Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

**x QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended       June28, 2008**

 

**or**

 

**o TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from                                                      to                                                                            **

 

**CommissionFile Number: 001-32374**

 

**SYMMETRY MEDICAL INC.**

(Exact name of registrant asspecified 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 addressand former fiscal year, if changed since last report)

 

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

 

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

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

 

The number of sharesoutstanding of the registrant’s common stock as of August 1, 2008 was35,802,125.

 

 

 

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**TABLE OF CONTENTS**

 
| **PART I  FINANCIAL INFORMATION** |
|----------------------------------------|
|                                   |   |
| Item 1                            | Financial  Statements: |
|                                   |   |
|                                   | Condensed  Consolidated Balance Sheets: As of June 28, 2008 and December 29,  2007 |
|                                   |   |
|                                   | Condensed  Consolidated Statements of Operations: Three and Six Months Ended June  28, 2008 and June 30, 2007 |
|                                   |   |
|                                   | Condensed  Consolidated Statements of Cash Flows: Six Months Ended June 28, 2008 and  June 30, 2007 |
|                                   |   |
|                                   | Notes  to Condensed Consolidated Financial Statements |
|                                   |   |
| Item 2                            | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |
|                                   |   |
| Item 3                            | Quantitative  and Qualitative Disclosures about Market Risks |
|                                   |   |
| Item 4                            | Controls and  Procedures |
|                                   |   |
| **PART II OTHER INFORMATION**     |
|                                   |   |
| Item 1                                 | Legal Proceedings |
|                                   |   |
| Item 1A                           | Risk  Factors |
|                                   |   |
| Item 4                            | Submission of  Matters to a Vote of Security Holders |
|                                   |   |
| Item 5                            | Other Information |
|                                   |   |
| Item 6                            | Exhibits |
|                                   |   |
| Signatures                             |   |

 

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**CautionaryNote Regarding Forward-Looking Statements**

 

Throughout this QuarterlyReport on Form 10-Q or in other reports or registration statements filed fromtime to time with the Securities and Exchange Commission under the SecuritiesExchange Act of 1934, or under the Securities Act of 1933, as well as indocuments we incorporate by reference or in press releases or oral statementsmade by our officers or representative, we may make statements that express ouropinions, expectations or projections regarding future events or futureresults, in contrast with statements that reflect historical facts. Thesepredictive statements, which we generally precede or accompany by such typicalconditional 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 to operate as “forward-lookingstatements” of the kind permitted by the Private Securities Litigation ReformAct of 1995. That legislation protects such predictive statements by creating a“safe harbor” from liability in the event that a particular prediction does notturn out as anticipated.

 

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

 

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

 

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

 

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**PART IFINANCIAL INFORMATION**

**ITEM I.FINANCIAL STATEMENTS**

 

**Symmetry Medical Inc.**

**CondensedConsolidated Balance Sheets**

 
| ** **                                                                                                                          | ** ** | **June 28,**                                                  | ** ** | **December 29,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2008**                                                           | ** ** | **2007**              | ** ** |
| ** **                                                                                                                          | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| ** **                                                                                                                          | ** ** | **(unaudited)**                                                    | ** ** | ** **            | ** ** |
| **Assets:**                                                                                                                         |       |                                                               |       |                  |       |
| Current Assets:                                                                                                                     |       |                                                               |       |                  |       |
| Cash and cash equivalents                                                                                                           |       | $                                                                  | 7,561      |                  | $          | 12,089 |   |
| Accounts  receivables, net                                                                                                          |       | 63,653                                                             |       | 42,992                |       |
| Inventories                                                                                                                         |       | 61,133                                                             |       | 45,353                |       |
| Refundable  income taxes                                                                                                            |       | 5,167                                                              |       | 6,516                 |       |
| Deferred income  taxes                                                                                                              |       | 3,419                                                              |       | 2,551                 |       |
| Derivative  valuation asset                                                                                                         |       | —                                                             |       | 2                     |       |
| Other current  assets                                                                                                               |       | 3,187                                                              |       | 2,940                 |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total current  assets                                                                                                               |       | 144,120                                                            |       | 112,443               |       |
| Property and  equipment, net                                                                                                        |       | 121,974                                                            |       | 100,424               |       |
| Goodwill                                                                                                                            |       | 154,068                                                            |       | 141,985               |       |
| Intangible  assets, net of accumulated amortization                                                                                 |       | 48,574                                                             |       | 44,567                |       |
| Other assets                                                                                                                        |       | 2,283                                                              |       | 1,011                 |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total Assets                                                                                                                        |       | $                                                                  | 471,019    |                  | $          | 400,430 |   |
|                                                                                                                                |       |                                                               |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                     |       |                                                               |       |                  |       |
| Current  Liabilities:                                                                                                               |       |                                                               |       |                  |       |
| Accounts payable                                                                                                                    |       | $                                                                  | 33,744     |                  | $          | 34,518 |   |
| Accrued wages  and benefits                                                                                                         |       | 11,582                                                             |       | 10,922                |       |
| Other accrued  expenses                                                                                                             |       | 7,651                                                              |       | 8,096                 |       |
| Income tax  payable                                                                                                                 |       | 7,101                                                              |       | 2,394                 |       |
| Derivative  valuation liability                                                                                                     |       | 82                                                                 |       | 74                    |       |
| Deferred income  taxes                                                                                                              |       | 390                                                                |       | 407                   |       |
| Revolving line  of credit                                                                                                           |       | 11,283                                                             |       | 6,511                 |       |
| Current portion  of capital lease obligations                                                                                       |       | 1,673                                                              |       | 2,487                 |       |
| Current portion  of long-term debt                                                                                                  |       | 17,562                                                             |       | 10,900                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total current  liabilities                                                                                                          |       | 91,068                                                             |       | 76,309                |       |
| Deferred income  taxes                                                                                                              |       | 12,135                                                             |       | 12,136                |       |
| Derivative  valuation liability                                                                                                     |       | 1,838                                                              |       | 1,917                 |       |
| Capital lease  obligations, less current portion                                                                                    |       | 3,422                                                              |       | 4,032                 |       |
| Long-term debt,  less current portion                                                                                               |       | 111,550                                                            |       | 68,500                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total  Liabilities                                                                                                                  |       | 220,013                                                            |       | 162,894               |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                                             |       |                                                               |       |                  |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Shareholders’  Equity:                                                                                                         |       |                                                               |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued June 28, 2008—35,795;  December 29, 2007—35,444) |       | 4                                                                  |       | 4                     |       |
| Additional  paid-in capital                                                                                                         |       | 273,444                                                            |       | 272,623               |       |
| Retained  earnings (deficit)                                                                                                        |       | (35,357                                                            | )          | (45,526               | )          |
| Accumulated  other comprehensive income                                                                                             |       | 12,915                                                             |       | 10,435                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total  Shareholders’ Equity                                                                                                    |       | 251,006                                                            |       | 237,536               |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                                    |       | $                                                                  | 471,019    |                  | $          | 400,430 |   |

 

See accompanying notes tocondensed consolidated financial statements*.*

 

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**Symmetry Medical Inc.**

**CondensedConsolidated Statements of Operations**

 
| ** **                                                         | ** ** | **Three Months Ended**                                   | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **June 28,**                                                  | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                                         | ** ** | **2008**                                                           | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                                                    | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Revenue                                                            |       | $                                                                  | 109,787    |                           | $          | 69,713 |   | $ | 211,649 |   | $ | 134,436 |   |
| Cost of Revenue                                                    |       | 82,373                                                             |       | 54,997                         |       | 160,289 |   | 108,007 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Gross Profit                                                       |       | 27,414                                                             |       | 14,716                         |       | 51,360 |   | 26,429 |   |
| Selling,  general, and administrative expenses                     |       | 14,926                                                             |       | 8,030                          |       | 29,309 |   | 15,681 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Operating Income                                                   |       | 12,488                                                             |       | 6,686                          |       | 22,051 |   | 10,748 |   |
| Other (income)  expense:                                           |       |                                                               |       |                           |       |   |   |   |   |
| Interest expense                                                   |       | 2,917                                                              |       | 1,607                          |       | 5,617 |   | 3,194 |   |
| Derivatives  valuation (gain)/loss                                 |       | (1,381                                                             | )          | (278                           | )          | (215 | ) | (16 | ) |
| Other                                                              |       | (189                                                               | )          | (765                           | )          | (352 | ) | (665 | ) |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Income before  income taxes                                        |       | 11,141                                                             |       | 6,122                          |       | 17,001 |   | 8,235 |   |
| Income tax  expense                                                |       | 4,939                                                              |       | 1,426                          |       | 6,832 |   | 1,924 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Net income                                                         |       | $                                                                  | 6,202      |                           | $          | 4,696 |   | $ | 10,169 |   | $ | 6,311 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Net income per  share:                                             |       |                                                               |       |                           |       |   |   |   |   |
| Basic                                                              |       | $                                                                  | 0.18       |                           | $          | 0.13 |   | $ | 0.29 |   | $ | 0.18 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Diluted                                                            |       | $                                                                  | 0.18       |                           | $          | 0.13 |   | $ | 0.29 |   | $ | 0.18 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                                               |       |                           |       |   |   |   |   |
| Basic                                                              |       | 35,155                                                             |       | 35,119                         |       | 35,154 |   | 35,046 |   |
| Diluted                                                            |       | 35,323                                                             |       | 35,277                         |       | 35,329 |   | 35,237 |   |

 

See accompanying notes tocondensed consolidated financial statements*.*

 

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**Symmetry Medical Inc.**

**CondensedConsolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                   | ** ** | **June 28,**              | ** ** | **June 30,** | ** ** |
| ** **                                                                                   | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**        | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** |
| **Operating  activities**                                                                    |       |                           |       |   |   |
| Net Income                                                                                   |       | $                              | 10,169     |   | $ | 6,311 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                           |       |   |   |
| Depreciation                                                                                 |       | 9,397                          |       | 8,591 |   |
| Amortization                                                                                 |       | 1,474                          |       | 1,012 |   |
| Foreign currency  transaction (gain) loss                                                    |       | 414                            |       | (279 | ) |
| Net (gain) loss  on sale of assets                                                           |       | 127                            |       | (348 | ) |
| Deferred income  tax provision                                                               |       | (924                           | )          | (695 | ) |
| Excess tax  benefit from stock-based compensation                                            |       | (92                            | )          | (796 | ) |
| Stock-based  compensation                                                                    |       | 613                            |       | 142 |   |
| Derivative  valuation change                                                                 |       | (69                            | )          | (1,500 | ) |
| Change in  operating assets and liabilities:                                                 |       |                           |       |   |   |
| Accounts  receivable                                                                         |       | (19,890                        | )          | (2,019 | ) |
| Other assets                                                                                 |       | (1,449                         | )          | 132 |   |
| Inventories                                                                                  |       | (7,503                         | )          | 1,263 |   |
| Current income  taxes                                                                        |       | 5,981                          |       | 399 |   |
| Accounts payable                                                                             |       | (1,082                         | )          | 4,259 |   |
| Accrued expenses  and other                                                                  |       | (62                            | )          | 623 |   |
|                                                                                         |       |                           |       |   |   |
| Net cash  provided by operating activities                                                   |       | (2,896                         | )          | 17,095 |   |
|                                                                                         |       |                           |       |   |   |
| **Investing  activities**                                                                    |       |                           |       |   |   |
| Purchases of  property and equipment                                                         |       | (8,976                         | )          | (3,963 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 220                            |       | 1,589 |   |
| Acquisition, net  of cash received                                                           |       | (46,506                        | )          | (17,621 | ) |
|                                                                                         |       |                           |       |   |   |
| Net cash used in  investing activities                                                       |       | (55,262                        | )          | (19,995 | ) |
|                                                                                         |       |                           |       |   |   |
| **Financing  activities**                                                                    |       |                           |       |   |   |
| Proceeds from  bank revolver                                                                 |       | 39,887                         |       | 49,013 |   |
| Payments on bank  revolver                                                                   |       | (40,669                        | )          | (44,471 | ) |
| Issuance of long-term  debt                                                                  |       | 60,000                         |       | — |   |
| Payments on  long-term debt and capital lease obligations                                    |       | (6,297                         | )          | (3,742 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                 |       | 116                            |       | 641 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 92                             |       | 796 |   |
|                                                                                         |       |                           |       |   |   |
| Net cash  provided by financing activities                                                   |       | 53,129                         |       | 2,237 |   |
| Effect of  exchange rate changes on cash                                                     |       | 501                            |       | (67 | ) |
|                                                                                         |       |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | (4,528                         | )          | (730 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 12,089                         |       | 11,721 |   |
|                                                                                         |       |                           |       |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                              | 7,561      |   | $ | 10,991 |   |
|                                                                                         |       |                           |       |   |   |
| Supplemental  disclosures:                                                                   |       |                           |       |   |   |
| Cash paid for  interest                                                                      |       | $                              | 4,487      |   | $ | 3,204 |   |
|                                                                                         |       |                           |       |   |   |
| Cash paid for  income taxes                                                                  |       | $                              | 1,854      |   | $ | 2,221 |   |
|                                                                                         |       |                           |       |   |   |
| Assets acquired  under capital leases                                                        |       | $                              | 91         |   | $ | — |   |

 

See accompanying notes to condensed consolidated financial statements.

 

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**Symmetry Medical Inc.**

**Notes toCondensed Consolidated Financial Statements**

**(Unaudited)**

**(In Thousands, Except Per ShareData)**

 

**1. Basisof Presentation**

 

The condensed consolidated financial statementsinclude the accounts of Symmetry Medical Inc. and its wholly-owned subsidiaries(collectively referred to as the Corporation), Symmetry Medical USA Inc., JetEngineering, Inc., Ultrexx, Inc., Riley Medical, Inc., SymmetryMedical Switzerland SA (formerly known as Riley Medical Europe, SA), SymmetryMedical Everest LLC, Everest Metal International Limited, Symmetry MedicalCheltenham Limited, Symmetry Medical PolyVac, SAS, Thornton PrecisionComponents Limited, Symmetry Medical Malaysia SDN, Clamonta Limited, SpecialtySurgical Instrumentation, Inc., UCA, LLC., TNCO, Inc. and Symmetry Medical NewBedford, LLC.  The Corporation is a global supplier of integrated productsconsisting primarily of surgical implants, instruments and cases to orthopedicand other medical device companies.

 

The condensed consolidated financial statements of theCorporation have been prepared without audit, pursuant to the rules andregulations of the Securities and Exchange Commission. Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations. In the opinion ofmanagement, the accompanying condensed consolidated financial statementscontain all adjustments of a normal recurring nature considered necessary topresent fairly, the consolidated financial position of the Corporation, itsresults of operations and cash flows. The Corporation’s results are subject toseasonal fluctuations. Interim results are not necessarily indicative of resultsfor a full year. The condensed consolidated financial statements includedherein should be read in conjunction with the fiscal year 2007 consolidatedfinancial statements and the notes thereto included in the Corporation’s AnnualReport on Form 10-K for fiscal year 2007.

 

The Corporation’s year end is the 52 or 53 week periodending the Saturday closest to December 31. Fiscal year 2008 is a 53 weekyear. The Corporation’s first two interim quarters for 2008 are 13 weeks longending the Saturday closest to March 31, and June 30 and the third quarter is14 weeks long ending the Saturday closest to September 30. Fiscal Year 2007 wasa 52 week year. The Corporation’s interim quarters for 2007 were 13 weeks longending the Saturday closest to March 31, June 30, orSeptember 30. References in these condensed consolidated financialstatements to the three months ended refer to these financial periods,respectively.

 

On January 25, 2008, the Corporation acquired DePuyOrthopaedics, Inc.’s (“DePuy”) New Bedford, Massachusetts instrumentmanufacturing facility (“New Bedford”), for $45,131 in cash, subject to certainpost closing adjustments. This facility manufactures orthopedic instruments aswell as general surgical instruments and small implants.

 

On August 31, 2007, the Corporation acquired all ofthe stock of Specialty Surgical Instrumentation, Inc. (“SSI”) and UCA, LLC (“UCA”),privately owned companies based in Nashville, Tennessee, for $15,089, in cash,subject to certain post closing adjustments. SSI distributes surgicalinstruments directly to hospitals while UCA distributes sterilizationcontainers directly to hospitals.

 

On April 3, 2007, the Corporation acquired all of thestock of TNCO, Inc. (“TNCO”) a privately owned company based in Whitman,Massachusetts for $7,580 in cash. TNCO designs and supplies precisioninstruments for arthroscopic, laparoscopic, sinus and other minimally invasiveprocedures.

 

On January 9, 2007, the Corporation acquired all ofthe stock of Whedon Limited, a privately owned company based in Warwickshire,UK and the holding company of Clamonta Limited (collectively “Clamonta Ltd”),for $10,407 in cash, subject to certain post closing adjustments. Clamonta Ltd manufactures aerospace products for the global aerospace industry.

 

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**2.Inventories**

 

Inventories consist of the following:

 
| ** **                 | ** ** | **June 28,** | ** ** | **December 29,** | ** ** |
|----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| Raw material and  supplies |       | $                 | 11,111     |                  | $          | 9,244 |   |
| Work-in-process            |       | 34,920            |       | 21,412                |       |
| Finished goods             |       | 15,102            |       | 14,697                |       |
|                       |       | $                 | 61,133     |                  | $          | 45,353 |   |

 

**3.Property and Equipment**

 

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

 
| ** **                                   | ** ** | **June 28,** | ** ** | **December 29,** | ** ** |
|----------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| Land                                         |       | $                 | 7,987      |                  | $          | 6,759 |   |
| Buildings and  improvements (20 to 40 years) |       | 44,254            |       | 44,274                |       |
| Machinery and  equipment (5 to 15 years)     |       | 121,700           |       | 98,974                |       |
| Office equipment  (3 to 5 years)             |       | 10,496            |       | 8,909                 |       |
| Construction-in-progress                     |       | 7,543             |       | 2,786                 |       |
|                                         |       |              |       |                  |       |
|                                         |       | 191,980           |       | 161,702               |       |
| Less accumulated  depreciation               |       | (70,006           | )          | (61,278               | )          |
|                                         |       | $                 | 121,974    |                  | $          | 100,424 |   |

 

**4.Intangible Assets**

 

Intangible assets were acquired in connection with ourbusiness acquisitions. As of June 28, 2008, the balances of intangible assets,other than goodwill, were as follows:

 
| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| Acquired  technology and patents                         |       | 10 years             |       | $              | 2,442      |             | $          | (653           | )          | $ | 1,789 |   |
| Acquired  customers                                      |       | 18 years             |       | 43,551         |       | (5,436           | )          | 38,115         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 593            |       | (194             | )          | 399            |       |
| Intangible  assets subject to amortization               |       |                 |       | 46,586         |       | (6,283           | )          | 40,303         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,914          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 4,357          |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                 |       |           |       |             |       | 8,271          |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Total                                                    |       |                 |       |           |       |             |       | $              | 48,574     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

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

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

 

**5. DebtArrangements**

 

Long-term debt consists of the following:

 
| ** **                                                                                                                           | ** ** | **June 28,** | ** ** | **December 29,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2008**          | ** ** | **2007**              | ** ** |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (5.50% at  June 28, 2008), through December 2009 |       | $                 | 17,062     |                  | $          | 21,000 |   |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (5.50% at  June 28, 2008), through June 2011     |       | 39,300            |       | 39,400                |       |
| Bank term loan  payable in quarterly installments, plus interest at a variable rate (5.50% at  June 28, 2008), through June 2011     |       | 59,250            |       | —                |       |
| Revolving line  of credit, due June 2011                                                                                             |       | 13,500            |       | 19,000                |       |
|                                                                                                                                 |       | 129,112           |       | 79,400                |       |
| Less current  portion                                                                                                                |       | (17,562           | )          | (10,900               | )          |
|                                                                                                                                 |       |              |       |                  |       |
|                                                                                                                                 |       | $                 | 111,550    |                  | $          | 68,500 |   |

 

As of June 28, 2008, the Corporation’s revolvingcredit facility had a total capacity of up to $40,000 and the Corporation paysa 0.375% annual commitment fee for the average unused portion of the revolvingline of credit facility. There were $13,500 of borrowings under this line ofcredit at June 28, 2008.

 

The bank term loan and revolving Line of credit (“SeniorCredit Agreement”) contain various financial covenants, including covenantsrequiring a maximum total debt to EBITDA ratio, minimum EBITDA to interestratio and a minimum EBITDA to fixed charges ratio. The Senior Credit Agreementalso contains covenants restricting certain corporate actions, including assetdispositions, acquisitions, paying dividends and certain other restrictedpayments, changes of control, incurring indebtedness incurring liens, making loansand investments and transactions with affiliates. The senior credit facility issecured by substantially all of the Corporation’s assets. The Corporation’sSenior Credit Agreement also contains customary events of default.

 

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

 

On January 25, 2008, the New Bedford acquisitionwas completed and the Incremental Term Loan was funded. The Incremental TermLoan will mature June 13, 2011. Quarterly installments of principal are tobe paid so as to reduce the principal balance by approximately five percent(5%) in 2008, ten percent (10%) in 2009, fifteen percent (15%) in 2010 andseventy percent (70%) in 2011. We retained the right to have borrowed fundsbear interest at the London Interbank Offered Rate (LIBOR) plus an applicablemargin or at a “Base Rate” plus an applicable margin. The applicable margins  increased by 0.50% and the Corporation waslimited in its ability to borrow under its current revolving credit facilityunder the Waiver until the Corporation became current in filing its reportsunder Section 13 and 15(d) of the Securities Exchange Act. Other terms ofthe Senior Credit Agreement remained substantially unchanged by the Waiver.

 

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On March 27, 2008, the Corporation and itslenders entered into a Second Amendment and Waiver to the Amended and RestatedCredit Agreement (“Second Amendment”) for purposes of waiving events of defaultunder the Senior Credit Agreement relating to the Sheffield accounting irregularitiesand the Corporation’s required financial statement filing deadlines. The SecondAmendment modified the calculation of the financial impact of the Sheffieldirregularities and extended the deadline for the Corporation to file itsfinancial statements as required under Sections 13 and 15(d) of theExchange Act to April 14, 2008.

 

On April 14, 2008, the Corporation notified itsAdministrative Agent that the filing of its Annual Report on Form 10-Kwould be extended beyond the April 14, 2008 target date; certain otherfinancial statements as required by the Senior Credit Agreement would beprovided beyond the time established by the Senior Credit Agreement; and theCorporation would be unable to comply with a financial covenant of the SeniorCredit Agreement. The Administrative Agent, for the Corporation’s lenders,informed the Corporation that an event of default occurred due to thesecircumstances. Under the circumstances, the Administrative Agent had the rightto accelerate the financial obligations of the Corporation under the SeniorCredit Agreement, but did not.

 

On April 22, 2008, the Corporation and WachoviaBank, National Association, as Administrative Agent, entered into a ThirdAmendment and Waiver to Amended and Restated Credit Agreement (“Third Amendment”)for the purposes of waiving the described defaults. Accordingly, theCorporation obtained from the lenders (i) a waiver for its Event of Default,(ii) an extension of the deadline by which the Corporation was required to fileits 2007 Form 10-K, and (iii) an extension of the deadline by which theCorporation is required to file its 2008 first quarter filing on Form 10-Q. Inaddition, the Corporation obtained changes to the Credit Agreement whichincludes temporary adjustments to its financial statement covenants.

 

On June 27, 2008, the Corporation filed its 2008 firstquarter filing on Form 10-Q and met all of the requirements under the ThirdAmendment. As such, the interest margin decreased 0.50% and the restrictions onborrowings were lifted in accordance with the Third Amendment.

 

Maturities of long-term debt for the five yearssucceeding June 28, 2008 are as follows:

 
| 2008—remaining  fiscal year |   | $      | 9,112   |   |
|----------------------------------|--------|--------|---------|--------|
| 2009                             |   | 16,900 |    |
| 2010                             |   | 20,400 |    |
| 2011                             |   | 82,700 |    |
| 2012                             |   | — |    |
|                             |   |   |    |
|                             |   | $      | 129,112 |   |

 

**6. NewAccounting Pronouncements**

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards (SFAS) No. 141(R), *BusinessCombinations*. This statement amends SFAS 141, and providesrevised guidance for recognizing and measuring identifiable assets and goodwillacquired, liabilities assumed, and any non-controlling interest in theacquiree. It also provides disclosure requirements to enable users of thefinancial statements to evaluate the nature and financial effects of thebusiness combination. The provisions of SFAS 141(R) are effective for ourbusiness combinations occurring on or after January 1, 2009. There are noimpacts to the Corporation’s current financial statements. The potentialimpacts of the adoption of SFAS 141(R) will be evaluated in the instanceof future acquisitions.

 

**7. Segment Reporting**

 

The Corporation primarily designs, develops andmanufactures implants and related surgical instruments and cases for orthopedicdevice companies and companies in other medical device markets such as dental,osteobiologic and endoscopy. The Corporation also sells products to theaerospace industry. The Corporation manages its business in multiple operatingsegments. Because of the similar economic characteristics of these operations,including the nature of the products, comparable level of FDA regulations, sameor similar customers, those operations have been aggregated following theprovisions of SFAS 131 for segment reporting purposes. The results of onesegment which sells exclusively to aerospace customers has not been disclosedseparately as it does not meet the quantitative disclosure requirements.

 

The Corporation is a multi-national Corporation withoperations in the United States, United Kingdom, France, Switzerland, Irelandand Malaysia. As a result, the Corporation’s financial results can be impactedby currency exchange rates in the foreign markets in which the Corporationsells its products. Revenues are attributed to geographic locations based onthe location to which we ship our products.

 

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*Revenue from External Customers:*

 
| ** **               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **               | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| United States            |       | $                                | 77,272     |                           | $          | 40,571 |   | $ | 145,179 |   | $ | 79,230 |   |
| United Kingdom           |       | 14,723                           |       | 12,234                         |       | 31,303 |   | 24,229 |   |
| Ireland                  |       | 8,376                            |       | 7,397                          |       | 16,972 |   | 13,193 |   |
| Other foreign  countries |       | 9,416                            |       | 9,511                          |       | 18,195 |   | 17,784 |   |
|                     |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues      |       | $                                | 109,787    |                           | $          | 69,713 |   | $ | 211,649 |   | $ | 134,436 |   |

 

*Concentration of Credit Risk:*

 

A substantial portion of the Corporation’s revenue isderived from a limited number of customers. The Corporation’s revenue includesrevenue from customers of the Corporation which individually account for 10% ormore of revenue as follows:

 

Three months ended June 28, 2008— Two customersrepresented approximately 32.6% and 10.4% of revenue, respectively.

 

Six months ended June 28, 2008— Two customersrepresented approximately 32.4% and 10.6% of revenue, respectively.

 

Three months ended June 30, 2007— Three customersrepresented approximately 20.1%, 11.7%, and 10.0% of revenue, respectively.

 

Six months ended June 30, 2007— Four customersrepresented approximately 18.4%, 11.9%, 10.6% and 10.1% of revenue,respectively.

 

Following is a summary of the composition by productcategory of the Corporation’s revenue to external customers. Revenue of thespecialty services business is included in the “other” category.

 
| ** **          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **          | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Implants            |       | $                                | 31,139     |                           | $          | 27,120 |   | $ | 61,434 |   | $ | 49,792 |   |
| Instruments         |       | 45,099                           |       | 15,451                         |       | 84,388 |   | 30,694 |   |
| Cases               |       | 23,427                           |       | 18,790                         |       | 44,945 |   | 36,376 |   |
| Other               |       | 10,122                           |       | 8,352                          |       | 20,882 |   | 17,574 |   |
|                |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues |       | $                                | 109,787    |                           | $          | 69,713 |   | $ | 211,649 |   | $ | 134,436 |   |

 

**8. NetIncome Per Share**

 

The following table sets forth the computation ofearnings per share.

 
| ** **                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                                          | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                                          |       | $                                | 6,202      |                           | $          | 4,696 |   | $ | 10,169 |   | $ | 6,311 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Weighted-average  common shares outstanding basic                   |       | 35,155                           |       | 35,119                         |       | 35,154 |   | 35,046 |   |
| Effect of stock  options, restricted stock and stock warrants       |       | 168                              |       | 158                            |       | 175 |   | 191 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Weighted-average  common shares outstanding and assumed conversions |       | 35,323                           |       | 35,277                         |       | 35,329 |   | 35,237 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Net income per share:                                               |       |                             |       |                           |       |   |   |   |   |
| Basic                                                               |       | $                                | 0.18       |                           | $          | 0.13 |   | $ | 0.29 |   | $ | 0.18 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Diluted                                                             |       | $                                | 0.18       |                           | $          | 0.13 |   | $ | 0.29 |   | $ | 0.18 |   |

 

During the six month period ended June 28, 2008 theCorporation issued 7 shares of common stock through the exercise of stockoptions.

 

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**9.Commitments and Contingencies**

 

*Environmental and Legal*

 

The Corporation is involved, from time to time, invarious contractual, product liability, patent (or intellectual property) andother claims and disputes incidental to its business. Currently, there is noenvironmental or other litigation pending or, to the knowledge of theCorporation, threatened, that the Corporation expects to have a materialadverse effect on its financial condition, results of operations or liquidity.While litigation is subject to uncertainties and the outcome of litigatedmatters is not predictable with assurance, the Corporation currently believesthat the disposition of all pending or, to the knowledge of the Corporationthreatened, claims and disputes, individually or in the aggregate, should nothave a material adverse effect on the Corporation’s consolidated financialcondition, results of operations or liquidity.

 

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

 

**10.Comprehensive Income**

 

Comprehensive income is comprised of net income andgains and losses resulting from currency translations of foreign entities.Comprehensive income consists of the following:

 
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net Income                                |       | $                                | 6,202      |                           | $          | 4,696 |   | $ | 10,169 |   | $ | 6,311 |   |
| Foreign currency  translation adjustments |       | (262                             | )          | 578                            |       | 2,480 |   | 937 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Comprehensive  income                     |       | $                                | 5,940      |                           | $          | 5,274 |   | $ | 12,649 |   | $ | 7,248 |   |

 

**11.Acquisitions**

 

Results of the following acquisitions are included inthe Statement of Operations from the date of acquisition.

 

On January 9, 2007, the Corporation acquired all ofthe stock of Whedon Limited, a privately owned Corporation based inWarwickshire, UK and the holding Corporation of Clamonta Limited (collectively “ClamontaLtd”), for $10,407 in cash.  Clamonta Ltd manufactures aerospace productsfor the global aerospace industry.

 

As of June 28, 2008, the aggregate purchase price wasallocated to the opening balance sheet as 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                                         |   | 3,025  |   |
| Current  liabilities                             |   | (1,765 | )      |
| Deferred taxes                                   |   | (1,963 | )      |
| Capital leases                                   |   | (550   | )      |
|                                             |   |   |   |
| Purchase price,  net                             |   | $      | 10,407 |   |

 

On April 3, 2007, the Corporation acquired all of thestock of TNCO, Inc. (“TNCO”), a privately owned Corporation based in Whitman,Massachusetts for $7,580.   TNCOdesigns and supplies precision instruments for arthroscopic, laparoscopic,sinus, and other minimally invasive procedures.

 

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As of June 28, 2008, the aggregate purchase price wasallocated to the opening balance sheet as follows:

 
| Current assets                                                 |   | $      | 2,570  |   |
|----------------------------------------------------------------|--------|--------|--------|--------|
| Property, plant  & equipment                               |   | 1,740  |   |
| Acquired  technology (amortized over average weighted 8 years) |   | 510    |   |
| Acquired  customers (amortized over 15 years)                  |   | 1,170  |   |
| Non-compete  agreements (amortized over 5 years)               |   | 80     |   |
| Trademarks  (indefinite-lived)                                 |   | 190    |   |
| Goodwill                                                       |   | 1,789  |   |
| Current  liabilities                                           |   | (469   | )      |
|                                                           |   |   |   |
| Purchase price,  net                                           |   | $      | 7,580  |   |

 

On August 31, 2007, the Corporation acquired SpecialtySurgical Instrumentation, Inc. (“SSI”) and UCA, LLC (“UCA”), privately ownedcompanies based in Nashville, Tennessee. SSI distributes surgical instrumentsdirectly to hospitals while UCA distributes sterilization containers directlyto hospitals. SSI and UCA were acquired for approximately $15,089 in cash. Theaggregate purchase price is preliminary, subject to adjustment and is expectedto be finalized in 2008.

 

As of June 28, 2008, the aggregate purchase price wasallocated to 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                                                        |   | 5,554  |   |
| Current  liabilities                                            |   | (4,561 | )      |
| Deferred income  taxes                                          |   | (2,680 | )      |
|                                                            |   |   |   |
| Purchase price,  net                                            |   | $      | 15,089 |   |

 

On January 25, 2008, the Corporation acquired DePuyOrthopaedics, Inc.’s (“DePuy”) New Bedford, Massachusetts instrumentmanufacturing facility (“New Bedford”). This facility manufactures orthopedicinstruments as well as general surgical instruments and small implants. Theaggregate purchase price is preliminary, subject to adjustment and is expectedto be finalized in 2008.

 

As of June 28, 2008, the aggregate purchase price of$45,131 was allocated to the opening balance sheet as follows:

 
| Current assets                                |   | $      | 7,994  |   |
|-----------------------------------------------|--------|--------|--------|--------|
| PP&E                                      |   | 22,104 |   |
| Acquired  customers (amortized over 15 years) |   | 5,480  |   |
| Goodwill                                      |   | 9,553  |   |
|                                          |   |   |   |
| Purchase price,  net                          |   | $      | 45,131 |   |

 

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

 
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **June 28,**                | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                       | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenue                          |       | $                                | 109,787    |                           | $          | 83,107 |   | $ | 214,326 |   | $ | 163,059 |   |
| Net income                       |       | 6,202                            |       | 3,713                          |       | 10,235 |   | 5,169 |   |
| Earnings per  share—basic   |       | $                                | 0.18       |                           | $          | 0.11 |   | $ | 0.29 |   | $ | 0.15 |   |
| Earnings per  share—diluted |       | $                                | 0.18       |                           | $          | 0.11 |   | $ | 0.29 |   | $ | 0.15 |   |

 

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**12. FairValue of Financial Instruments**

 

In September 2006, the FASB issued statement No. 157, *Fair Value Measurements* (SFAS 157). SFAS 157 defines fair value,establishes a framework for measuring fair value in accordance with accountingprinciples generally accepted in the United States, and expands disclosuresabout fair value measurements. The Corporation has adopted the provisions ofSFAS 157 as of January 1, 2008 for financial instruments. Although the adoptionof SFAS 157 did not materially impact its financial condition, results ofoperations, or cash flow, the Corporation is now required to provide additionaldisclosures as part of its financial statements. In February 2008, the FASBagreed to defer for one year the effective date of SFAS 157 for certainnonfinancial assets and liabilities, except for those that are recognized ordisclosed at fair value in the financial statements on a recurring basis.

 

SFAS 157 establishes a three-tier fair valuehierarchy, which prioritizes the inputs used in measuring fair value. Thesetiers include: Level 1, defined as observable inputs such as quoted prices inactive markets; Level 2, defined as inputs other than quoted prices in activemarkets that are either directly or indirectly observable, and Level 3, definedas unobservable inputs in which little or no market data exists, thereforerequiring an entity to develop its own assumptions.

 

As of June 28, 2008, the Corporation held certainassets that are required to be measured at fair value on a recurring basis.These included the Corporation’s derivative instruments related to interestrate swaps and foreign currency forward contracts.

 

The Corporation’s derivative instruments consist ofcontracts that are not traded on a public exchange. The fair values of interestrate swap contracts and foreign currency forward contracts are determined basedon inputs that are readily available in public markets or can be derived frominformation available in publicly quoted markets. Therefore, the Corporationhas categorized these swap contracts as Level 2.

 

The Corporation’s assets measured at fair value on arecurring basis subject to the disclosure requirements of SFAS 157 at June 28,2008 were as follows:

 
| ** **                 | ** ** | **Fair Value Measurements** | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Liabilities**            |       |                                  |       |   |   |   |   |   |   |
| Foreign currency  forwards |       | $                                     | —     |   | $ | (82 | ) | $ | — |   | $ | (82 | ) |
| Interest rate  swaps       |       | —                                |       | (1,838 | ) | — |   | (1,838 | ) |
|                       |       | $                                     | —     |   | $ | (1,920 | ) | $ | — |   | $ | (1,920 | ) |

 

**13. Taxes**

 

The provision for income taxes differs from thatcomputed at the Federal statutory rate of 35% in 2008 and 34% in 2007 asfollows:

 
| ** **                                 | ** ** | **Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **June 28,**      | ** ** | **June 30,**              | ** ** | **June 28,** | ** ** | **June 30,** | ** ** |
| ** **                                 | ** ** | **2008**               | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| Tax at Federal  statutory rate             |       | $                      | 3,899      |                           | $          | 2,081 |   | $ | 5,950 |   | $ | 2,800 |   |
| State income  taxes                        |       | 415                    |       | 217                            |       | 615 |   | 297 |   |
| State tax  credits                         |       | (35                    | )          | (140                           | )          | (61 | ) | (185 | ) |
| Foreign income  taxes                      |       | (201                   | )          | 155                            |       | (306 | ) | 205 |   |
| Qualified  production activities deduction |       | (154                   | )          | (219                           | )          | (259 | ) | (290 | ) |
| Research and  development credits          |       | 49                     |       | (788                           | )          | (53 | ) | (1,044 | ) |
| Valuation  allowance                       |       | 82                     |       | —                         |       | 82 |   | — |   |
| Reserve for  uncertain tax positions       |       | 674                    |       | —                         |       | 674 |   | — |   |
| Other                                      |       | 210                    |       | 120                            |       | 190 |   | 141 |   |
|                                       |       |                   |       |                           |       |   |   |   |   |
|                                       |       | $                      | 4,939      |                           | $          | 1,426 |   | $ | 6,832 |   | $ | 1,924 |   |

 

At June 28, 2008, the Corporation had foreign netoperating loss carry forwards of approximately $16,336 and an associateddeferred tax asset of $4,574. The foreign carry forwards have no expirationdate. However, due to uncertainty of the realization of the full benefit of theforeign net operating loss carry forwards, the Corporation has established avaluation allowance of $1,901.

 

On January 1, 2007, the Corporation adopted theFinancial Accounting Standards Board (FASB) Interpretation No. 48 (FIN48), *Accounting for Uncertainty in Income Taxes*an interpretationof FASB Statement No. 109. The standard had no impact on the financialposition or results of operations of the Company at the date of adoption.

 

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The Corporation’s policy with respect to interest andpenalties associated with reserves for uncertain tax positions is to classifysuch interest and penalties in income tax expense in the Statements ofOperations. As of June 28, 2008, the total amount of unrecognized income taxbenefits computed under FIN 48 was approximately $2,102, all of which, ifrecognized, would impact the effective income tax rate of the Corporation. Asof June 28, 2008, the Corporation had recorded a total of $182 of accruedinterest and penalties related to uncertain tax positions. The Corporationforesees possible changes in its reserves for uncertain income tax positions asreasonably possible during the next 12 months that could result in anincrease or decrease in the reserves of $1,400. As of June 28, 2008, theCorporation is subject to unexpired statutes of limitation for U.S. federalincome taxes for the years 2003-2007. The Corporation is also subject tounexpired statutes of limitation for various states including mostsignificantly Indiana, Michigan, and New Hampshire generally for the years2003-2007.

 

A reconciliation of the beginning and ending amount ofunrecognized tax benefits is as follows:

 
| Balance at  December 29, 2007                       |   | $      | 1,610  |   |
|-----------------------------------------------------|--------|--------|--------|--------|
| Additions based  on tax positions—current year |   | — |   |
| Additions for  tax positions—prior years       |   | 492    |   |
| Balance at June  28, 2008                           |   | $      | 2,102  |   |

 

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

 

**BusinessOverview**

 

We are a leading independent provider of implants andrelated instruments and cases to orthopedic device manufacturers and othermedical markets. We also design, develop and produce these products forcompanies in other segments of the medical device market, including dental,osteobiologic and endoscopy sectors, and provide limited specialized productsto non-healthcare markets, such as the aerospace industry.

 

We offer our customers Total Solution® forcomplete implant systems—implants, instruments and cases. While our revenue todate has been derived primarily from the sale of implants, instruments andcases separately, or instruments and cases together, our ability to provideTotal Solutions® for complete implant systems has already proven to be attractiveto our customers, and we expect this capability will provide us with growthopportunities. In addition, we expect that our Total Solutions® capability willincrease the relative percentage of value added products that we supply to ourcustomers.

 

Our Annual Report on Form 10-K for the fiscalyear ended December 29, 2007, provides additional information about ourbusiness, operations and financial condition.

 

During the second quarter 2008, our revenue increased57.5% compared to the second quarter 2007 as revenue from our top fiveorthopedic customers increased 74.0% and represented 61.8% of totalrevenues. This growth was driven by a ramp up in our core business andcontinued momentum from the integration of our acquisitions. Quarterly revenuefrom all other customers increased 36.5% compared to the same period lastyear.  Our long-term strategy is to diversify our customer base and expandinto other medical device markets outside of our core hip and knee business;however, at this time we believe we are seeing a recovery of demand in the corehip and knee business which drove our overall growth, excluding the impact ofacquisitions, by 31.4% in the second quarter of 2008.

 

In January 2007, we acquired Clamonta Ltd located inWarwickshire, UK for approximately $10.4 million in cash. Clamonta Ltd. was aprivately held corporation that has a 50-year history of supplying precisionmachined products to the global aerospace industry. Clamonta Ltd’s productswill help bridge Symmetry’s Total Solutions® business model into the aerospaceindustry. This acquisition expanded our added value operation within ourexisting product expertise and supports a major customer by providing a morecomplete Total Solution®. Clamonta is well known in the industry for producingquality engineered products for aircraft engines. Clamonta Ltd’spre-acquisition management team continues to lead this business unit. Thisacquisition helps to diversify us and allow us to capitalize on a long termgrowth cycle in the aerospace industry.

 

In April 2007, we acquired TNCO, Inc. (“TNCO”) locatedin Whitman, Massachusetts for approximately $7.6 million in cash. TNCO was aprivately held Corporation with a 40-year history of designing and supplyingprecision instruments for arthroscopic, laparoscopic, sinus and other minimallyinvasive procedures. TNCO’s strong intellectual product portfolio and customerrelationships extend our product offering into these other medical fields. TNCOis well known in the industry for designing and producing quality engineeredproducts for minimally invasive procedures. Its operating philosophy closelymirrors our own with its highly skilled engineering team that partners with itsclients during the product development cycle and moves efficiently from conceptand prototype to production. TNCO sales are expected to benefit significantlyas a result of marketing its products through our global sales and distributionnetwork. TNCO’s pre-acquisition management team continues to lead this businessunit. This acquisition is consistent with our strategy to enhance our productoffering into medical markets beyond our existing products and allows us tooffer our Total Solutions® model to an expanded customer base.

 

In August 2007, we acquired Specialty SurgicalInstrumentation, Inc. (“SSI”) and UCA, LLC (“UCA”) located in Nashville,Tennessee for approximately $15.1 million in cash and at the same time enteredinto a two year earn-out agreement with the two principals of SSI and UCA whowill receive additional consideration if SSI and UCA meet certain earningslevels for the following two years. SSI was a privately held Corporation with a30-year history of offering targeted sales, marketing and distribution programsto serve the key surgical specialties of neurological, spine, cardiovascular,ENT, laparoscopy, ophthalmology and orthopedics. SSI’s portfolio includes itsown line of Ultra Instruments and include the UCA – Ultra Containersterilization system, a hospital proven, closed container system that isdesigned to store and transport sterilized instruments. The Ultra Instruments,UCA containers and multiple other product lines are offered through SSI’sdistribution channels and sell directly into hospitals with their 25 strongsales staff. The SSI and UCA pre-acquisition management team continues to leadthis business unit. This acquisition is consistent with our strategy to enhanceSymmetry Medical’s product offering into medical markets beyond our existingproducts and provides a direct access to hospital and doctors to accelerate ourown product designs.

 

In January 2008, we acquired DePuy Orthopaedics, Inc.’s(“DePuy”) New Bedford, Massachusetts instrument manufacturing facility (“NewBedford”). We purchased substantially all of the assets and real estate of NewBedford for approximately $45.1 million in cash. New Bedford producesorthopedic instruments, general medical instruments and some small spinerelated implants.

 

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Currently, 100% of the products produced at the facility are for DePuy.In the future, we plan to utilize this facility to serve our other medicalcustomers. In connection with the acquisition, we entered into a supplyagreement which requires DePuy to make minimum purchases from New Bedford for afour year period. The agreement stipulates that these purchases are incrementalto other products we presently or previously produced on DePuy’s behalf. Thecommitment from DePuy totals $106.0 million over the four year period. Certainkey members of New Bedford’s pre-acquisition management team continue to leadthis business unit. We believe this acquisition strengthens our position as aleading provider to the orthopedic industry and provides additionalmanufacturing capacity to better serve our broad customer base, builds on ourrelationship with DePuy, expands our east coast presence and allows us to moveforward with an existing skilled workforce to service our growing market.

 

Our acquisitions have afforded us the opportunity tooffer a comprehensive line of implants, surgical instruments and cases fororthopedic device manufacturers on a global basis, instruments and cases intoother medical markets and specialized parts into the aerospace industry.

 

Our focus remains on being well positioned for aresurgence of growth in our core orthopedic business, while capitalizing on ourmarket leadership to extend our Total Solutions® approach into othermarkets.  We have seen increased customer activity during 2008.   Inparticular, we continue to expand our engineering resources that produce andprovide closer and critical customer relationships on the development of newproducts.  This local presence in the global marketplace allows us to becloser to our customer base, provide quicker response times and increase ourvalue added services.

 

**SecondQuarter Results of Operations**

 

*Revenue.*   Revenue forthe three month period ended June 28, 2008 increased $40.1 million, or 57.5%,to $109.8 million from $69.7 million for the comparable 2007 period. Revenue for each of our principal product categories in these periods was asfollows:

 
| ** **                | ** ** | **Three Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **June 28,**                | ** ** | **June 30,** | ** ** |
| **Product Category** | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                                | 31.2       |   | $ | 27.1 |   |
| Instruments               |       | 45.1                             |       | 15.4 |   |
| Cases                     |       | 23.4                             |       | 18.8 |   |
| Other                     |       | 10.1                             |       | 8.4 |   |
|                      |       |                             |       |   |   |
| Total                     |       | $                                | 109.8      |   | $ | 69.7 |   |

 

The $40.1 million increase in revenue resulted fromhigher revenue across all product categories. Instrument revenue increased$29.7 million. This increase was driven by an increase in organic customerdemand of $13.7 million due to the completion of several projects for ourlargest customers. In addition, 2008 instrument revenue was increased by ourrecent acquisitions. The New Bedford acquisition added $10.0 million and theSSI acquisition added $5.9 of revenue. Implant revenue increased $4.0 millionand case revenue increased $4.6 million. Both product categories were driven byorganic growth as our top customers returned to a more normalized pattern ofordering compared to 2007 when they were using excess inventory. Additionally,New Bedford added $2.2 million of implant sales as compared to 2007. Otherproduct revenue increased $1.7 million driven by organic growth from thecontinued strength in the aerospace industry.

 

*Gross Profit.*  Grossprofit for the three month period ended June 28, 2008 increased $12.7 million,or 86.3%, to $27.4 million from $14.7 million for the comparable 2007period.  The increase in gross profit was driven by the 57.5% increase inrevenue coupled with higher gross profit as a percentage of revenue whichincreased to 25.0% for the three month period ended June 28, 2008 compared to21.1% for the comparable 2007 period.  The increase in gross margin as apercentage of revenue was primarily driven by an increased number of largevolume projects from our top customers, which resulted in decreased overheadcosts as a percentage of revenue as well as more favorable product mix. We view our global infrastructure as a competitive strength, and made adeliberate decision to keep our infrastructure in place, enabling us to respondquickly to our customers’ needs and produce high volume orders on short noticewhich allowed us to achieve 31.4% organic revenue growth in the second quarterof 2008.

 

*Selling, General and Administrative Expenses.*  Forthe three month period ended June 28, 2008, selling, general and administrativeexpenses (“SG&A”) were $14.9 million compared with the three month periodended June 30, 2007 of $8.0 million. The year-over-year increase was primarilydriven by the inclusion of $2.5 million of ongoing expense from our recentacquisitions; a $2.5 million increase in employee related expense includingstock based compensation and $1.4 million in professional fees and expensesincurred from the review of accounting irregularities at our Sheffield, UKoperating unit. SG&A expenses were also higher due to ongoing initiativesto improve management oversight and operational performance at our Sheffieldoperating unit. Going forward, we still expect a reduction in fees related tothe Sheffield investigation; however, the Board has recently approvedperformance based restricted stock that will increase expense by approximately$1.0 million per quarter, all of which is non-cash.

 

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*Other Expense.*  Interest expense for the three month period ended June 28, 2008 increased $1.3million, or 81.5%, to $2.9 million from $1.6 million for the comparable 2007period. This increase reflects the cost of the additional $60.0 million seniorterm debt related to the acquisition of New Bedford, SSI and UCA.

 

The derivatives valuation (gains) losses consist ofinterest rate swap valuations used to mitigate the effect of changing interestrates on net income and foreign currency forward contracts used to mitigate theeffect of changes in the foreign exchange rates on net income. For our interestrate hedge, we recorded a $1.4 million gain for the second quarter 2008 versusa $0.7 million gain for the comparable 2007 period. These amounts are due tomarket fluctuations in these contracts, which are not designated as hedgesunder SFAS 133, *Accounting for Derivative Instruments andHedging Activities.* For our foreign currency forward contracts,we recorded a negligible loss in the second quarter of 2008 versus a $0.4million loss during the comparable 2007 period. These amounts were a result offluctuation in the British pound versus the US dollar.

 

*Provision for Income Taxes.*  Our effective tax rate was 44.3% for the three month period ended June 28, 2008as compared to 23.3% for the comparable 2007 period.  The increase in theeffective rate was due to an increase in tax bracket from 34% to 35% in theUnited States, a higher mix of income in jurisdictions with higher statutoryrates, reduced levels of tax credits, and an increase in reserves for uncertaintax positions from prior years. Provision for income taxes increased by $3.5million, or 246.4%, to $4.9 million for the three month period ended June 28,2008 from $1.4 million for the comparable 2007 period. This increase wasprimarily due to higher pre-tax income, the increase in the effective tax rateand an $0.7 million increase in tax reserves related to uncertain tax positions.  These uncertain tax positions relate toongoing prior years’ federal and state tax audits.

 

**SixMonths Results of Operations**

 

*Revenue.*   Revenue forthe six month period ended June 28, 2008 increased $77.2 million, or 57.4%, to$211.6 million from $134.4 million for the comparable 2007 period. Revenue for each of our principal product categories in these periods was as follows:

 
| ** **                | ** ** | **Six Months Ended** | ** ** |
|---------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **June 28,**              | ** ** | **June 30,** | ** ** |
| **Product Category** | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| ** **                | ** ** | **(in millions)**         | ** ** |
| Implants                  |       | $                              | 61.4       |   | $ | 49.7 |   |
| Instruments               |       | 84.4                           |       | 30.7 |   |
| Cases                     |       | 44.9                           |       | 36.4 |   |
| Other                     |       | 20.9                           |       | 17.6 |   |
|                      |       |                           |       |   |   |
| Total                     |       | $                              | 211.6      |   | $ | 134.4 |   |

 

The $77.2 million increase in revenue resulted fromhigher revenue across all product categories. Instrument revenue increased$53.7 million. This increase was driven by an increase in organic customerdemand of $23.7 million due to the completion of several projects for our largestcustomers. In addition, 2008 instrument revenue was increased by our recentacquisitions. The New Bedford acquisition added $16.4 million, the SSIacquisition added $11.8 million and the TNCO acquisition added $1.8 million ofrevenue. Implant revenue increased $11.6 million and case revenue increased$8.6 million. Both product categories were driven by organic growth as our topcustomers returned to a more normalized pattern of ordering compared to 2007when they were using excess inventory. Additionally, New Bedford added $3.6million of implant sales as compared to 2007. Other product revenue increased$3.3 million driven by organic growth from the continued strength in theaerospace industry.

 

*Gross Profit.*  Grossprofit for the six month period ended June 28, 2008 increased $24.9 million, or94.3%, to $51.4 million from $26.4 million for the comparable 2007period.  The increase in gross profit was driven by the 57.4% increase inrevenue coupled with higher gross profit as a percentage of revenue whichincreased to 24.3% for the six month period ended June 28, 2008 compared to19.7% for the comparable 2007 period.  The increase in gross margin as apercentage of revenue was primarily driven by an increased number of largevolume projects from our top customers, which resulted in decreased overheadcosts as a percentage of revenue as well as more favorable product mix. We view our global infrastructure as a competitive strength, and made adeliberate decision to keep our infrastructure in place, enabling us to respondquickly to our customers’ needs and produce high volume orders on short notice,which allowed us to achieve 32.4% organic growth for the six month period endedJune 28, 2008.

 

*Selling, General and Administrative Expenses.* SG&A expenses for the six month period ended June 28, 2008 were $29.3million compared with the six month period ended June 30, 2007 period of $15.7million. The increase was primarily driven by the inclusion of $5.2 million ofongoing expense from our recent acquisitions; a $3.8 million increase inemployee related expense, including stock based compensation, and $3.6 millionin professional fees and expenses incurred from the review of accountingirregularities at our Sheffield, UK operating unit. Selling, general and administrativeexpenses were also higher due to ongoing initiatives to improve managementoversight and operational performance at our Sheffield operating unit. Goingforward, we still

 

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expect a reduction in fees related to the Sheffield investigation;however, the Board has recently approved performance based restricted stockthat will increase expense by approximately $1.0 million per quarter, all ofwhich is non-cash.

 

*Other Expense.*  Interest expense for the six month period ended June 28, 2008 increased $2.4million, or 75.9%, to $5.6 million from $3.2 million for the comparable 2007period. This increase reflects the cost of the additional $60.0 million seniorterm debt related to the acquisition of New Bedford and SSI.

 

The derivatives valuation (gains) losses consist ofinterest rate swap valuations used to mitigate the effect of changing interest rateson net income and foreign currency forward contracts used to mitigate theeffect of changes in the foreign exchange rates on net income. For our interestrate hedge, we recorded a gain of $0.1 million for the six month period endedJune 28, 2008 versus a $0.5 million gain for the comparable 2007 period. Theseamounts are due to market fluctuations in these contracts, which are notdesignated as hedges under SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities.* For our foreign currencyforward contracts, we recorded a gain of $0.1 million in the second quarter of2008 versus a loss of $0.5 million during the comparable 2007 period. Theseamounts were a result of fluctuation in the British pound versus the US dollar.

 

*Provision for Income Taxes.*  Our effective tax rate was 40.2% for the six month period ended June 28, 2008as compared to 23.4% for the comparable 2007 period.  The increase in theeffective rate was due to an increase in tax bracket from 34% to 35% in theUnited States, a higher mix of income in jurisdictions with higher statutoryrates, redued levels of tax credits, and an increase in reserves for uncertaintax positions from prior years. Provision for income taxes increased by $4.9million, or 255.1%, to $6.8 million for the six month period ended June 28,2008 from $1.9 million for the comparable 2007 period. This increase wasprimarily due to higher pre-tax income, the increase in the effective tax rateand an $0.7 million increase in tax reserves related to uncertain tax positions.

 

**Liquidityand Capital Resources**

 

Our principal source of cash in the six month periodended June 28, 2008 was borrowings under our senior credit loan facility. Principal uses of cash in the six month period ended June 28, 2008 included theacquisition of New Bedford, increased working capital related to our recentacquisitions, capital expenditures and debt service. We expect that ourprincipal uses of cash in the future will be to finance working capital, to payfor capital expenditures, to service debt and to fund possible futureacquisitions.

 

*Operating Activities  *Operating activities used cash of $2.9 million in the six month period endedJune 28, 2008 compared to generating cash of $17.1 million for the six monthperiod ended June 30, 2007 a decrease of $20.0 million.  The decrease incash from operations is primarily a result of cash provided for working capitalas increases in accounts receivable and inventory significantly exceeded theincrease in current liabilities. Accounts receivable and inventory increased asa result of our post-acquistion production activity at New Bedford and asignificant increase in organic revenue growth, partially offset by net incomeof $10.2 million.

 

*Investing Activities* Capitalexpenditures of $9.0 million were $5.0 million higher in the six month periodended June 28, 2008 compared to the six month period ended June 30, 2007. The acquisition of New Bedford used $45.1 million of cash in the six monthperiod ended June 28, 2008, while the acquisition of Clamonta Ltd used $10.3million of cash in the comparable 2007 period.

 

*Financing Activities  *Financing activities generated $53.1 million of cash due primarily to theincremental $60.0 million of borrowings under our senior credit loan facilityto fund the New Bedford acquisition partially offset by payments on long-termdebt and capital leases.

 

***CapitalExpenditures***

 

Capital expenditures totaled $9.0 million for the sixmonths ended June 28, 2008, compared to $4.0 million for the six month periodended June 30, 2007. Expenditures were primarily used to replace existingequipment. Expenditures also were used for some selective capacity expansion inour facilities in the United States and Malaysia.

 

***Debtand Credit Facilities***

 

As of June 28, 2008, we had an aggregate of $145.5million of outstanding indebtedness, which consisted of $115.6 million of termloan borrowings outstanding under our senior credit facility, $13.5 million ofborrowings outstanding under our revolving credit facility, $11.3 million ofborrowings under our UK short-term credit facility and $5.1 million of capitallease obligations. We had no outstanding letters of credit as of June 28, 2008.

 

Our senior credit agreement contains various financialcovenants, including covenants requiring a maximum total debt to EBITDA ratio,minimum EBITDA to interest ratio and a minimum EBITDA to fixed charges ratio.On April 22, 2008, the Corporation and Wachovia Bank, NationalAssociation, as Administrative Agent, entered into a Third Amendment and Waiverto Amended and Restated Credit Agreement at which time the Corporation obtainedchanges to the Senior Credit Agreement. We were in compliance with these latestfinancial and restrictive covenants under the senior credit facility as of June28, 2008.

 

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We believe that cash flow from operating activitiesand borrowings under our senior credit facility will be sufficient to fundcurrently anticipated working capital, planned capital spending and debtservice requirements for the foreseeable future, including at least the next 12months. We also review technology, manufacturing and other strategic acquisitionopportunities regularly, which may require additional debt or equity financing.

 

**ContractualObligations and Commercial Commitments**

 
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                      | ** ** | **(in millions)**                    | ** ** |
| Long-term debt  obligations (1) |       | $                                         | 129.1      |   | $ | 9.1 |   | $ | 37.3 |   | $ | 82.7 |   | $ | — |   |
| Capital lease  obligations      |       | 8.5                                       |       | 1.3 |   | 2.6 |   | 1.6 |   | 3.0 |   |
| Operating lease  obligations    |       | 5.6                                       |       | 1.1 |   | 2.9 |   | 1.4 |   | 0.2 |   |
| Purchase  obligations (2)       |       | 3.9                                       |       | 1.6 |   | 2.3 |   | — |   | — |   |
|                            |       |                                      |       |   |   |   |   |   |   |   |   |
| Total                           |       | $                                         | 147.1      |   | $ | 13.1 |   | $ | 45.1 |   | $ | 85.7 |   | $ | 3.2 |   |

 

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   * Less than 1 year is defined as the remainderof fiscal 2008. Following periods are whole fiscal years.

 

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

 

(2) Represents purchase agreements to buy minimum quantities oftitanium and cobalt chrome through December 2009.

 

**Off-Balance Sheet Arrangements**

 

Our off-balance sheet arrangements include ouroperating leases and letters of credit, which are available under the seniorcredit facility. We had no letters of credit outstanding as of June 28, 2008.

 

**Environmental**

 

Our facilities and operations are subject to extensivefederal, state, local and foreign environmental and occupational health andsafety laws and regulations. These laws and regulations govern, among otherthings, air emissions; wastewater discharges; the generation, storage,handling, use and transportation of hazardous materials; the handling anddisposal of hazardous wastes; the cleanup of contamination; and the health andsafety of our employees. Under such laws and regulations, we are required toobtain permits from governmental authorities for some of our operations. If weviolate or fail to comply with these laws, regulations or permits, we could befined or otherwise sanctioned by regulators. We could also be held responsiblefor costs and damages arising from any contamination at our past or presentfacilities or at third-party waste disposal sites. We cannot completelyeliminate the risk of contamination or injury resulting from hazardousmaterials, and we may incur material liability as a result of any contaminationor injury.

 

We incurred approximately $0.2 million in capitalexpenditures for environmental, health and safety in the six month period endedJune 28, 2008 compared to $0.2 million for the comparable 2007 period.

 

In connection with our recent acquisitions, wecompleted Phase I assessments and did not find any significant issues that needto be remediated.  We cannot be certain that environmental issues will notbe discovered or arise in the future related to these acquisitions.

 

In conjunction with the New Bedford acquisition inJanuary 2008, we purchased $5.0 million of environmental insurance coverage forthis facility. This policy expires January 25, 2013. 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 information currently available, we do notbelieve that we have any material environmental liabilities.

 

**Critical Accounting Policies and Estimates**

 

The preparation of our financial statements requiresmanagement to make estimates, judgments and assumptions that affect thereported amounts of assets, liabilities, revenues and expenses during theperiods presented. Our Annual Report on Form 10-K for fiscal year endedDecember 29, 2007, includes a summary of the critical accounting policieswe believe are the most important to aid in understanding our financialresults. There have been no material changes to these critical accountingpolicies that impacted our reported amounts of assets, liabilities, revenues orexpenses during the three months ended June 28, 2008.

 

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**New Accounting Pronouncements**

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards (SFAS) No. 141(R), *BusinessCombinations*. This statement amends SFAS 141, and providesrevised guidance for recognizing and measuring identifiable assets and goodwillacquired, liabilities assumed, and any non-controlling interest in theacquiree. It also provides disclosure requirements to enable users of thefinancial statements to evaluate the nature and financial effects of thebusiness combination. The provisions of SFAS 141(R) are effective for ourbusiness combinations occurring on of after January 1, 2009. We arecurrently evaluating the potential impacts of the adoption of SFAS 141(R).

 

**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**

 

For financial market risks related to changes ininterest rates, foreign currency exchange rates, commodity prices and theeffects of inflation, reference is made to Item 7a “Quantitative andQualitative Disclosures About Market Risk” contained in Part II ofour Annual Report on Form 10-K for the fiscal year ended December 29, 2007. Ourexposure to these risks, at the end of the second quarter covered by thisreport, has not changed materially since December 29, 2007.

 

**ITEM 4.  CONTROLSAND PROCEDURES**

 

(a)   Evaluation of disclosure controls andprocedures.

 

Our Chief Executive Officer and Chief FinancialOfficer, after evaluating the effectiveness of our “disclosure controls andprocedures” (as defined in Rule 13a-15(e) of the Securities ExchangeAct of 1934), concluded that, as of the end of the fiscal quarter covered bythis report, and in conjunction with remedial actions put in place during thefourth quarter of 2007 and the first six months of 2008 as a result of theSheffield, UK investigation and more fully described in Item 9A in our AnnualReport on Form 10-K for fiscal year ended December 29, 2007, our disclosurecontrols and procedures were not effective and designed to ensure that materialinformation relating to the Corporation and its consolidated subsidiaries wouldbe made known to them by others within those entities.

 

Despite the conclusion that disclosure controls andprocedures were not effective as of the end of the period covered by thisreport, the Chief Executive Officer and Chief Financial Officer believe thatthe financial statements and other information contained in this quarterlyreport present fairly, in all material respects, our business, financialcondition and results of operations.

 

(b)   Changes in internal control overfinancial reporting.

 

During the fiscal quarter covered by this report,there were no changes in our “internal control over financial reporting” (asdefined in Rule 13a-15(f) of the Securities Exchange Act of 1934) thatmaterially affected, or were reasonably likely to materially affect, ourinternal control over financial reporting, except that, during the fiscalquarter covered by this report, we were still in the process of integrating theSpecialty Surgical Instrumentation Inc., UCA, LLC and New Bedford operationsand were incorporating these operations as part of our internal controls. Forpurposes of this evaluation, the impact of these acquisitions on our internalcontrols over financial reporting were excluded. See Note 11 to the condensedconsolidated financial statements included in Item 1 for a discussion of theSpecialty Surgical Instrumentation Inc., UCA, LLC and New Bedford acquisitions.

 

In connection with thefiling of our Annual Report on Form 10-K for the year ended December 29, 2007,we identified material weaknesses in internal control over financial reportingand identified a remediation plan. During the fourth quarter of 2007 and thefirst six months of 2008, several remedial measures were identified andimplemented in response to the conclusion reached by our Chief Executive andChief Financial Officer as a result of the Sheffield, UK investigation.Although we have made progress towards remediation, as of August 7, 2008, wewere unable to conclude that the material weaknesses described above wereremediated as of June 28, 2008.  See ourAnnual Report on Form 10-K for fiscal year ended December 29, 2007.

 

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**PART II OTHER INFORMATION**

 

**ITEM1.    LEGAL PROCEEDINGS**

 

***SEC Informal  Inquiry***

 

On October 4, 2007, we announced that, due to theapparent overstatement of revenues by our Sheffield, UK operating unit, itmay be necessary for us to restate our financial statements for the periodssubsequent to June 2003. On November 12, 2007, we announced that theirregularities in the financial reporting by our Sheffield, UK operatingunit also included the overstatement of inventory and other matters. Thesematters were reported to our Audit Committee, which engaged special legalcounsel, who in turn retained independent forensic accountants, to investigateand report to the Audit Committee. Based on information obtained in thatinvestigation and information reported to the Audit Committee by management,the Audit Committee accepted management’s recommendation that we restate ourfinancial statements. Such restatements were filed on April 24, 2008.

 

Upon discovering the irregularities, the AuditCommittee self-reported the matter to the Staff of the Securities and ExchangeCommission. The SEC Staff has initiated an informal inquiry with respect tothis matter. We are cooperating fully with the SEC in its informal inquiry. Wecannot predict when the SEC will conclude its review and the outcome or impactthereof.

 

**ITEM 1A. RISK FACTORS**

 

In addition to the other information set forth in thisreport, you should carefully consider the factors discussed in Part I,Item 1A “Risk Factors” contained in our Annual Report on Form 10-K for thefiscal year ended December 29, 2007, which could materially affect ourbusiness, financial condition or future results.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

Our Annual Meeting of Shareholders was held May 22,2008.  Proxies were solicited for the Annual Meeting in accordance withthe requirements of The Securities Exchange Act 1934.  At the AnnualMeeting, the following occurred:

 

·                  Withrespect to Item 1 in our Proxy Statement (Election of Directors), Brian S.Moore and Francis T. Nusspickel were elected to serve as the Class IIIDirectors.  The newly-elected Class III Directors will serve a three-yearterm, expiring at the annual shareholder meeting in 2011.  The Class IDirectors, Frank Turner, John S. Krelle and Stephen B. Oresman are continuingDirectors serving three-year terms that expire at the annual shareholdermeeting in 2009.  The Class II Directors, James S. Burns and Craig B.Reynolds are continuing Directors serving three-year terms that expire at theannual shareholder meeting in 2010.  The voting result for the Class IIIDirectors was as follows:

 

| **Class II Director** | ** ** | **Shares Voted  For** | ** ** | **Shares  Voted  Against** | ** ** | **Withheld** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------------------|------------|--------------|------------|
| ** **                      | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **   | ** ** |
| Brian S. Moore                  |       | 33,220,991                 |       | 0                          |       | 476,866      |       |
|                            |       | 98.58                      | %          |                       |       | 1.42         | %          |
|                            |       |                       |       |                       |       |         |       |
| Francis T.  Nusspickel          |       | 30,152,298                 |       | 0                          |       | 3,545,559    |       |
|                            |       | 89.48                      | %          |                       |       | 10.52        |       |

 

·                  Withrespect to Item 2 in our Proxy Statement (Ratification of the Appointment ofErnst & Young LLP as Auditors for the Year 2008), Ernst & Young LLP wasapproved as our independent auditors for the year 2008:

 

| Shares Voted For      |   | 33,531,460 |   |
|-----------------------|--------|------------|--------|
|                  |   | 99.5       | %      |
|                  |   |       |   |
| Shares Voted  Against |   | 154,412    |   |
|                  |   | 0.46       | %      |
|                  |   |       |   |
| Abstentions           |   | 11,985.    |   |
|                  |   | 0.04       | %      |
|                  |   |       |   |
| Broker Non-Votes      |   | 0          |   |
|                  |   | 0.00       | %      |

 

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**ITEM 5.  OTHER INFORMATION**

 

(b)                                 Therehave been no material changes to the procedures by which security holders mayrecommend nominees to our Board of Directors since our Schedule 14A filed April25, 2008.

 

**ITEM 6.  EXHIBITS**

 
| 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.

 
|     | 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)* |

 

 

August 7, 2008

 

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