable income taxes                                                                                                                 |       | 7,410                                     |       | 4,374            |       |
| Deferred income taxes                                                                                                                   |       | 2,213                                     |       | 2,826            |       |
| Derivative valuation asset                                                                                                              |       | 47                                        |       | —           |       |
| Other current assets                                                                                                                    |       | 2,836                                     |       | 3,965            |       |
| Total current assets                                                                                                                    |       | 102,670                                   |       | 88,929           |       |
| Property and equipment, net                                                                                                             |       | 104,867                                   |       | 102,907          |       |
| Goodwill                                                                                                                                |       | 140,357                                   |       | 129,966          |       |
| Intangible assets, net of accumulated amortization                                                                                      |       | 45,378                                    |       | 31,613           |       |
| Other assets                                                                                                                            |       | 1,093                                     |       | 981              |       |
| Total Assets                                                                                                                            |       | $                                         | 394,365    |             | $          | 354,396 |   |
| **Liabilities and Shareholders’ Equity:**                                                                                          | ** ** | ** **                                | ** ** | ** **       | ** ** |
| Current Liabilities:                                                                                                                    |       |                                      |       |             |       |
| Accounts payable                                                                                                                        |       | $                                         | 36,098     |             | $          | 20,683 |   |
| Accrued wages and benefits                                                                                                              |       | 9,887                                     |       | 7,816            |       |
| Other accrued expenses                                                                                                                  |       | 6,062                                     |       | 4,104            |       |
| Income tax payable                                                                                                                      |       | 2,369                                     |       | 970              |       |
| Deferred income taxes                                                                                                                   |       | 362                                       |       | 249              |       |
| Derivative valuation liability                                                                                                          |       | 565                                       |       | 1,184            |       |
| Revolving line of credit                                                                                                                |       | 325                                       |       | —           |       |
| Current portion of capital lease obligations                                                                                            |       | 2,726                                     |       | 3,500            |       |
| Current portion of long-term debt                                                                                                       |       | 8,714                                     |       | 5,550            |       |
| Total current liabilities                                                                                                               |       | 67,108                                    |       | 44,056           |       |
| Deferred income taxes                                                                                                                   |       | 11,073                                    |       | 8,392            |       |
| Derivative valuation liability                                                                                                          |       | 1,087                                     |       | 549              |       |
| Capital lease obligations, less current portion                                                                                         |       | 4,751                                     |       | 5,142            |       |
| Long-term debt, less current portion                                                                                                    |       | 68,044                                    |       | 63,650           |       |
| Total Liabilities                                                                                                                       |       | 152,063                                   |       | 121,789          |       |
| Commitments and contingencies (Note 9)                                                                                                  |       |                                      |       |             |       |
|                                                                                                                                    |       |                                      |       |             |       |
| Shareholders’ Equity:                                                                                                              |       |                                      |       |             |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued September 29, 2007—35,444;  December 30, 2006—35,107 |       | 4                                         |       | 4                |       |
| Additional paid-in capital                                                                                                              |       | 272,483                                   |       | 270,716          |       |
| Retained earnings (deficit)                                                                                                             |       | (40,154                                   | )          | (45,377          | )          |
| Accumulated other comprehensive income                                                                                                  |       | 9,969                                     |       | 7,264            |       |
|                                                                                                                                    |       |                                      |       |             |       |
| Total Shareholders’ Equity                                                                                                         |       | 242,302                                   |       | 232,607          |       |
| Total Liabilities and Shareholders’ Equity                                                                                         |       | $                                         | 394,365    |             | $          | 354,396 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

4

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**Symmetry Medical Inc.**

 

**Condensed Consolidated Statements of Operations**

 
| ** **                                                         | ** ** | **Three Months Ended**                     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **September 29,**                          | ** ** | **September 30,**     | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                                                         | ** ** | **2007**                                   | ** ** | **2006**              | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                         | ** ** | ** **                                 | ** ** | **(Restated)**        | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                            | ** ** | **(unaudited)**       | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                                               | ** ** | **(In  Thousands, Except Per Share Data)** | ** ** |
| Revenue                                                            |       | $                                          | 75,823     |                  | $          | 56,762 |   | $ | 210,259 |   | $ | 188,267 |   |
| Cost of Revenue                                                    |       | 64,511                                     |       | 46,513                |       | 172,518 |   | 142,609 |   |
| Gross Profit                                                       |       | 11,312                                     |       | 10,249                |       | 37,741 |   | 45,658 |   |
| Selling,  general, and administrative expenses                     |       | 9,032                                      |       | 7,390                 |       | 24,713 |   | 21,298 |   |
| Operating Income                                                   |       | 2,280                                      |       | 2,859                 |       | 13,028 |   | 24,360 |   |
| Other (income) expense:                                            |       |                                       |       |                  |       |   |   |   |   |
| Interest expense                                                   |       | 1,808                                      |       | 1,350                 |       | 5,001 |   | 2,936 |   |
| Derivatives valuation (gain)/loss                                  |       | 1,372                                      |       | 1,273                 |       | 1,356 |   | 1,680 |   |
| Other                                                              |       | (627                                       | )          | (299                  | )          | (1,290 | ) | (2,857 | ) |
| Income before income taxes                                         |       | (273                                       | )          | 535                   |       | 7,961 |   | 22,601 |   |
| Income tax expense                                                 |       | 814                                        |       | 85                    |       | 2,738 |   | 6,445 |   |
| Net income (loss)                                                  |       | $                                          | (1,087     | )                     | $          | 450 |   | $ | 5,223 |   | $ | 16,156 |   |
|                                                               |       |                                       |       |                  |       |   |   |   |   |
| Net (loss) income per share:                                       |       |                                       |       |                  |       |   |   |   |   |
| Basic                                                              |       | $                                          | (0.03      | )                     | $          | 0.01 |   | $ | 0.15 |   | $ | 0.46 |   |
| Diluted                                                            |       | $                                          | (0.03      | )                     | $          | 0.01 |   | $ | 0.15 |   | $ | 0.46 |   |
|                                                               |       |                                       |       |                  |       |   |   |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                       |       |                  |       |   |   |   |   |
| Basic                                                              |       | 35,130                                     |       | 34,841                |       | 35,074 |   | 34,796 |   |
| Diluted                                                            |       | 35,291                                     |       | 35,171                |       | 35,255 |   | 35,162 |   |

 

See accompanying notes to condensed consolidatedfinancial statements*.*

 

5

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**Symmetry Medical Inc.**

 

**Condensed Consolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                   | ** ** | **September 29,**     | ** ** | **September 30,** | ** ** |
| ** **                                                                                   | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | ** **            | ** ** | **(Restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**       | ** ** | **(unaudited)** | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**    | ** ** |
| **Operating activities**                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Net Income (loss)                                                                            |       | $                     | 5,223      |   | $ | 16,156 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                  |       |   |   |
| Depreciation                                                                                 |       | 13,139                |       | 11,786 |   |
| Amortization                                                                                 |       | 1,595                 |       | 723 |   |
| Foreign currency transaction (gain) loss                                                     |       | (756                  | )          | (1,829 | ) |
| Net (gain) loss on sale of assets                                                            |       | (382                  | )          | (1,219 | ) |
| Deferred income tax provision                                                                |       | (2,333                | )          | 1,718 |   |
| Excess tax benefit from stock-based compensation                                             |       | (844                  | )          | (1,062 | ) |
| Stock-based compensation                                                                     |       | 255                   |       | 431 |   |
| Derivative valuation change                                                                  |       | (128                  | )          | 1,680 |   |
| Change in operating assets and liabilities:                                                  |       |                  |       |   |   |
| Accounts receivable                                                                          |       | (3,670                | )          | 7,968 |   |
| Other assets                                                                                 |       | 1,414                 |       | 2,165 |   |
| Inventories                                                                                  |       | 12                    |       | (881 | ) |
| Current income taxes                                                                         |       | (358                  | )          | (5,014 | ) |
| Accounts payable                                                                             |       | 9,119                 |       | (5,595 | ) |
| Accrued expenses and other                                                                   |       | 3,332                 |       | (1,889 | ) |
| Net cash provided by operating activities                                                    |       | 25,618                |       | 25,138 |   |
|                                                                                         |       |                  |       |   |   |
| **Investing activities**                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Purchases of property and equipment                                                          |       | (7,204                | )          | (15,529 | ) |
| Proceeds from the sale of fixed assets                                                       |       | 1,731                 |       | 2,434 |   |
| Acquisition, net of cash received                                                            |       | (32,522               | )          | (54,542 | ) |
| Net cash used in investing activities                                                        |       | (37,995               | )          | (67,637 | ) |
|                                                                                         |       |                  |       |   |   |
| **Financing activities**                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Proceeds from bank revolver                                                                  |       | 56,341                |       | 63,038 |   |
| Payments on bank revolver                                                                    |       | (44,746               | )          | (58,595 | ) |
| Issuance of long-term debt                                                                   |       | —                |       | 40,000 |   |
| Payments on long-term debt and capital lease obligations                                     |       | (5,725                | )          | (6,250 | ) |
| Proceeds from the issuance of common stock, net of  expenses                                 |       | 669                   |       | 555 |   |
| Excess tax benefit from stock-based compensation                                             |       | 844                   |       | 1,062 |   |
| Debt issuance costs paid                                                                     |       | —                |       | (355 | ) |
| Net cash provided by financing activities                                                    |       | 7,383                 |       | 39,455 |   |
| Effect of exchange rate changes on cash                                                      |       | 311                   |       | 189 |   |
| Net increase (decrease) in cash and cash equivalents                                         |       | (4,683                | )          | (2,855 | ) |
| Cash and cash equivalents at beginning of period                                             |       | 11,721                |       | 12,471 |   |
| Cash and cash equivalents at end of period                                                   |       | $                     | 7,038      |   | $ | 9,616 |   |
|                                                                                         |       |                  |       |   |   |
| Supplemental disclosures:                                                                    |       |                  |       |   |   |
| Cash paid for interest                                                                       |       | $                     | 4,147      |   | $ | 3,057 |   |
| Cash paid for income taxes                                                                   |       | $                     | 3,739      |   | $ | 8,783 |   |
| Assets acquired under capital leases                                                         |       | $                     | 195        |   | $ | — |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

6

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**SymmetryMedical Inc.**

 

**Notes to Condensed Consolidated FinancialStatements**

 

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

**(unaudited)**

 

**1. Basis of Presentation**

 

The condensedconsolidated financial statements include the accounts of Symmetry Medical, Inc.and its wholly-owned subsidiaries (collectively referred to as theCorporation), 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, Specialty Surgical Instrumentation, Inc., UCA, LLC., Symmetry Medical CheltenhamLimited, Symmetry Medical PolyVac, SAS, Thornton Precision Components Limited,Symmetry Medical Malaysia SDN, Clamonta Limited and TNCO, Inc. TheCorporation is a global supplier of integrated products consisting primarily ofsurgical implants, instruments and cases to orthopedic and other medical devicecompanies.

 

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.

 

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 FinishingLLC and 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 $10,351 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 $7,260 in cash,subject to certain post closing adjustments.   TNCO designs and supplies precisioninstruments for arthroscopic, laparoscopic, sinus, and other minimally invasiveprocedures.

 

On August 31, 2007,the Corporation acquired Specialty Surgical Instrumentation, Inc. (“SSI”)and UCA, LLC (“UCA”), privately owned companies based in Nashville,Tennessee.  SSI distributes surgical instrumentsdirectly to hospitals while UCA distributes sterilization containers directlyto hospitals.  SSI and UCA were acquiredfor approximately $14,986 in cash. The Corporation’s Annual Report on Form 10-Kfor fiscal year 2007, filed contemporaneously with this Form 10-Q containsadditional information on these acquisitions.

 

**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.

 

7

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This Form 10-Qreflects the restatement of our previously issued condensed consolidatedfinancial statements for the three and nine months ended September 30,2006 and the year ended December 30, 2006. Along with this report, we are filing our amended Quarterly Reports on Form 10-Q/Afor the first and second quarters of fiscal 2007 as well as our Annual Reportfor fiscal 2007 on Form 10-K.  We donot intend to amend our previously filed Annual Reports on Form 10-K orQuarterly Reports on Form 10-Q for the periods prior to fiscal 2007.  The financial information that was presentedin previous filings or otherwise reported for these periods is amended by theinformation in our Annual Report for fiscal 2007 on Form 10-K. Thefinancial statements and related financial information contained in suchpreviously filed reports should no longer be relied upon.

 

Upondiscovery of the accounting irregularities, the Audit Committee engaged special legal counsel who in turnretained independent forensic accountants, to investigate and report to theAudit Committee. That investigation hasconcluded that the irregularities were isolated to ourSheffield, 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 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 and nine months ended September 30,2006 and should be reviewed in conjunction with the descriptions of theadjustments following the condensed consolidated balance sheets:

 
| ** **                                                         | ** ** | **Three Months Ended**                                   | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **September 30,**                                             | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                         | ** ** | **2006**                                                           | ** ** | **2006**                        | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                                         | ** ** | **(Reported)**                                                     | ** ** | **(Adjustment)**                | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                                                    | ** ** |
| ** **                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Revenue                                                            |       | $                                                                  | 60,740     |                            | $          | (3,978 | ) | $ | 56,762 |   | $ | 195,113 |   | $ | (6,846 | ) | $ | 188,267 |   |
| Cost of Revenue                                                    |       | 47,093                                                             |       | (580                            | )          | 46,513 |   | 144,239 |   | (1,630 | ) | 142,609 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Gross Profit                                                       |       | 13,647                                                             |       | (3,398                          | )          | 10,249 |   | 50,874 |   | (5,216 | ) | 45,658 |   |
| Selling,  general, and administrative expenses                     |       | 7,410                                                              |       | (20                             | )          | 7,390 |   | 21,341 |   | (43 | ) | 21,298 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Operating Income                                                   |       | 6,237                                                              |       | (3,378                          | )          | 2,859 |   | 29,533 |   | (5,173 | ) | 24,360 |   |
| Other (income)  expense:                                           |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Interest expense                                                   |       | 1,350                                                              |       | —                          |       | 1,350 |   | 2,936 |   | — |   | 2,936 |   |
| Derivatives  valuation (gain)/loss                                 |       | 1,273                                                              |       | —                          |       | 1,273 |   | 1,680 |   | — |   | 1,680 |   |
| Other                                                              |       | (203                                                               | )          | (96                             | )          | (299 | ) | (2,482 | ) | (375 | ) | (2,857 | ) |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Income (loss) before  income taxes                                 |       | 3,817                                                              |       | (3,282                          | )          | 535 |   | 27,399 |   | (4,798 | ) | 22,601 |   |
| Income tax  expense                                                |       | 826                                                                |       | (741                            | )          | 85 |   | 8,351 |   | (1,906 | ) | 6,445 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                 |       | $                                                                  | 2,991      |                            | $          | (2,541 | ) | $ | 450 |   | $ | 19,048 |   | $ | (2,892 | ) | $ | 16,156 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Net income  (loss) per share:                                      |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Basic                                                              |       | $                                                                  | 0.09       |                            | $          | (0.08 | ) | $ | 0.01 |   | $ | 0.55 |   | $ | (0.09 | ) | $ | 0.46 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Diluted                                                            |       | $                                                                  | 0.09       |                            | $          | (0.08 | ) | $ | 0.01 |   | $ | 0.54 |   | $ | (0.08 | ) | $ | 0.46 |   |
|                                                               |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                                               |       |                            |       |   |   |   |   |   |   |   |   |
| Basic                                                              |       | 34,841                                                             |       | —                          |       | 34,841 |   | 34,796 |   | — |   | 34,796 |   |
| Diluted                                                            |       | 35,171                                                             |       | —                          |       | 35,171 |   | 35,162 |   | — |   | 35,162 |   |
|                                                                    |            |                                                                    |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

8

----

 

The following tablerepresents the effect of the restatement on the condensed consolidated balancesheets as of December 30, 2006 and should be reviewed in conjunction withthe descriptions of the adjustments following the condensed consolidatedbalance sheets:

 
| ** **                                                                                                       | ** ** | **December 30,**                                              | ** ** | **December 30,** | ** ** | **December 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                       | ** ** | **2006**                                                           | ** ** | **2006**              | ** ** | **2006**              | ** ** |
| ** **                                                                                                       | ** ** | **(Reported)**                                                     | ** ** | **(Adjustment)**      | ** ** | **(Restated)**        | ** ** |
| ** **                                                                                                       | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| **Assets:**                                                                                                      |       |                                                               |       |                  |       |                  |       |
| Current Assets:                                                                                                  |       |                                                               |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                                       |       | $                                                                  | 11,721     |                  | $          | —                |       | $ | 11,721 |   |
| Accounts  receivables, net                                                                                       |       | 47,506                                                             |       | (14,597               | )          | 32,909                |       |
| Inventories                                                                                                      |       | 47,392                                                             |       | (14,258               | )          | 33,134                |       |
| Refundable  income taxes                                                                                         |       | 111                                                                |       | 4,263                 |       | 4,374                 |       |
| Deferred income  taxes                                                                                           |       | 2,826                                                              |       | —                |       | 2,826                 |       |
| Other current  assets                                                                                            |       | 3,965                                                              |       | —                |       | 3,965                 |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total current  assets                                                                                            |       | 113,521                                                            |       | (24,592               | )          | 88,929                |       |
| Property and  equipment, net                                                                                     |       | 106,147                                                            |       | (3,240                | )          | 102,907               |       |
| Goodwill                                                                                                         |       | 156,241                                                            |       | (26,275               | )          | 129,966               |       |
| Intangible  assets, net of accumulated amortization                                                              |       | 33,257                                                             |       | (1,644                | )          | 31,613                |       |
| Other assets                                                                                                     |       | 981                                                                |       | —                |       | 981                   |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total Assets                                                                                                     |       | $                                                                  | 410,147    |                  | $          | (55,751               | )          | $ | 354,396 |   |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                  |       |                                                               |       |                  |       |                  |       |
| Current  Liabilities:                                                                                            |       |                                                               |       |                  |       |                  |       |
| Accounts payable                                                                                                 |       | $                                                                  | 14,860     |                  | $          | 5,823                 |       | $ | 20,683 |   |
| Accrued wages and  benefits                                                                                      |       | 7,816                                                              |       | —                |       | 7,816                 |       |
| Other accrued  expenses                                                                                          |       | 4,104                                                              |       | —                |       | 4,104                 |       |
| Income tax  payable                                                                                              |       | 850                                                                |       | 120                   |       | 970                   |       |
| Deferred income  taxes                                                                                           |       | 249                                                                |       | —                |       | 249                   |       |
| Derivative  valuation liability                                                                                  |       | 1,184                                                              |       | —                |       | 1,184                 |       |
| Current portion  of capital lease obligations                                                                    |       | 3,500                                                              |       | —                |       | 3,500                 |       |
| Current portion  of long-term debt                                                                               |       | 5,550                                                              |       | —                |       | 5,550                 |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total current  liabilities                                                                                       |       | 38,113                                                             |       | 5,943                 |       | 44,056                |       |
| Deferred income  taxes                                                                                           |       | 11,832                                                             |       | (3,440                | )          | 8,392                 |       |
| Derivative  valuation liability                                                                                  |       | 549                                                                |       | —                |       | 549                   |       |
| Capital lease  obligations, less current portion                                                                 |       | 5,142                                                              |       | —                |       | 5,142                 |       |
| Long-term debt,  less current portion                                                                            |       | 63,650                                                             |       | —                |       | 63,650                |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total  Liabilities                                                                                               |       | 119,286                                                            |       | 2,503                 |       | 121,789               |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                          |       |                                                               |       |                  |       |                  |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Shareholders’  Equity:                                                                                      |       |                                                               |       |                  |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued December 30, 2006—35,107 |       | 4                                                                  |       | —                |       | 4                     |       |
| Additional  paid-in capital                                                                                      |       | 271,388                                                            |       | (672                  | )          | 270,716               |       |
| Retained  earnings (deficit)                                                                                     |       | 6,771                                                              |       | (52,148               | )          | (45,377               | )          |
| Accumulated  other comprehensive income                                                                          |       | 12,698                                                             |       | (5,434                | )          | 7,264                 |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total  Shareholders’ Equity                                                                                 |       | 290,861                                                            |       | (58,254               | )          | 232,607               |       |
|                                                                                                             |       |                                                               |       |                  |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                 |       | $                                                                  | 410,147    |                  | $          | (55,751               | )          | $ | 354,396 |   |

 

The adjustments resulting in the restatements are described as follows:

 

*Revenue and Accounts ReceivableAdjustments* - Revenue adjustments include the correction ofrevenue recognized in incorrect periods and the elimination of fictitioustransactions.

 

*Cost of Revenue, Inventory amdAccounts Payable Adjustments* - Cost of Revenue adjustmentsinclude the correction of cost of sales related to revenue adjustmentsdiscussed above in addition to the eliminations of fictitious work in processinventory which had been previously sold or scrapped and adjustments toproperly reflect the timing of inventory receipts and related disbursements.

 

9

----

 

*Selling General andAdministrative and Additional Paid in Capital Adjustments* -Selling, general and administrative adjustments include the reversal ofamortization expense related to performance based restricted stock awards whichare no longer probable of vesting due to the lower restated financial resultsat Sheffield.

 

*Other Expense Adjustments*- Other expense adjustments are due primarily to revised foreign currencytransaction gains and losses associated with the restated accounts receivablebalances.

 

*Income Tax Expense, RefundableIncome Taxes, Deferred Income Taxes and Income Taxes Payable Adjustments*- Income tax expense adjustments result from the tax impacts of the restatementadjustments to pre-tax income at the UK statutory rate of 30%.

 

*Property & Equipment, NetAdjustments* - Remove costs in construction in progressrelated to costs associated with tools and dies that were capitalizederroneously.

 

*Goodwill, Intangible Assets andRetained Earnings**Adjustments*–Certain of the above mentioned errors and irregularities date back to priorperiods including the opening balance sheet established at the time of theacquisition of the Sheffield operation in 2003. The adjustments to the openingbalance sheet result in an increase to goodwill of approximately $8,242. Inaddition, utilizing the restated operating results we determined that carryingvalue of the Sheffield reporting unit as well as a customer related intangiblewere in excess of their fair value. The impairment analysis resulted in thewrite-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 nine months ended September 30, 2006 andshould be reviewed in conjunction with the descriptions of the adjustmentsfollowing the condensed consolidated balance sheets:

 
| ** **                                                                                   | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                   | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                   | ** ** | **2006**                        | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | **(Reported)**                  | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                                                   | ** ** | ** **                      | ** ** | **(unaudited)** | ** ** | ** ** | ** ** |
| ** **                                                                                   | ** ** | ** **                      | ** ** | **(In Thousands)** | ** ** | ** ** | ** ** |
| **Operating activities**                                                                | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Income                                                                                   |       | $                               | 19,048     |   | $ | (2,892 | ) | $ | 16,156 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                            |       |   |   |   |   |
| Depreciation                                                                                 |       | 11,786                          |       | — |   | 11,786 |   |
| Amortization                                                                                 |       | 780                             |       | (57 | ) | 723 |   |
| Foreign currency  transaction (gains) losses                                                 |       | (1,454                          | )          | (375 | ) | (1,829 | ) |
| Net (gain) loss  on sale of assets                                                           |       | (1,219                          | )          | — |   | (1,219 | ) |
| Deferred income  tax provision                                                               |       | 125                             |       | 1,593 |   | 1,718 |   |
| Excess tax  benefit from stock-based compensation                                            |       | (1,062                          | )          | — |   | (1,062 | ) |
| Stock-based  compensation                                                                    |       | 431                             |       | — |   | 431 |   |
| Derivative  valuation change                                                                 |       | 1,680                           |       | — |   | 1,680 |   |
| Change in  operating assets and liabilities:                                                 |       |                            |       |   |   |   |   |
| Accounts  receivable                                                                         |       | 973                             |       | 6,995 |   | 7,968 |   |
| Other assets                                                                                 |       | 2,165                           |       | — |   | 2,165 |   |
| Inventories                                                                                  |       | (1,708                          | )          | 827 |   | (881 | ) |
| Current income  taxes                                                                        |       | (3,156                          | )          | (1,858 | ) | (5,014 | ) |
| Accounts payable                                                                             |       | (2,644                          | )          | (2,951 | ) | (5,595 | ) |
| Accrued expenses  and other                                                                  |       | (298                            | )          | (1,591 | ) | (1,889 | ) |
|                                                                                         |       |                            |       |   |   |   |   |
| Net cash  provided (used) by operating activities                                            |       | 25,447                          |       | (309 | ) | 25,138 |   |
|                                                                                         |       |                            |       |   |   |   |   |
| **Investing  activities**                                                                    |       |                            |       |   |   |   |   |
| Purchases of  property and equipment                                                         |       | (15,825                         | )          | 296 |   | (15,529 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 2,434                           |       | — |   | 2,434 |   |
| Acquisition, net  of cash received                                                           |       | (54,542                         | )          | — |   | (54,542 | ) |
|                                                                                         |       |                            |       |   |   |   |   |
| Net cash used in  investing activities                                                       |       | (67,933                         | )          | 296 |   | (67,637 | ) |
|                                                                                         |       |                            |       |   |   |   |   |
| **Financing  activities**                                                                    |       |                            |       |   |   |   |   |
| Proceeds from  bank revolver                                                                 |       | 63,038                          |       | — |   | 63,038 |   |
| Payments on bank  revolver                                                                   |       | (58,595                         | )          | — |   | (58,595 | ) |
| Issuance of long–term  debt                                                             |       | 40,000                          |       | — |   | 40,000 |   |
| Payments on long–term  debt and capital lease obligations                               |       | (6,250                          | )          | — |   | (6,250 | ) |
| Proceeds from  the issuance of common and preferred stock, net of expenses                   |       | 555                             |       | — |   | 555 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 1,062                           |       | — |   | 1,062 |   |
| Debt issuance  costs paid                                                                    |       | (355                            | )          | — |   | (355 | ) |
|                                                                                         |       |                            |       |   |   |   |   |
| Net cash provided  (used) by financing activities                                            |       | 39,455                          |       | — |   | 39,455 |   |
| Effect of  exchange rate changes on cash                                                     |       | 176                             |       | 13 |   | 189 |   |
|                                                                                         |       |                            |       |   |   |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | (2,855                          | )          | — |   | (2,855 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 12,471                          |       | — |   | 12,471 |   |
|                                                                                         |       |                            |       |   |   |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                               | 9,616      |   | $ | — |   | $ | 9,616 |   |
|                                                                                         |       |                            |       |   |   |   |   |
| Supplemental  disclosures:                                                                   |       |                            |       | — |   | — |   |
| Cash paid for  interest                                                                      |       | $                               | 3,057      |   | $ | — |   | $ | 3,057 |   |
|                                                                                         |       |                            |       |   |   |   |   |
| Cash paid for  income taxes                                                                  |       | $                               | 8,783      |   | $ | — |   | $ | 8,783 |   |

 

11

----

 

**3. Inventories**

 

Inventories consist ofthe following:

 
| ** **                 | ** ** | **September 29,** | ** ** | **December 30,** | ** ** |
|----------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2007**               | ** ** | **2006**              | ** ** |
| ** **                 | ** ** | ** **             | ** ** | **(Restated)**        | ** ** |
| Raw material and  supplies |       | $                      | 8,511      |                  | $          | 10,661 |   |
| Work-in-process            |       | 19,083                 |       | 10,561                |       |
| Finished goods             |       | 12,619                 |       | 11,912                |       |
|                       |       | $                      | 40,213     |                  | $          | 33,134 |   |

 

**4. Property and Equipment**

 

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

 
| ** **                                   | ** ** | **September 29,** | ** ** | **December 30,** | ** ** |
|----------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2007**               | ** ** | **2006**              | ** ** |
| ** **                                   | ** ** | ** **             | ** ** | **(Restated)**        | ** ** |
| Land                                         |       | $                      | 6,844      |                  | $          | 6,735 |   |
| Buildings and  improvements (20 to 40 years) |       | 48,194                 |       | 44,430                |       |
| Machinery and  equipment (5 to 15 years)     |       | 107,522                |       | 96,192                |       |
| Office equipment  (3 to 5 years)             |       | 8,422                  |       | 7,895                 |       |
| Construction-in-progress                     |       | 303                    |       | 1,560                 |       |
|                                         |       | 171,285                |       | 156,812               |       |
| Less accumulated  depreciation               |       | (66,418                | )          | (53,905               | )          |
|                                         |       | $                      | 104,867    |                  | $          | 102,907 |   |

 

**5. Intangible Assets**

 

Intangible assets wereacquired in connection with our business acquisitions.

 

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

 
| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| ** **                                               | ** ** | **(Restated)**       | ** ** | **(Restated)** | ** ** | **(Restated)**   | ** ** | **(Restated)** | ** ** |
| Acquired  technology and patents                         |       | 10 years             |       | $              | 2,454      |             | $          | (441           | )          | $ | 2,013 |   |
| Acquired  customers                                      |       | 18 years             |       | 38,143         |       | (3,615           | )          | 34,528         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 596            |       | (100             | )          | 496            |       |
| Intangible  assets subject to amortization               |       |                 |       | 41,193         |       | (4,156           | )          | 37,037         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,953          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 4,388          |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                 |       |           |       |             |       | 8,341          |       |
| Total                                                    |       |                 |       |           |       |             |       | $              | 45,378     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

12

----

 

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

 
| ** **                                               | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | ** **     | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **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 acquisitions of Clamonta in January 2007, TNCOin April 2007 and SSI in August 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*. Thisstatement prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This statement was adopted by theCorporation December 31, 2006. The implementation of FIN 48 had no impacton the Corporation’s financial position or results of operations. As of thebeginning of fiscal year 2007, the Corporation had unrecognized tax benefits of$248. There has been no significant change in the unrecognized tax benefitsthrough the third quarter ending September 29, 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 both domestic andforeign tax jurisdictions. It is reasonably possible that the amounts ofunrecognized tax 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, the Corporation isno longer subject to U.S. federal, state and local, or non-U.S. income tax examinationsby 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 guidancefor using fair value to measure assets and liabilities and only applies whenother standards require or permit the fair value measurement of assets andliabilities. It does not expand the use of fair value measurement. ThisStatement is effective for fiscal years beginning after November 15, 2007.The adoption of this Statement is not expected to have a material impact on theCorporation’s financial position, results of operations 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 permits entities to choose tomeasure many financial instruments and certain other instruments at fair value.This Statement 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 aggregatedinto a single reporting segment as allowed by SFAS 131. The results of onesegment, which sells exclusively to aerospace customers, have 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. While exposureto variability in foreign currency exists, the Corporation does not believe itis significant to its operations and any variability is somewhat offset throughthe location of its manufacturing facilities. Revenues are attributed togeographic locations based on the location to which we ship our products.

 

13

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*Revenuefrom External Customers:*

 
| ** **               | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **September 29,**           | ** ** | **September 30,**          | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **               | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **               | ** ** | ** **                       | ** ** | **(unaudited)**                 | ** ** | ** ** | ** ** |
|                     |       |                             |       | **(Restated)**                  |       |   |   | **(Restated)** |   |
| United States            |       | $                                | 46,422     |                            | $          | 36,000 |   | $ | 125,652 |   | $ | 122,979 |   |
| United Kingdom           |       | 14,921                           |       | 8,052                           |       | 39,150 |   | 22,466 |   |
| Ireland                  |       | 7,962                            |       | 6,242                           |       | 21,155 |   | 18,820 |   |
| Other foreign  countries |       | 6,518                            |       | 6,468                           |       | 24,302 |   | 24,002 |   |
| Total net  revenues      |       | $                                | 75,823     |                            | $          | 56,762 |   | $ | 210,259 |   | $ | 188,267 |   |

 

*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 revenue as follows:

 

Three months ended September 29,2007—Two customers represented approximately 19.3% and 12.0% of net revenues,respectively.

 

Nine months ended September 29,2007—Two customers represented approximately 18.7%, and 11.9% of net revenues,respectively.

 

Three months ended September 30,2006—Three customers represented approximately 19.4%, 14.8% and 10.2% of netrevenues, respectively.

 

Nine months ended September 30,2006—Three customers represented approximately 24.5%, 11.9% and 10.2% of netrevenues, respectively.

 

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

 
| ** **          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **September 29,**           | ** ** | **September 30,**          | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **          | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **          | ** ** | ** **                       | ** ** | **(unaudited)**                 | ** ** | ** ** | ** ** |
|                |       |                             |       | **(Restated)**                  |       |   |   | **(Restated)** |   |
| Implants            |       | $                                | 23,848     |                            | $          | 19,594 |   | $ | 73,641 |   | $ | 69,445 |   |
| Instruments         |       | 19,919                           |       | 14,497                          |       | 50,612 |   | 54,107 |   |
| Cases               |       | 21,595                           |       | 16,622                          |       | 57,971 |   | 47,782 |   |
| Other               |       | 10,461                           |       | 6,049                           |       | 28,035 |   | 16,933 |   |
| Total net  revenues |       | $                                | 75,823     |                            | $          | 56,762 |   | $ | 210,259 |   | $ | 188,267 |   |

 

14

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**8. Net Income (Loss) Per Share**

 

Thefollowing table sets forth the computation of earnings per share.

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                           | ** ** | **September 29,**           | ** ** | **September 30,**          | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                                                           | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                           | ** ** | ** **                       | ** ** | **(Restated)**                  | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                                           | ** ** | ** **                       | ** ** | **(unaudited)**                 | ** ** | ** ** | ** ** |
| Net income  (loss)                                                   |       | $                                | (1,087     | )                               | $          | 450 |   | $ | 5,223 |   | $ | 16,156 |   |
|                                                                 |       |                             |       |                            |       |   |   |   |   |
| Weighted-average  common shares outstanding  basic                   |       | 35,130                           |       | 34,841                          |       | 35,074 |   | 34,796 |   |
| Effect of stock  options, restricted stock and stock warrants        |       | 161                              |       | 330                             |       | 181 |   | 366 |   |
| Weighted-average  common shares outstanding  and assumed conversions |       | 35,291                           |       | 35,171                          |       | 35,255 |   | 35,162 |   |
|                                                                 |       |                             |       |                            |       |   |   |   |   |
| Net income  (loss) per share:                                        |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                |       | $                                | (0.03      | )                               | $          | 0.01 |   | $ | 0.15 |   | $ | 0.46 |   |
| Diluted                                                              |       | $                                | (0.03      | )                               | $          | 0.01 |   | $ | 0.15 |   | $ | 0.46 |   |

 

During the nine monthperiod ended September 29, 2007, the Corporation issued 178 shares ofcommon stock through the exercise of stock options.

 

**9. Commitments and Contingencies**

 

*Environmental and Legal Matters*

 

The Corporation isinvolved, from time to time, in various contractual, product liability, patent(or intellectual property) and other claims and disputes incidental to itsbusiness. Currently, there is no environmental or other litigation pending or,to the knowledge of the Corporation, threatened, that the Corporation expectsto have a material adverse 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 Purchase Obligations*

 

The Corporation hascontracts to purchase minimum quantities of cobalt chrome through December 2007.Based on contractual pricing at September 29, 2007, the minimum purchaseobligations totaled $4,542. Purchases under 2007 contracts totaledapproximately $7,507 as of September 29, 2007. These purchases are not inexcess of our forecasted requirements.

 

**10. Comprehensive Income (Loss)**

 

Comprehensive income(loss) is comprised of net income (loss) and gains and losses resulting fromcurrency translations of foreign entities. Comprehensive income (loss) consistsof the following:

 
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **September 29,**           | ** ** | **September 30,**          | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                | ** ** | ** **                       | ** ** | **(Restated)**                  | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| ** **                                | ** ** | ** **                       | ** ** | **(unaudited)**                 | ** ** | ** ** | ** ** |
| Net income  (loss)                        |       | $                                | (1,087     | )                               | $          | 450 |   | $ | 5,223 |   | $ | 16,156 | ** ** |
| Foreign currency  translation adjustments |       | 1,768                            |       | 95                              |       | 2,705 |   | 2,575 | ** ** |
| Comprehensive  income (loss)              |       | $                                | 681        |                            | $          | 545 |   | $ | 7,928 |   | $ | 18,731 | ** ** |

 

15

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**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“Clamonta Ltd”), for $10,351 in cash subject to certain post-closingadjustments. The acquisition of Clamonta Ltd expands the Corporation’s TotalSolutions® business model into the global aerospace industry and furtherstrengthens our relationship with a key aerospace customer. Results of ClamontaLtd are included from the date of acquisition.

 

As of September 29,2007, the aggregate purchase price was allocated to the opening balance sheetas follows:

 
| Current assets                                   |   | $      | 3,445  |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Property, plant  & equipment                 |   | 3,695  |   |
| Acquired  customers (amortized over 15 years)    |   | 3,070  |   |
| Non-compete  agreements (amortized over 5 years) |   | 120    |   |
| Trademarks  (indefinite-lived)                   |   | 1,330  |   |
| Goodwill                                         |   | 2,972  |   |
| Current  liabilities                             |   | (1,768 | )      |
| Deferred taxes                                   |   | (1,963 | )      |
| Capital leases                                   |   | (550   | )      |
| Purchase price,  net                             |   | $      | 10,351 |   |

 

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 $7,260 in cash, subject to certain post closing adjustments. TNCOdesigns and supplies precision instruments for arthroscopic, laparoscopic,sinus, and other minimally invasive procedures.

 

As of September 29,2007, the aggregate purchase price of $7,260 was allocated to the openingbalance sheet as follows:

 
| Current assets                                                 |   | $     | 2,687  |   |
|----------------------------------------------------------------|--------|-------|--------|--------|
| 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                                                       |   | 1,354 |   |
| Current  liabilities                                           |   | (471  | )      |
| Purchase price,  net                                           |   | $     | 7,260  |   |

 

On August 31, 2007,the Corporation’s subsidiary Symmetry Medical USA Inc. acquired all of thestock of Specialty Surgical Instrumentation, Inc. (“SSI”) and UCA, LLC(“UCA”), privately owned companies based in Nashville, Tennessee for $14,986,in cash, subject to certain post closing adjustments. SSI distributes surgicalinstruments directly to hospitals while UCA distributes sterilizationcontainers directly to hospitals.

 

16

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The aggregate purchaseprice is preliminary, subject to adjustment and expected to be finalized in2008. As of September 29, 2007, the aggregate purchase price was allocatedto the opening balance sheet as follows:

 
| Current assets                                                  |   | $      | 6,509  |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|
| Property, plant  & equipment                                |   | 1,687  |   |
| Acquired  technology (amortized over average weighted 13 years) |   | 350    |   |
| Acquired  customers (amortized over 15 years)                   |   | 6,630  |   |
| Non-compete  agreements (amortized over 5 years)                |   | 100    |   |
| Trademarks  (indefinite-lived)                                  |   | 1,500  |   |
| Goodwill                                                        |   | 5,385  |   |
| Current  liabilities                                            |   | (4,495 | )      |
| Deferred income  taxes                                          |   | (2,680 | )      |
| Purchase price,  net                                            |   | $      | 14,986 |   |

 

On May 2, 2006, theCorporation completed the acquisition of Riley Medical Inc. (“Riley Medical”),a privately-owned company based in Auburn, Maine, for approximately $45,797 innet cash, subject to adjustment for tax impacts to the prevous owners. RileyMedical is a manufacturer of standard and custom cases, trays and containersfor the medical device industry with locations in the United States andSwitzerland. The acquisition expands the Corporation’s geographic footprint inEurope and the case product line, including several new patents and trademarks.

 

On August 31, 2006,the Corporation completed the acquisition of Everest Metal’s subsidiarySymmetry Medical Everest, LLC acquired certain assets of Everest MetalFinishing, LLC and the Corporation’s subsidiary Symmetry Medical International, Inc.acquired all of the issued and outstanding stock of Everest Metal InternationalLimited for approximately $9,214 in net cash, plus an earn-out provision. Theearn-out provision requires payments of up to approximately $1,081 after theend of 2007 if certain revenue targets are met.

 

***UnauditedProforma Results*** The following table represents theproforma results of the Corporation’s operations had the acquisitions of Riley Medical,Everest Metal, Clamonta Ltd, TNCO, SSI and UCA been completed as of thebeginning of the periods presented:

 
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **September 29,**           | ** ** | **September 30,**          | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                       | ** ** | **2007**                         | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | ** **                       |       | **(Restated)**                  |       | ** ** |   | **(Restated)** |   |
| ** **                       | ** ** | **(unaudited)**                  |       |
| Revenue                          |       | $                                | 79,643     |                            | $          | 67,314 |   | $ | 226,638 |   | $ | 227,905 |   |
| Net Income  (loss)               |       | (1,687                           | )          | 541                             |       | 4,129 |   | 16,634 |   |
| Earnings per  share—basic   |       | $                                | (0.05      | )                               | $          | 0.02 |   | $ | 0.12 |   | $ | 0.48 |   |
| Earnings per  share—diluted |       | $                                | (0.05      | )                               | $          | 0.02 |   | $ | 0.12 |   | 0.47 |   |

 

**12. Subsequent Event**

 

On December 14, 2007, the Corporation, throughits wholly owned subsidiaries Symmetry Medical New Bedford, LLC and SymmetryNew Bedford Real Estate, LLC (“Symmetry”), entered into a definitive agreementwith DePuy Orthopaedics, Inc., (“DePuy”) whereby Symmetry purchasedDePuy’s orthopedic instrument manufacturing facility located in New Bedford,Massachusetts (the “Agreement”) for $45,000 in cash, subject to certain postclosing adjustments.  The New Bedford acquistiontransaction closed on January 25, 2008.  Pursuant to the Agreement, the Corporationpurchased substantially all of the assets and real estate held in connectionwith DePuy’s New Bedford, Massachusetts facility.

 

In connection with the Agreement, the Corporation andDePuy agreed to enter into a supply agreement which requires DePuy to makeminimum purchases from the New Bedford facility for a four year periodfollowing the close of the acquisition. The agreement stipulates that thesepurchases are incremental to other products the Corporation presently orpreviously produced on DePuy’s behalf. The volume commitment from DePuy totals$106,000 over the four year period.

 

Additionally,the Corporation has amended its debt agreement to address certain covenantviolations. These amendments are more fully described in the Corporation’sannual consolidated financial statements contemporaneously filed onForm 10-K.

 

Followingthe discovery of the accounting irregularities at our Sheffield, UK operatingunit, the Audit Committee self-reported the matter to the staff of theSecurities and Exchange Commission (SEC). Thereafter, the SEC commenced aninformal inquiry into this matter. The Corporation intends to fully cooperatewith the SEC in its investigation. At this time, the Corporation is unable topredict the timing of the ultimate resolution of this investigation or theimpact thereof.

 

17

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

 

**Explanatory Note 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-Qreflects the restatement of: i) our previously issued consolidated financialstatements for the three months and nine months ended September 29, 2006 andthe year ended December 30, 2006; and ii) Management’s Discussion andAnalysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 tothe consolidated financial statements. Along with this report, we are filing our amended Quarterly Report on Form 10-Q/Afor the first and second quarters of fiscal 2007 and our Annual Report forfiscal 2007 on Form 10-K.  We do notintend to amend our previously filed Annual Reports on Form 10-K orQuarterly Reports on Form 10-Q for the periods prior to fiscal 2007.  The financial information that was presentedin previous filings or otherwise reported for these periods is amended by theinformation in our Annual 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 andloss impact.  Furthermore, once therestated financial performance was known, an impairment of goodwill and certainother intangibles at 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.

 

**Business Overview**

 

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, provides additional information about our business,operations and financial condition.

 

During the third quarter2007, our revenue growth of 8.8% over the second quarter of 2007 was driven bya continued ramp-up in our core orthopedics business and continued momentumfrom the integration of our acquisitions.  Revenue increased 33.6% in thethird quarter 2007 compared to third quarter 2006 as 2007 includes results fromour Clamonta, TNCO, SSI and UCA acquisitions. Revenues from our top fiveorthopedic customers were up 20.5% and represented 54.0% of total revenue.Quarterly revenue from all other customers increased 53.0% compared to the sameperiod last year.  Our long-term strategy is to diversify our customerbase and expand into other medical device markets outside of our core hip andknee business, and we continue to make progress on these initiatives.

 

During 2007, we continueda strategy displayed in 2006 of enhancing our business model through additionalacquisitions.  We continue to focus onbeing the number one provider to the orthopedic OEMs and at the same timecontinue to work to strengthen our business model by diversifying into otherrelated medical markets.

 

In January 2007, weacquired Clamonta Ltd located in Warwickshire, UK for approximately $10.4million in cash. Clamonta

 

18

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was a privately heldcompany that has a 50-year history of supplying precision machined products tothe global aerospace industry.  Clamonta’sproducts will help bridge Symmetry’s Total Solutions® business model into theaerospace industry.  Clamonta reported 2006revenue of approximately $9.8 million. This acquisition expanded the Company’sadded value operation within its existing product expertise and supports amajor customer by providing a more complete Total Solution®.  Clamonta is well known in the industry forproducing quality engineered products for aircraft engines.  Clamonta’s pre-acquisition management teamcontinues to lead this business unit. This acquisition helps to diversify the Company and allows us tocapitalize on a long term growth cycle in the aerospace industry.

 

In April 2007, weacquired TNCO located in Whitman, Massachusetts for approximately $7.3 millionin cash.  TNCO was a privately heldcompany that has a 40-year history of designing and supplying precisioninstruments for arthroscopic, laparoscopic, sinus and other minimally invasiveprocedures. TNCO’s strong intellectual product portfolio and customerrelationships extend our product offering into these other medical fields. TNCOreported 2006 revenues of approximately $7.5 million.  TNCO is well known in the industry fordesigning and producing quality engineered products for minimally invasiveprocedures. Its operating philosophy closely mirrors our own with its highlyskilled engineering team that partners with its clients during the productdevelopment cycle and moves efficiently from concept and prototype toproduction. TNCO sales are expected to benefit significantly as a result ofmarketing its products through our global sales and distribution network.  TNCO’s management team continues to lead thisbusiness unit.  This acquisition isconsistent with our strategy to enhance our product offering into medicalmarkets beyond our existing products and allows us to offer our Total Solutions(R) modelto an expanded customer base.

 

In August 2007, weacquired SSI and UCA located in Nashville, Tennessee for approximately $15.0million in cash and at the same time entered into a two year earn-out agreementwith the two principals of SSI and UCA who will receive additionalconsideration if SSI and UCA meet certain earnings levels for the following twoyears.  SSI was a privately held companythat has a 30-year history of offering targeted sales, marketing anddistribution programs to serve the key surgical specialties of neurological,spine, cardiovascular, ENT, laparoscopy, ophthalmology and orthopedics.  SSI’s portfolio includes its own line ofUltra Instruments and includes the UCA – Ultra Container sterilization system,a hospital proven, closed container system that is designed to store andtransport sterilized instruments.  TheUltra Instruments, UCA containers and multiple other product lines are offeredthrough SSI’s distribution channels and sell directly into hospitals with their25 strong sales staff.  The SSI and UCApre-acquisition management team continues to lead this business unit. Thisacquisition is consistent with our strategy to enhance our product offeringinto medical markets beyond our existing products and provides a direct accessto hospital and doctors to accelerate our own product designs.

 

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 a newproprietary printing technology for our cases, DigiPrint, that will allow us toemploy a non-toxic, durable graphic printed below the surface of the metalmaking 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 have seen increased customeractivity during the third quarter of 2007 and believe volume will continue toincrease in 2008.  In particular, we continue to expand our engineeringresources that produce and provide closer and critical customer relationshipson the development 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.

 

**Third Quarter Results of Operations**

 

*Revenue.*  Revenue for the three month period ended September 29, 2007 increased $19.1million, or 33.6%, to $75.8 million from $56.8 million for the comparable 2006period.  Revenue for each of our principal product categories in theseperiods was as follows:

 

19

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| ** **           | ** ** | **Three Months Ended**         | ** ** |
|----------------------|------------|--------------------------------|------------|
| ** **           | ** ** | **September 29,**              | ** ** | **September 30,** | ** ** |
| **Product Category** | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **           | ** ** | ** **                     | ** ** | **(Restated)** | ** ** |
| ** **           | ** ** | **(unaudited)  (in millions)** | ** ** |
| Implants             |       | $                              | 23.8       |   | $ | 19.6 |   |
| Instruments          |       | 19.9                           |       | 14.5 |   |
| Cases                |       | 21.6                           |       | 16.6 |   |
| Other                |       | 10.5                           |       | 6.1 |   |
|                 |       |                           |       |   |   |
| Total                |       | $                              | 75.8       |   | $ | 56.8 |   |

 

The $19.1 millionincrease in revenue resulted from increased instrument, implant, case and otherrevenue of $5.4 million, $4.3 million, $5.0 million, and $4.4 millionrespectively.  The increase in instrument revenue was primarily driven byincremental customer demand for products as our customers prepare for newproduct launches.  Revenue also increasedby $1.8 million from the acquisition of SSI and $1.4 million from theacquisition of TNCO. The increase in implant revenue was primarily driven byincremental customer demand and by an incremental $2.3 million of impact fromour Everest Metal acquisition in August 2006.  The increase in caserevenue was primarily driven by incremental customer demand for products aswell as increased demand of their new products as they prepare for new productlaunches.  Other product revenueincreased $4.4 million driven by the addition of $2.7 million of revenue fromthe Clamonta acquisition and continued strong demand from our aerospacecustomers as they continue to experience strong industry demand.

 

*Gross Profit.*  Grossprofit for the three month period ended September 29, 2007 increased $1.1million, or 10.4%, to $11.3 million from $10.2 million for the comparable 2006period.  The increase in gross profit was due to a higher sales volume forthe three month period ended September 29, 2007.  The decline ingross profit as a percentage of sales from 18.1% in 2006 to 14.9% in 2007 wasprimarily driven by our Sheffield, UK operation which experiencedsignificantly higher costs as a percentage of revenue driven by higher fixedcosts for depreciation and other increased costs of manufacturing related to pooroperational management.  We havecommenced a full and complete review of Sheffield’s operations and anticipatesignificant improvements in 2008.

 

*Selling,General and Administrative Expenses.*  Selling,general and administrative expenses for the three month period ended September 29,2007 increased $1.6 million, or 22.2%, to $9.0 million from $7.4 million forthe comparable 2006 period.  The increase was primarily driven theadditional costs related to Everest Metal, Clamonta, TNCO, SSI and UCA which accountedfor $1.5 million of the increase, this included $0.3 million of additionalintangible asset amortization.  As a percentage of revenue, selling,general and administrative expenses decreased to 11.9% of revenue for the threemonth period ended September 29, 2007 from 13.0% of revenue for thecomparable 2006 period.

 

*OtherExpense.*   Interest expense for the three monthperiod ended September 29, 2007 increased $0.5 million, or 33.9%, to $1.8million from $1.4 million for the comparable 2006 period. This increasereflects the additional debt related to the acquisition of Everest Metal,Clamonta, TNCO, SSI and UCA.  Thisincrease was partially offset by the reduction in outstanding capital leaseobligations and existing 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 loss of $1.4 million for the three month period ended September 29,2007 versus the loss of $1.3 million in the comparable 2006 period is due tomarket fluctuations in these contracts, which are not designated as hedges underStatement of Financial Standards (SFAS) No. 133, Accounting for DerivativeInstruments and Hedging Activities.

 

*Provisionfor Income Taxes.*   Our effective tax rate for thethree month period ended September 29, 2007 was significantly impacted by theestablishment of a valuation allowance on the net operating loss carry-forwardat our Sheffield, UK subsidiary of $0.8 million. In addition, the impact oflosses in foreign jurisdictions, which receive a benefit at a lower tax rate, adverselyaffected the tax rate. The effective tax rate for the three month period ended September 30,2006 was 15.9% and differed from the US federal statutory rate of 35% as aresult of lower tax rates in foreign operations and benefits for research anddevelopment and other state tax credits.

 

**Nine Months Results of Operations**

 

*Revenue.*  Revenue for the nine month period ended September 29, 2007 increased $22.0million, or 11.7% to $210.3 million from $188.3 million for the comparable 2006period. Revenue for each of our principal product categories in these periodswas as

 

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follows:

 
| ** **           | ** ** | **Nine Months Ended** | ** ** |
|----------------------|------------|-----------------------|------------|
| ** **           | ** ** | **September 29,**     | ** ** | **September 30,** | ** ** |
| **Product Category** | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **           | ** ** | **(unaudited)**       | ** ** |
| ** **           | ** ** | ** **            | ** ** | **(Restated)** | ** ** |
| ** **           | ** ** | **(in millions)**     | ** ** |
| Implants             |       | $                     | 73.7       |   | $ | 69.5 |   |
| Instruments          |       | 50.6                  |       | 54.1 |   |
| Cases                |       | 58.0                  |       | 47.8 |   |
| Other                |       | 28.0                  |       | 16.9 |   |
|                 |       |                  |       |   |   |
| Total                |       | $                     | 210.3      |   | $ | 188.3 |   |

 

The $22.0 millionincrease in revenue resulted from increased implant, case, and other revenue of$4.2 million, $10.2 million, and $11.1 million, respectively. This increase inimplant revenue was primarily driven by an incremental $6.6 million of revenuefrom our Everest Metal acquisition in August 2006 plus incrementalcustomer demand on our core products. Case revenues include $21.1 million for the nine month period ended September 29,2007 compared to $15.9 million for the comparable 2006 period from our RileyMedical acquisition. This increase was partially offset by a soft market in thefirst half of 2007 as our large customers reduced their inventories andmaintained smaller launch quantities. Other product revenues increased dueto the inclusion of $8.5 million from our Clamonta acquisition completed in January 2007. These increases were partially offset by decreased instrument revenue of $3.5million due to slower demand from our top five customers, particularly in thefirst quarter of 2007, offset by increased revenue of $1.8 million from the SSIand UCA acquisition and $2.4 million from the TNCO acquisition.

 

*GrossProfit.*   Gross profit for the nine month periodended September 29, 2007 decreased $7.9 million, or 17.3%, to $37.7million from $45.7 million for the comparable 2006 period. This decrease ingross profit was driven primarily by a reduced gross profit as a percentage ofsales which was 17.9% for the nine month period ended September 29, 2007compared to 24.3% for the comparable 2006 period. The decline in gross profitas a percentage of sales was primarily driven by our Sheffield, UK operationswhich experienced significantly higher costs as a percentage of revenue drivenby higher fixed costs for depreciation, the adverse impacts of a flood duringthe second quarter, and other increased costs of manufacturing related to pooroperational management.  We havecommenced a full and complete review of Sheffield’s operations and anticipatesignificant improvements in 2008.  Grossmargin was also impacted by higher fixed costs from our significant investmentin 2005 capacity expansion across our global facilities and a more pronouncedsales reduction in our higher margin products within several of our productsegments.  We view our globalinfrastructure as a competitive strength, enabling us to respond quickly to ourcustomers’ high volume demand on short notice. We view our globalinfrastructure as a competitive strength, and we have made a deliberatedecision to keep our infrastructure in place, enabling us to respond quickly toour customers’ needs and produce high volume orders on short notice.

 

*Selling,General*and*Administrative Expenses.*  Selling, general and administrative (SG&A) expenses for the nine monthperiod ended September 29, 2007 increased $3.4 million, or 16.0%, to $24.7million from $21.3 million for the comparable 2006 period. As a percentage ofrevenue, SG&A expenses increased to 11.8% of revenue for the nine monthperiod ended September 29, 2007 from 11.3% of revenue for the comparable2006 period.  SG&A expenses from our Riley Medical, Everest Metal,Clamonta, SSI, UCA and TNCO acquisitions totaled $5.6 million for the ninemonth period ended September 29, 2007 compared to $1.8 million for thecomparable 2006 period.

 

*OtherExpense.*   Interest expense for the nine monthperiod ended September 29, 2007 increased $2.1 million, or 70.3%, to $5.0million from $2.9 million for the comparable 2006 period. This increaseprimarily reflects the increase of interest from new senior term and revolvingdebt related to our acquisitions in the past year. This increase was offset byreductions in outstanding capital lease obligations and previously held seniorterm 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 loss of $1.4 million for the nine month period ended September 29,2007 versus the loss of $1.7 million in the comparable 2006 period is due tomarket fluctuations in these contracts, which are not designated as hedgesunder SFAS 133. During the nine month period ended September 29,2007, we settled three of our foreign exchange rate contracts at a loss of $1.5million.  No contracts were settled in the comparable 2006 period.

 

Included in Other is a$0.4 million gain for the nine month period ended September 29, 2007 forthe sale of surplus land adjacent to our Sheffield, UK facility. The comparable2006 period also had a $1.2 million gain on the sale of other surplus landadjacent to our Sheffield, UK facility.

 

*Provisionfor Income Taxes.*   Our effective tax rate was 34.4%for the nine month period ended September 29, 2007 as

 

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compared to 28.5% for thecomparable 2006 period. This increase in rate was primarily due to theestablishment of a valuation allowance on the net operating loss carry-forwardat our Sheffield, UK subsidiary of $0.8 million. The provision for income taxesdecreased by $3.7 million, or 57.5%, to $2.7 million for the nine month periodended September 29, 2007 from $6.4 million for the comparable 2006 periodprimarily due to lower pre-tax income.

 

**Liquidity and Capital Resources**

 

Our principal sources ofcash in the nine month period ended September 29, 2007 were cash generatedfrom operations and borrowings under our senior credit revolving loan facilityand UK revolving credit facility.  Principal uses of cash in the ninemonth period ended September 29, 2007 included capital expenditures, theacquisition of Clamonta, TNCO, SSI and UCA as well as debt service. We expectthat our principal uses of cash in the future will be for working capital,capital expenditures, debt service and to fund mergers and acquisitions.

 

We completed the acquisitionof Clamonta on January 9, 2007 for $10.4 million, subject to adjustment,through the use of the existing cash balances and our $40.0 million seniordebt facility.   On April 3, 2007, we completed the acquisitionof TNCO for approximately $7.3 million, subject to adjustment, through the useof existing cash balances and our $40.0 million senior debt facility. On August 31,2007, we acquired Specialty Surgical Instrumentation, Inc. (“SSI”) andUCA, LLC (“UCA”), for approximately $15.0 million through our line of credit.

 

*OperatingActivities.  * We generated cash from operations of$25.6 million in the nine month period ended September 29, 2007 comparedto $25.1 million for the nine month period ended September 30, 2006, anincrease of $0.5 million.  Net cash provided by working capital for thenine month period ended September 29, 2007 was $13.2 million higher thanthe comparable 2006 period.  This improvement in the net change in workingcapital was offset by a decrease in net income, adjusted for non-cash items, of$14.0 million.

 

Cash provided by workingcapital fluctuations was $10.4 million in the nine month period ended September 29,2007 as compared to a use of $3.2 million in the comparable 2006 period. In the nine month period ended September 29, 2007, the primary sources ofcash for working capital came from an increase in accounts payable, offset byincreases in accounts receivable and current income taxes.  In the ninemonth period ended September 30, 2006, the primary uses of cash forworking capital came from a decrease in accounts payable and accrued expenses,offset by a decrease in account receivable and other assets.  These nearlyopposite changes in working capital are a result of increasing productionactivity in the third quarter of 2007 compared to decreasing productionactivity in the third quarter of 2006.

 

*InvestingActivities.*  Capital expenditures of $7.2 millionwere lower by $8.3 million, or 53.6%, in the nine month period ended September 29,2007 compared to the nine month period ended September 30, 2006.  Theacquisition of Clamonta, TNCO, and SSI and UCA used $32.5 million of cash inthe 2007 period while acquisition activity in the 2006 period used $54.5million for Riley Medical and Everest Metal.

 

*FinancingActivities.  * Financing activities generated $7.4million of cash due primarily to borrowings on the revolving credit facilityand exercise of stock options, offset by payments on long-term debt and capitalleases.  Borrowings on the revolving credit facility partially funded theClamonta, TNCO, SSI and UCA acquisitions.

 

***Capital Expenditures***

 

Capital expenditurestotaled $7.2 million for the nine months ended September 29, 2007,compared to $15.2 million for the nine month period ended September 30,2006. Expenditures were primarily used to equip our Sheffield, UK facility withincreased forge capacity for the aerospace products and to maintain productioncapacity in all of our production facilities.

 

***Debt and Credit Facilities***

 

As of September 29,2007, we had an aggregate of $84.6 million of outstanding indebtedness, whichconsisted of $60.5 million of term loan borrowings outstanding under our seniorcredit facility, $16.3 million of borrowings outstanding under our revolvingcredit facility, $0.3 million of borrowings under our UK short-term creditfacility and $7.5 million of capital lease obligations. We had no outstandingletters of credit as of September 29, 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 September 29,2007. 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 requireadditional debt or equity financing.

 

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***Contractual Obligations andCommercial Commitments***

 
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | ** **                 | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | **More than 5** | ** ** |
| ** **                      | ** ** | **Total**                  | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **years** | ** ** |
| ** **                      | ** ** | **(in millions)**          | ** ** |
| Long-term debt  obligations (1) |       | $                          | 76.8       |   | $ | 1.9 |   | $ | 20.0 |   | $ | 54.9 |   | $ | — |   |
| Capital lease obligations       |       | 12.2                       |       | 2.7 |   | 4.1 |   | 1.6 |   | 3.8 |   |
| Operating lease obligations     |       | 4.4                        |       | 1.1 |   | 2.0 |   | 1.3 |   | — |   |
| Purchase obligations (2)        |       | 4.5                        |       | 4.5 |   | — |   | — |   | — |   |
|                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total                           |       | $                          | 97.9       |   | $ | 10.2 |   | $ | 26.1 |   | $ | 57.8 |   | $ | 3.8 |   |

 

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* Less than 1 year is defined as the remainder of fiscal2007. Following periods are whole fiscal years.

 

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

 

(2) Representspurchase agreements to buy minimum quantities of cobalt chrome through December 2007.

 

**Off-BalanceSheet Arrangements**

 

Our off-balance sheetarrangements include our operating leases and letters of credit, which areavailable under the senior credit facility. We had no letters of creditoutstanding as of September 29, 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 connection with ouracquisitions of TNCO, SSI and UCA, we completed Phase I assessments and did notfind any significant issues that need to be remediated. We cannot be certainthat environmental issues will not be discovered or arise in the future relatedto these acquisitions.

 

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 of waste. The insurance has a $5.0 million aggregate limitand is subject to a deductible and certain exclusions. The policy periodexpires in 2010. While the insurance may mitigate the risk of certainenvironmental liabilities, we cannot guarantee that a particular liability willbe covered by this insurance.

 

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

 

**CriticalAccounting Policies and Estimates**

 

The preparation of ourfinancial statements requires management to make estimates, judgments andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses during the periods presented. Our Annual Report on Form 10-Kfor fiscal year ended December 29, 2007, filed contemporaneously with thisForm 10-Q, 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 nine months ended September 29, 2007.

 

**NewAccounting Pronouncements**

 

In July 2006, theFASB issued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes*, on

 

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December 31,2006.  This statement prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  This statement was adopted by us on December 31,2006.   The implementation of FIN 48 hadno impact on our financial position or results of operations.  As of thebeginning of fiscal year 2007, we have unrecognized tax benefits of $0.3million.  There has been no significant change in the unrecognized taxbenefits during the third quarter ending September 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 AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

 

For financial marketrisks related to changes in interest rates, foreign currency exchange rates,commodity prices and the effects of inflation, reference is made toItem 7a “Quantitative and Qualitative Disclosures About Market Risk”contained in Part II of our Annual Report on Form 10-K for the fiscalyear ended December 29, 2007 filed contemporaneously with this report. Asof September 29, 2007 our exposure to these risks had not changedmaterially since December 30, 2006.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

(a)  Evaluation of disclosure controls and procedures.

 

Our Chief ExecutiveOfficer and Chief Financial Officer, after evaluating the effectiveness of our “disclosurecontrols and procedures” (as defined in Rule 13a-15(e) of theSecurities Exchange Act of 1934), concluded that, as of the end of the fiscalquarter covered by this report, our disclosure controls and procedures were ineffective,as more fully described in Item 9A of our Annual Report on Form 10-K for fiscalyear ended December 29, 2007 filed contemporaneously with this Form 10-Q.

 

(b)   Changesin internal control over financial reporting.

 

During the fiscal quartercovered by this report, there were no changes in our “internal control overfinancial reporting” (as defined in Rule 13a-15(f) of the SecuritiesExchange Act of 1934) that materially affected, or were reasonably likely tomaterially affect, our internal control over financial reporting, except that,during the fiscal quarter covered by this report, we were still in the processof integrating the Everest Metal, Riley Medical, Clamonta Ltd and TNCO operationsand were incorporating these operations as part of our internal controls.  For purposes of this evaluation, the impactof these acquisitions on our internal controls over financial reporting wereexcluded. See Note 11 to the condensed consolidated financial statementsincluded in Item 1 for a discussion of the Everest Metal, Riley Medical,Clamonta Ltd and TNCO acquisitions.

 

In addition, subsequentto the fiscal quarter covered by this report, but prior to the filing of this Form 10-Q,several remedial measures were identified and implemented in response to theconclusion reached by our Chief Executive and Chief Financial Officer as of December 29,2007, that our disclosure controls and procedures were not effective. We didnot maintain an effective control environment including a tone of controlconsciousness that consistently emphasized strict adherence to accountingprinciples generally accepted in the United States of America at our ThorntonPrecision Components Limited (“TPC”) subsidiary.  This control deficiency included inadequateoperation of entity level controls including monitoring controls that were notsufficiently sensitive in scope and therefore failed to detect and prevent on atimely basis management override of controls at TPC and collusion of TPC’smanagement team to achieve desired financial accounting results.  In certain instances, information critical toan effective review of transactions and accounting entries was not disclosed tointernal and external auditors. As more fully described in our Annual Report onForm 10-K for fiscal year ended December 29, 2007 filedcontemporaneously with this Form 10-Q.

 

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**PART IIOTHER INFORMATION**

 

**ITEM 1ARISK FACTORS**

 

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

 

**ITEM 5 OTHER 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.

 

**ITEM 6 EXHIBITS**

** **
| 10.31  |   | Forbearance  Agreement, executed October 10, 2007, among Symmetry Medical Inc. as  borrower, Wachovia Bank, National Association as Administrative Agent, the  lenders identified on the signature pages thereto, General Electric  Capital Corporation as Syndication Agent and RBS Citizens, N.A. as  Documentation Agent (incorporated by reference to Exhibit 10.1 to our  Form 8-K filed October 11, 2007). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.32  |   | Purchase  Agreement, dated August 29, 2007, between Symmetry Medical USA Inc. and  Louis C. Wallace and Charles O. Mann, Jr. (incorporated by reference to  Exhibit 10.1 to our Form 8-K filed November 8, 2007).                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.33  |   | Real  Property Sale and Purchase Agreement, dated August 29, 2007 between  Symmetry Medical USA Inc. and MFW Investments (incorporated by reference to  Exhibit 10.2 to our Form 8-K filed November 8, 2007).                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.34  |   | Earn-Out  Agreement, dated August 29, 2007 between Symmetry Medical USA Inc. and  Louis C. Wallace and Charles O. Mann, Jr. (incorporated by reference to  Exhibit 10.3 to our Form 8-K filed November 8, 2007).                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.35  |   | Employment  Agreement, executed October 17, 2007, by and between Symmetry Medical,  Thornton Precision Components Limited and John Hynes (incorporated by reference  to Exhibit 10.4 to our Form 8-K filed November 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.**                                                                                                                                                                                                                                             |

 

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** Filed or furnished herewith.

 

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**SIGNATURES**

 

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

 

April 23, 2008

 
| 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)* |

 

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