**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

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

**For thequarterly period ended June 30, 2007**

**OR**

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

**For the transition period from             to           .**

**CommissionFile Number  001-32374**

**SYMMETRY MEDICAL INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**                               |   | **35-1996126**       |
|--------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of           |   | (I.R.S. Employer     |
| incorporation or  organization)            |   | Identification  No.) |
|                                       |   |                 |
| **220 W.  Market Street, Warsaw, Indiana** |   | **46580**            |
| (Address of  principal executive offices)  |   | (Zip code)           |

 

Registrants telephone number,including area code**  (574) 268-2252**

Indicate by check mark whether the registrant (1) has filed allreports 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.  Yes  x   No  o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check One)

| Large accelerated  filer  o |   | Accelerated  filer  x |   | Non-accelerated  filer  o |
|---------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Exchange Act Rule 12b-2).  Yes  o   No  x

The number of shares outstanding of the registrant’s common stock as ofJuly 10, 2007 was 35,434,689.

 

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**TABLE OFCONTENTS**
| **PART I FINANCIAL  INFORMATION**     | ** ** |
|--------------------------------------------|------------|
|                                       |       |   |   |
| Item 1     - |       | Financial Statements: |   |
|                                       |       |   |   |
|                                       |       | Condensed  Consolidated Balance Sheets: As of June 30, 2007 and December 30,  2006 |   |
|                                       |       |   |   |
|                                       |       | Condensed  Consolidated Statements of Operations: Three and Six Months Ended June  30, 2007 and July 1, 2006 |   |
|                                       |       |   |   |
|                                       |       | Condensed Consolidated Statements of Cash Flows: Six  Months Ended June 30, 2007 and July 1, 2006 |   |
|                                       |       |   |   |
|                                       |       | Notes to  Condensed Consolidated Financial Statements |   |
|                                       |       |   |   |
| Item 2                                |       | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |   |
|                                       |       |   |   |
| Item 3                                |       | Quantitative  and Qualitative Disclosures about Market Risks |   |
|                                       |       |   |   |
| Item 4                                |       | Controls and  Procedures |   |
|                                       |       |   |   |
| **PART II OTHER  INFORMATION**        |       |
|                                       |       |   |   |
| Item 1                                |       | Legal Proceedings |   |
|                                       |       |   |   |
| Item 1A                               |       | Risk Factors |   |
|                                       |       |   |   |
| Item 2                                |       | Unregistered  Sale of Equity Securities and Use of Proceeds |   |
|                                       |       |   |   |
| Item 4                                     |       | Submission  of Matter to a Vote Of Security Holders |   |
|                                       |       |   |   |
| Item 5                                |       | Other Information |   |
|                                       |       |   |   |
| Item 6                                |       | Exhibits |   |
|                                       |       |   |   |
| Signatures                                 |       |

 

2

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**Symmetry Medical Inc.**

**CondensedConsolidated Balance Sheets**
| ** **                                                                                                                          | ** ** | **June 30,**                                                  | ** ** | **December 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2007**                                                           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                          | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| ** **                                                                                                                          | ** ** | **(unaudited)**                                                    | ** ** | ** **            | ** ** |
| **Assets:**                                                                                                                         | ** ** | ** **                                                         | ** ** | ** **            | ** ** |
| Current Assets:                                                                                                                     |       |                                                               |       |                  |       |
| Cash and cash  equivalents                                                                                                          |       | $                                                                  | 10,991     |                  | $          | 11,721 |   |
| Accounts receivables,  net                                                                                                          |       | 53,101                                                             |       | 47,506                |       |
| Inventories                                                                                                                         |       | 50,208                                                             |       | 47,392                |       |
| Refundable income taxes                                                                                                             |       | 32                                                                 |       | 111                   |       |
| Deferred income taxes                                                                                                               |       | 2,418                                                              |       | 2,826                 |       |
| Other current assets                                                                                                                |       | 5,457                                                              |       | 3,965                 |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total current assets                                                                                                                |       | 122,207                                                            |       | 113,521               |       |
| Property and equipment,  net                                                                                                        |       | 110,030                                                            |       | 106,147               |       |
| Goodwill                                                                                                                            |       | 159,706                                                            |       | 156,241               |       |
| Intangible assets, net  of accumulated amortization                                                                                 |       | 38,719                                                             |       | 33,257                |       |
| Other assets                                                                                                                        |       | 1,098                                                              |       | 981                   |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total Assets                                                                                                                        |       | $                                                                  | 431,760    |                  | $          | 410,147 |   |
|                                                                                                                                |       |                                                               |       |                  |       |
| **Liabilities and Shareholders’  Equity:**                                                                                     | ** ** | ** **                                                         | ** ** | ** **            | ** ** |
| Current Liabilities:                                                                                                                |       |                                                               |       |                  |       |
| Accounts payable                                                                                                                    |       | $                                                                  | 23,010     |                  | $          | 14,860 |   |
| Accrued wages and  benefits                                                                                                         |       | 8,055                                                              |       | 7,816                 |       |
| Other accrued expenses                                                                                                              |       | 4,647                                                              |       | 4,104                 |       |
| Income tax payable                                                                                                                  |       | 386                                                                |       | 850                   |       |
| Deferred income taxes                                                                                                               |       | 332                                                                |       | 249                   |       |
| Derivative valuation  liability                                                                                                     |       | 58                                                                 |       | 1,184                 |       |
| Revolving line of credit                                                                                                            |       | 1,062                                                              |       | —                |       |
| Current portion of  capital lease obligations                                                                                       |       | 2,895                                                              |       | 3,500                 |       |
| Current portion of  long-term debt                                                                                                  |       | 8,275                                                              |       | 5,550                 |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total current  liabilities                                                                                                          |       | 48,720                                                             |       | 38,113                |       |
| Deferred income taxes                                                                                                               |       | 12,310                                                             |       | 11,832                |       |
| Derivative valuation  liability                                                                                                     |       | 175                                                                |       | 549                   |       |
| Capital lease  obligations, less current portion                                                                                    |       | 4,498                                                              |       | 5,142                 |       |
| Long-term debt, less  current portion                                                                                               |       | 62,575                                                             |       | 63,650                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total Liabilities                                                                                                                   |       | 128,278                                                            |       | 119,286               |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Commitments and  contingencies (Note 8)                                                                                             |       | —                                                             |       | —                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Shareholders’ Equity:                                                                                                          |       |                                                               |       |                  |       |
| Common Stock, $.0001  par value; 72,410 shares authorized; shares issued June 30, 2007—35,435;  December 30, 2006—35,107) |       | 4                                                                  |       | 4                     |       |
| Additional paid-in  capital                                                                                                         |       | 273,482                                                            |       | 271,388               |       |
| Retained earnings                                                                                                                   |       | 14,912                                                             |       | 6,771                 |       |
| Accumulated other  comprehensive income                                                                                             |       | 15,084                                                             |       | 12,698                |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total Shareholders’  Equity                                                                                                    |       | 303,482                                                            |       | 290,861               |       |
|                                                                                                                                |       |                                                               |       |                  |       |
| Total Liabilities and Shareholders’ Equity                                                                                     |       | $                                                                  | 431,760    |                  | $          | 410,147 |   |

 

See accompanying notes tocondensed consolidated financial statements*.*

3

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**Symmetry Medical Inc.**

**CondensedConsolidated Statements of Operations**
| ** **                                                         | ** ** | **Three Months Ended**                                   | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **June 30,**                                                  | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                                         | ** ** | **2007**                                                           | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                         | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                                                    | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Revenue                                                            |       | $                                                                  | 69,566     |                           | $          | 64,760 |   | $ | 137,085 |   | $ | 134,373 |   |
| Cost of Revenue                                                    |       | 54,093                                                             |       | 47,873                         |       | 106,651 |   | 97,145 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Gross Profit                                                       |       | 15,473                                                             |       | 16,887                         |       | 30,434 |   | 37,228 |   |
| Selling,  general, and administrative expenses                     |       | 8,365                                                              |       | 6,892                          |       | 16,238 |   | 13,932 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Operating Income                                                   |       | 7,108                                                              |       | 9,995                          |       | 14,196 |   | 23,296 |   |
| Other (income)  expense:                                           |       |                                                               |       |                           |       |   |   |   |   |
| Interest expense                                                   |       | 1,607                                                              |       | 925                            |       | 3,194 |   | 1,586 |   |
| Derivatives  valuation (gain)/loss                                 |       | (278                                                               | )          | 408                            |       | (16 | ) | 407 |   |
| Other                                                              |       | (730                                                               | )          | (2,059                         | )          | (741 | ) | (2,280 | ) |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Income before  income taxes                                        |       | 6,509                                                              |       | 10,721                         |       | 11,759 |   | 23,583 |   |
| Income tax  expense                                                |       | 2,078                                                              |       | 3,042                          |       | 3,618 |   | 7,526 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Net income                                                         |       | $                                                                  | 4,431      |                           | $          | 7,679 |   | $ | 8,141 |   | $ | 16,057 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Net income per  share:                                             |       |                                                               |       |                           |       |   |   |   |   |
| Basic                                                              |       | $                                                                  | 0.13       |                           | $          | 0.22 |   | $ | 0.23 |   | $ | 0.46 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Diluted                                                            |       | $                                                                  | 0.13       |                           | $          | 0.22 |   | $ | 0.23 |   | $ | 0.46 |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
|                                                               |       |                                                               |       |                           |       |   |   |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                                               |       |                           |       |   |   |   |   |
| Basic                                                              |       | 35,119                                                             |       | 34,830                         |       | 35,046 |   | 34,774 |   |
| Diluted                                                            |       | 35,277                                                             |       | 35,177                         |       | 35,237 |   | 35,157 |   |

 

See accompanying notes tocondensed consolidated financial statements*.*

4

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**Symmetry Medical Inc.**

**CondensedConsolidated Statements of Cash Flows**
| ** **                                                                                   | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                   | ** ** | **June 30,**              | ** ** | **July 1,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**        | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** |
| **Operating  activities**                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net Income                                                                                   |       | $                              | 8,141      |   | $ | 16,057 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                           |       |   |   |
| Depreciation                                                                                 |       | 8,591                          |       | 7,677 |   |
| Amortization                                                                                 |       | 1,053                          |       | 424 |   |
| Foreign currency  transaction (gain) loss                                                    |       | (355                           | )          | (1,257 | ) |
| Net (gain) loss  on sale of assets                                                           |       | (348                           | )          | (1,233 | ) |
| Deferred income  tax provision                                                               |       | 944                            |       | 253 |   |
| Excess tax  benefit from stock-based compensation                                            |       | (796                           | )          | (1,062 | ) |
| Stock-based  compensation                                                                    |       | 658                            |       | 212 |   |
| Derivative  valuation change                                                                 |       | (1,500                         | )          | 407 |   |
| Change in  operating assets and liabilities:                                                 |       |                           |       |   |   |
| Accounts  receivable                                                                         |       | (2,055                         | )          | 1,614 |   |
| Other assets                                                                                 |       | (1,288                         | )          | 834 |   |
| Inventories                                                                                  |       | 872                            |       | (1,034 | ) |
| Accounts payable                                                                             |       | 6,369                          |       | (5,730 | ) |
| Accrued expenses  and other                                                                  |       | (151                           | )          | (2,598 | ) |
|                                                                                         |       |                           |       |   |   |
| Net cash  provided by operating activities                                                   |       | 20,135                         |       | 14,564 |   |
|                                                                                         |       |                           |       |   |   |
| **Investing  activities**                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                                         |       | (7,007                         | )          | (11,783 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 1,589                          |       | 2,434 |   |
| Acquisition, net  of cash received                                                           |       | (17,621                        | )          | (45,629 | ) |
|                                                                                         |       |                           |       |   |   |
| Net cash used in  investing activities                                                       |       | (23,039                        | )          | (54,978 | ) |
|                                                                                         |       |                           |       |   |   |
| **Financing  activities**                                                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Proceeds from  bank revolver                                                                 |       | 49,013                         |       | 47,598 |   |
| Payments on bank  revolver                                                                   |       | (44,471                        | )          | (45,373 | ) |
| Issuance of  long-term debt                                                                  |       | —                         |       | 40,000 |   |
| Payments on  long-term debt and capital lease obligations                                    |       | (3,742                         | )          | (5,130 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                 |       | 641                            |       | 547 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 796                            |       | 1,062 |   |
| Debt issuance  costs paid                                                                    |       | —                         |       | (322 | ) |
|                                                                                         |       |                           |       |   |   |
| Net cash  provided by financing activities                                                   |       | 2,237                          |       | 38,382 |   |
| Effect of  exchange rate changes on cash                                                     |       | (63                            | )          | 247 |   |
|                                                                                         |       |                           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | (730                           | )          | (1,785 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 11,721                         |       | 12,471 |   |
|                                                                                         |       |                           |       |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                              | 10,991     |   | $ | 10,686 |   |
|                                                                                         |       |                           |       |   |   |
| Supplemental  disclosures:                                                                   |       |                           |       |   |   |
| Cash paid for  interest                                                                      |       | $                              | 3,184      |   | $ | 1,284 |   |
|                                                                                         |       |                           |       |   |   |
| Cash paid for  income taxes                                                                  |       | $                              | 2,858      |   | $ | 6,996 |   |

 

See accompanying notes tocondensed consolidated financial statements.

5

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**Symmetry Medical Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

** (In Thousands,Except Per Share Data)**

**1. Basis of Presentation**

The condensed consolidated financial statements include the accounts ofSymmetry Medical, Inc. and its wholly-owned subsidiaries (collectivelyreferred to as the Corporation), Symmetry Medical USA Inc., JetEngineering, Inc., Ultrexx, Inc., Riley Medical Inc., SymmetryMedical Switzerland SA, Symmetry Medical Everest LLC, Everest MetalInternational Limited, Symmetry Medical Cheltenham Limited, Symmetry MedicalPolyVac, SAS, Thornton Precision Components Limited, Symmetry Medical MalaysiaSDN, Clamonta Limited and TNCO, Inc.  The Corporation is a global supplierof integrated products and services consisting primarily of surgical implants,instruments and cases to orthopedic and other medical device companies.

The condensed consolidated financial statements of the Corporation havebeen prepared without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. In the opinion of management, theaccompanying condensed consolidated financial statements contain all materialadjustments (consisting only of normal recurring adjustments) necessary topresent fairly the consolidated financial position of the Corporation, its resultsof operations and cash flows. The Corporation’s results are subject to seasonalfluctuations. Interim results are not necessarily indicative of results for afull year. The condensed consolidated financial statements included hereinshould be read in conjunction with the consolidated financial statements andthe notes thereto included in the Corporation’s Annual Report on Form 10-Kfor fiscal year 2006.

Certain prior year amounts have been reclassified to conform to thecurrent-year presentation. These reclassifications had no impact on our resultsof operations or financial position.

The Corporation’s year end is the 52 or 53 week period ending theSaturday closest to December 31. Fiscal year 2007 and 2006 are 52 weekyears. As such, interim quarters are 13 weeks long ending the Saturday closestto March 31, June 30, or September 30. References in theseconsolidated financial statements to the three months ended refer to thesefinancial periods, respectively.

Riley Medical Inc. and Symmetry Medical Switzerland SA were acquired onMay 2, 2006 and are collectively referred to as “Riley Medical.”  SymmetryMedical Everest LLC and Everest Metal International Limited were acquired onAugust 31, 2006 and are collectively referred to as “Everest Metal.”  TheCorporation’s Annual Report on Form 10-K for fiscal year 2006 containsadditional information on these acquisitions.

On January 9, 2007, the Corporation’s subsidiary Thornton PrecisionComponents Limited (Thornton) acquired all of the stock of Whedon Limited, aprivately owned company based in Warwickshire, UK and the holding company ofClamonta Limited (collectively “Clamonta Ltd”), for $10,331 in cash, subject tocertain post closing adjustments.  Clamonta Ltd manufactures aerospaceproducts for the global aerospace industry.

On April 3, 2007, the Corporation’s subsidiary Symmetry Medical USA Inc.acquired all of the stock of TNCO, Inc. (“TNCO”), a privately owned companybased in Whitman, Massachusetts for $7,223 in cash, subject to certain postclosing adjustments.  TNCO designsand supplies precision instruments for arthroscopic, laparoscopic, sinus, andother minimally invasive procedures.

**2. Inventories**

Inventories consist of the following:
|                            | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Raw material and  supplies |       | $                 | 9,969      |                  | $          | 10,661 |   |
| Work-in-process            |       | 29,286            |       | 25,076                |       |
| Finished goods             |       | 10,953            |       | 11,655                |       |
|                       |       |              |       |                  |       |
|                       |       | $                 | 50,208     |                  | $          | 47,392 |   |

 

6

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**3. Property and Equipment**

Property and equipment, including depreciable lives, consists of thefollowing:

 
|                                              | ** ** | **June 30,** | ** ** | **December 30,** | ** ** |
|----------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Land                                         |       | $                 | 2,346      |                  | $          | 1,531 |   |
| Buildings and  improvements (20 to 40 years) |       | 29,848            |       | 29,957                |       |
| Machinery and  equipment (5 to 15 years)     |       | 131,471           |       | 121,457               |       |
| Office equipment  (3 to 5 years)             |       | 7,084             |       | 6,832                 |       |
| Construction-in-progress                     |       | 6,459             |       | 4,800                 |       |
|                                         |       |              |       |                  |       |
|                                         |       | 177,208           |       | 164,577               |       |
| Less accumulated  depreciation               |       | (67,178           | )          | (58,430               | )          |
|                                         |       |              |       |                  |       |
|                                         |       | $                 | 110,030    |                  | $          | 106,147 |   |

 

**4. Intangible Assets**

Intangible assets acquired in connection with our acquisitions of Mettis(UK) Limited, Riley Medical, Everest Metal, Clamonta Ltd. and TNCO.

As of June 30, 2007, the balances of intangible assets, other thangoodwill, were as follows:
|                                                          | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
| Acquired  technology and patents                         |       | 11 years             |       | $              | 2,095      |             | $          | (488           | )          | $ | 1,607 |   |
| Acquired  customers                                      |       | 19 years             |       | 33,276         |       | (3,346           | )          | 29,930         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 484            |       | (71              | )          | 413            |       |
| Intangible assets subject to amortization                |       |                 |       | 35,855         |       | (3,905           | )          | 31,950         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,924          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 2,845          |       |
| Indefinite-lived intangible assets, other than  goodwill |       |                 |       |           |       |             |       | 6,769          |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Total                                                    |       |                 |       |           |       |             |       | $              | 38,719     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

**5. New Accounting Pronouncements**

*Accounting for Uncertainty in Income Taxes*

The Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN48”), Accounting for Uncertainty in Income Taxes, on December 31, 2006. The implementation of FIN 48 had no impact on the Corporation’s financialposition or results of operations.  As of the beginning of fiscal year2007, the Corporation had unrecognized tax benefits of $339.  There hasbeen no significant change in the unrecognized tax benefits through the secondquarter ending June 30, 2007

The Corporation recognizes interest and penalties related tounrecognized tax benefits through income tax expense.  The Corporation hasnot accrued any interest or penalties as of June 30, 2007

The Corporation is subject to periodic audits by domestic and foreigntax authorities.  Currently, the Corporation is undergoing routineperiodic audits in both domestic and foreign tax jurisdictions.  It isreasonably possible that the amounts of unrecognized tax benefits could changein the next 12 months as a result of the audits.  It is impossible toestimate the significance of such a potential change at this time.  Forthe majority of tax jurisdictions, the Corporation is no longer subject to U.S.federal, state and local, or non-U.S. income tax examinations by taxauthorities for fiscal years before 2003.

*The Fair Value Option for Financial Assets and FinancialLiabilities*

In February 2007, the FASB issued Statement of Financial AccountingStandard (SFAS) No. 159, The Fair Value Option for Financial Assets andFinancial Liabilities. This Statement permits entities to choose to measuremany financial instruments and certain other instruments at fair value. ThisStatement is effective for fiscal years beginning after November 15, 2007.The adoption of this Statement is not expected to have a material impact on theCorporation’s financial position, results of operations or cash flows.

**6. Segment Reporting**

The Corporation primarily designs, develops and manufactures implantsand related surgical instruments and cases for orthopedic device companies andcompanies in other medical device markets such as dental, osteobiologic andendoscopy. The Corporation also has a special services business servingprimarily aerospace customers, which does not meet the quantitative disclosurerequirements of SFAS 131. The Corporation manages its business in multipleoperating segments. Because of the similar economic characteristics of theoperations, including the nature of the products, comparable level of FDAregulations, same or similar customers, those operations 

7

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havebeen aggregated following the provisions of SFAS 131 for segment reportingpurposes.

The Corporation is a multi-national corporation with operations in theUnited States, the United Kingdom, Ireland, Switzerland, France and Malaysia.As a result, the Corporation’s financial results can be impacted by currencyexchange rates in the foreign markets in which the Corporation sells itsproducts. While exposure to variability in foreign currency exists, theCorporation does not believe it is significant to its operations and anyvariability is somewhat offset through the location of its manufacturingfacilities. Revenue is attributed to geographic locations based on the locationto which we ship our products.

*Revenue from External Customers:*
|                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **               | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| United States            |       | $                                | 40,137     |                           | $          | 40,825 |   | $ | 79,496 |   | $ | 87,173 |   |
| United Kingdom           |       | 13,377                           |       | 10,057                         |       | 27,120 |   | 19,582 |   |
| Ireland                  |       | 7,634                            |       | 5,627                          |       | 14,204 |   | 13,356 |   |
| Other foreign  countries |       | 8,418                            |       | 8,251                          |       | 16,265 |   | 14,262 |   |
|                     |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues      |       | $                                | 69,566     |                           | $          | 64,760 |   | $ | 137,085 |   | $ | 134,373 |   |

 

*Concentration of Credit Risk:*

A substantial portion of the Corporation’s revenue is derived from alimited number of customers. The Corporation’s revenue includes revenue fromcustomers of the Corporation which individually account for 10% or more ofrevenue as follows:

Three months ended June 30, 2007—Four customersrepresenting approximately 20%, 12%, 10% and 10% of revenue, respectively.

Six months ended June 30, 2007—Four customersrepresenting approximately 19%, 12%, 11% and 10% of revenue, respectively.

Three months ended July 1, 2006—Four customersrepresenting approximately 24%, 12%, 12% and 10% of revenue, respectively.

Six months ended July 1, 2006—Four customersrepresenting approximately 27%, 11%, 10% and 10% of revenue, respectively.

Following is a summary of the composition by product category of the Corporation’srevenue to external customers. Revenue of the specialty services business isincluded in the “other” category.
|                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **          | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Implants            |       | $                                | 26,363     |                           | $          | 23,118 |   | $ | 50,849 |   | $ | 49,709 |   |
| Instruments         |       | 15,451                           |       | 18,032                         |       | 30,694 |   | 39,610 |   |
| Cases               |       | 18,790                           |       | 16,489                         |       | 36,376 |   | 31,160 |   |
| Other               |       | 8,962                            |       | 7,121                          |       | 19,166 |   | 13,894 |   |
|                |       |                             |       |                           |       |   |   |   |   |
| Total net  revenues |       | $                                | 69,566     |                           | $          | 64,760 |   | $ | 137,085 |   | $ | 134,373 |   |

 

8

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**7. Net Income Per Share**

The following table sets forth the computation ofearnings per share.

 
|                                                                     | ** ** | **Three Months Ended ** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **June 30,**                      | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                                          | ** ** | **2007**                               | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                                                          |       | $                                      | 4,431      |                           | $          | 7,679 |   | $ | 8,141 |   | $ | 16,057 |   |
|                                                                |       |                                   |       |                           |       |   |   |   |   |
| Weighted-average  common shares outstanding basic                   |       | 35,119                                 |       | 34,830                         |       | 35,046 |   | 34,774 |   |
| Effect of stock  options, restricted stock and stock warrants       |       | 158                                    |       | 347                            |       | 191 |   | 383 |   |
|                                                                |       |                                   |       |                           |       |   |   |   |   |
| Weighted-average  common shares outstanding and assumed conversions |       | 35,277                                 |       | 35,177                         |       | 35,237 |   | 35,157 |   |
|                                                                |       |                                   |       |                           |       |   |   |   |   |
| Net income per  share:                                              |       |                                   |       |                           |       |   |   |   |   |
| Basic                                                               |       | $                                      | 0.13       |                           | $          | 0.22 |   | $ | 0.23 |   | $ | 0.46 |   |
|                                                                |       |                                   |       |                           |       |   |   |   |   |
| Diluted                                                             |       | $                                      | 0.13       |                           | $          | 0.22 |   | $ | 0.23 |   | $ | 0.46 |   |

 

During the six month period ended June 30, 2007, the Corporation issued178 shares of common stock through the exercise of stock options.

**8. Commitments and Contingencies**

The Corporation is involved, from time to time, in various contractual,product liability, patent (or intellectual property) and other claims anddisputes incidental to its business. Currently, there is no environmental orother litigation pending or, to the knowledge of the Corporation, threatened,that the Corporation expects to have a material adverse affect on its financialcondition, results of operations or liquidity. While litigation is subject touncertainties and the outcome of litigated matters is not predictable withassurance, the Corporation currently believes that the disposition of allpending or, to the knowledge of the Corporation threatened, claims anddisputes, individually or in the aggregate, should not have a material adverseeffect on the Corporation’s consolidated financial condition, results ofoperations or liquidity.

**9. Comprehensive Income**

Comprehensive income is comprised of net income and gains and lossesresulting from currency translations of foreign entities. Comprehensive incomeconsists of the following:
|                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Income                                |       | $                                | 4,431      |                           | $          | 7,679 |   | $ | 8,141 |   | $ | 16,057 |   |
| Foreign currency  translation adjustments |       | 1,714                            |       | 4,988                          |       | 2,386 |   | 5,930 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Comprehensive income                      |       | $                                | 6,145      |                           | $          | 12,667 |   | $ | 10,527 |   | $ | 21,987 |   |

 

**10. Acquisitions**

On January 9, 2007, the Corporation’s subsidiary Thornton PrecisionComponents Limited (Thornton) acquired all of the stock of Whedon Limited, aprivately owned company based in Warwickshire, UK and the holding company ofClamonta Limited (collectively “Clamonta Ltd”), for $10,331 in cash, subject tocertain post closing adjustments.  The acquisition of Clamonta Ltd expandsthe Corporation’s Total Solutions® business model into the global aerospaceindustry and further strengthens our relationship with a key aerospacecustomer.  Results of Clamonta Ltd are included from the date ofacquisition.

9

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The aggregate purchase price is preliminary, subject to adjustment andexpected to be finalized in the third fiscal quarter. As of June 30, 2007, theaggregate purchase price of $10,331 was allocated to the opening balance sheetas follows:

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

 

On April 3, 2007, the Corporation’s subsidiary Symmetry Medical USA Inc.acquired all of the stock of TNCO, Inc. (“TNCO”), a privately owned companybased in Whitman, Massachusetts for $7,223 in cash, subject to certain postclosing adjustments.  TNCO designsand supplies precision instruments for arthroscopic, laparoscopic, sinus, andother minimally invasive procedures.

The aggregate purchase price is preliminary, subject to adjustment andexpected to be finalized in the third fiscal quarter. As of June 30, 2007, theaggregate purchase price of $7,223 was allocated to the opening balance sheetas follows:
| Current assets                                                 |   | $      | 2,700  |   |
|----------------------------------------------------------------|--------|--------|--------|--------|
| PP&E                                                       |   | 1,740  |   |
| Acquired  technology (amortized over average weighted 8 years) |   | 510    |   |
| Acquired  customers (amortized over 15 years)                  |   | 1,170  |   |
| Non-compete  agreements (amortized over 5 years)               |   | 80     |   |
| Trademarks  (indefinite-lived)                                 |   | 190    |   |
| Goodwill                                                       |   | 1,313  |   |
| Current  liabilities                                           |   | (480   | )      |
|                                                           |   |   |   |
| Purchase price, net                                            |   | $      | 7,223  |   |

 

On May 2,2006, the Corporation completed the acquisition of Riley Medical, aprivately-owned company based in Auburn, Maine, for approximately $45,797 innet cash, subject to adjustment for tax impacts to the previous owners. RileyMedical is a manufacturer of standard and custom cases, trays and containersfor the medical device industry with locations in the United States andSwitzerland.  The acquisition expands the Corporation’s geographicfootprint in Europe and the case product line, including several new patentsand trademarks.

On August 31, 2006, the Corporation completed the acquisition of EverestMetal for approximately $9,214 in net cash, subject to adjustment and anearn-out provision.  The earn-out provision requires payments of up toapproximately $1,081 after the end of 2007 if certain revenue targets are met.

***Unaudited Proforma Results***  Thefollowing table represents the proforma results of the Corporation’s operationshad the acquisitions of Riley Medical, Everest Metal, Clamonta Ltd and TNCObeen completed as of the beginning of the periods presented:
|                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                               | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue                                  |       | $                                | 69,566     |                           | $          | 72,604 |   | $ | 138,903 |   | $ | 152,895 |   |
| Income available  to common shareholders |       | 4,431                            |       | 8,087                          |       | 8,059 |   | 16,607 |   |
| Earnings per  share—basic           |       | $                                | 0.13       |                           | $          | 0.23 |   | $ | 0.23 |   | $ | 0.48 |   |
| Earnings per  share—diluted         |       | $                                | 0.13       |                           | $          | 0.23 |   | $ | 0.23 |   | $ | 0.47 |   |

 

10

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION**

**Overview**

We are a leading independent provider of implants and relatedinstruments and cases to orthopedic device manufacturers and other medicalmarkets. We also design, develop and produce these products for companies inother segments of the medical device market, including dental, osteobiologicand endoscopy sectors, and provide limited specialized products and services tonon-healthcare markets, primarily the aerospace industry.

We offer our customers Total Solution® for complete implantsystems—implants, instruments and cases. While our revenue to date has beenderived primarily from the sale of implants, instruments and cases separately,or instruments and cases together, our ability to provide Total Solutions® forcomplete implant systems has already proven to be attractive to our customers,and we expect this capability will provide us with growth opportunities. Inaddition, we expect that our Total Solutions® capability will increase therelative percentage of value added products that we supply to our customers.

Our Annual Report on Form 10-K for the fiscal year endedDecember 30, 2006, provides additional information about our business,operations and financial condition.

During the second quarter 2007, our revenue growth of 3.0% over thefirst quarter of 2007 was driven by a continued slow ramp-up in our coreorthopedics business and continued momentum from the integration of ouracquisitions.  Revenue increased 7.4% in the second quarter 2007 comparedto 2006 as 2007 includes results from our Clamonta Ltd and TNCO acquisitions. Revenuesfrom our top five orthopedic customers were down 3% and represented 56% oftotal revenue. Quarterly revenue from all other customers increased 26%compared to the same period last year.  Our long-term strategy is todiversify our customer base and expand into other medical device marketsoutside of our core hip and knee business, and we continue to make progress onthese initiatives.

A significant part of our business strategy has been growth throughacquisitions which have enhanced our product offerings and our businessmodel.  We acquired Riley Medical Inc. and Symmetry Medical Switzerland SA(collectively “Riley Medical”) on May 2, 2006 for $45.8 million. Riley Medical is a leading designer and manufacturer of specialty cases andtrays for the global medical market.  We also acquired Symmetry MedicalEverest LLC and Everest Metal International Limited (collectively “EverestMetal”) on August 31, 2006 for $9.2 million.  Everest Metalspecializes in implant finishing.  On January 9, 2007, ourwholly-owned subsidiary Thornton Precision Components Limited (“Thornton”)acquired all of the stock of Whedon Limited, a privately owned company based inWarwickshire, UK and the holding company of Clamonta Limited (collectively “ClamontaLtd”), for $10.3 million in cash, subject to certain post closingadjustments.  Clamonta Ltd machines high-precision specialty parts for theglobal aerospace industry.  OnApril 3, 2007 we acquired TNCO, Inc. (“TNCO”), a privately owned companybased in Whitman, Massachusetts for $7.2 million in cash, subject to certainpost closing adjustments. TNCO designs and supplies precision instruments forarthroscopic, laparoscopic, sinus, and other minimally invasive procedures.

While acquisitions are an important part of our growth strategy and wehave a strong pipeline across several diverse medical device segments, wecontinue to invest in our core business with the ramp-up of our Malaysianfacility, the introduction of new Symmetry products and innovation with newmaterials and technologies, such as carbon fiber, to our productofferings.  On April 30, 2007, we announced the introduction of a newproprietary printing technology for our cases, DigiPrint, that will allow us toemploy a non-toxic, durable graphic printed below the surface of the metalmaking it impervious to scratching, peeling and fading.

Our focus remains on being well positioned for a resurgence of growth inour core orthopedic business, while capitalizing on our market leadership toextend our Total Solutions® approach into other markets.  To this point,we saw increased customer activity near the end of the second quarter of 2007and believe volume will continue to increase into the second half of 2007.  In particular, we continue to expand ourengineering resources that produce and provide closer and critical customerrelationships on the development of new products.  This local presence inthe global marketplace allows us to be closer to our customer base, providequicker response times and increase our value added services.

11

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**Second Quarter Results of Operations**

*Revenue.*   Revenue for the three month period ended June 30, 2007increased $4.8 million, or 7.4%, to $69.6 million from $64.8 million for thecomparable 2006 period.  Revenue for each of our principal productcategories in these periods was as follows:

 
|                           | ** ** | **Three Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **June 30,**                | ** ** | **July 1,** | ** ** |
| **Product Category** | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                                | 26.4       |   | $ | 23.1 |   |
| Instruments               |       | 15.4                             |       | 18.0 |   |
| Cases                     |       | 18.8                             |       | 16.5 |   |
| Other                     |       | 9.0                              |       | 7.2 |   |
|                      |       |                             |       |   |   |
| Total                     |       | $                                | 69.6       |   | $ | 64.8 |   |

 

The $4.8 million increase in revenue resulted from increased implant andcase revenue of $3.3 million and $2.3 million, respectively.  The increasein implant revenue was primarily driven by $2.3 million from our Everest Metalacquisition.  The increase in case revenue was driven by the increase inrevenue from our Riley Medical acquisition. These increases were partiallyoffset by decreased instrument revenue of $2.6 million, despite the addition of$1.4 million of revenue from the TNCO acquisition in 2007. This decreasein instrument revenue was driven by a continued soft market with our top fivecustomers as they reduced their inventories and maintained smaller launchquantities. Other increased $1.8 million driven by the addition of $2.9 millionof revenue from Clamonta Ltd in 2007, which was offset by lower than expectedrevenue due to flooding at our Sheffield, United Kingdom facility in the lastweek of June.

*Gross Profit.*  Gross profit for the three month period ended June 30, 2007decreased $1.4 million, or 8.4%, to $15.5 million from $16.9 million for thecomparable 2006 period.  The decrease in gross profit was due to a declinein gross profit as a percentage of sales to 22.2% for the three month periodended June 30, 2007 compared to 26.1% in the comparable 2006 period.  This decline in gross profit as a percentageof sales was driven by a temporary disruption of production at our Sheffield,United Kingdom facility in the last week of June due to extreme flooding in theSheffield and surrounding area, fewer large volume projects from our top fivecustomers driving higher overhead costs as a percentage of sales, otherproduction inefficiencies related to a limited number of new customer productsand a charge related to the TNCO acquisition.  We view our globalinfrastructure as a competitive strength, and we have made a deliberatedecision to keep our infrastructure in place, enabling us to respond quickly toour customers’ needs and produce high volume orders on short notice.

*Selling, General and Administrative Expenses.*  Selling, general and administrativeexpenses for the three month period ended June 30, 2007 increased $1.5 million,or 21.4%, to $8.4 million from $6.9 million for the comparable 2006period.  As a percentage of revenue, selling, general and administrativeexpenses increased to 12.0% of revenue for the three month period ended June30, 2007 from 10.6% of revenue for the comparable 2006 period.  Additional costs related to Riley Medical,Everest Metal, Clamonta Ltd and TNCO accounted for $1.1 million of theincrease, which included $0.3 million of additional intangible assetamortization.  The remainder of the increase was driven by increasedemployee benefits expenses, including restricted stock expense.

*Other Expense.*   Interest expense for the threemonth period ended June 30, 2007 increased $0.7 million, or 73.7%, to $1.6million from $0.9 million for the comparable 2006 period. This increase reflectsthe additional $40.0 million senior term debt related to the acquisition ofRiley Medical in May 2006 and increased average borrowings on the revolvingcredit facility to fund the Clamonta and TNCO acquisitions.  This increasewas partially offset by the reduction in outstanding capital lease obligationsand existing senior term debt through normal amortization.

The derivatives valuation (gains) losses consist of interest rate swapvaluations used to mitigate the effect of changing interest rates on net incomeand foreign currency forward contracts used to mitigate the effect of changesin the foreign exchange rates on net income. The gain of $0.3 million for thethree month period ended June 30, 2007 versus the loss of $0.4 million in thecomparable 2006 period is due to market fluctuations in these contracts, whichare not designated as hedges under SFAS 133. During the second quarter of2007, we settled two of our foreign exchange rate contracts at a loss of $0.9million.  No contracts were settled in the second quarter of 2006.

Also included in Other is a $0.4 million gain for the three month periodended June 30, 2007 for the sale of surplus land adjacent to our Sheffield, UKfacility. The comparable 2006 period had a $1.2 million gain on the sale ofsurplus land adjacent to our Sheffield, UK facility.

*Provision for Income Taxes.*   Our effective tax rate was 31.9%for the three month period ended June 30, 2007 as compared to 28.4% for thecomparable 2006 period. The provision for income taxes decreased by $0.9million, or 31.7%, to $2.1 million for the three month period ended June 30,2007 from $3.0 million for the comparable 2006 period primarily due to lowerpre-tax income.

12

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**Six Months Results of Operations**

*Revenue.*   Revenue for the six month periodended June 30, 2007 increased $2.7 million, or 2.0%, to $137.1 million from$134.4 million for the comparable 2006 period. Revenue for each of ourprincipal product categories in these periods was as follows:
|                           | ** ** | **Six Months Ended** | ** ** |
|---------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **June 30,**              | ** ** | **July 1,** | ** ** |
| **Product Category** | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| ** **                | ** ** | **(in millions)**         | ** ** |
| Implants                  |       | $                              | 50.8       |   | $ | 49.7 |   |
| Instruments               |       | 30.7                           |       | 39.6 |   |
| Cases                     |       | 36.4                           |       | 31.2 |   |
| Other                     |       | 19.2                           |       | 13.9 |   |
|                      |       |                           |       |   |   |
| Total                     |       | $                              | 137.1      |   | $ | 134.4 |   |

 

The $2.7 million increase inrevenue resulted from increased implant, case, and non-healthcare/other revenueof $1.1 million, $5.2 million, and $5.3 million, respectively. This increase inimplant revenue was primarily driven by $4.4 million from our Everest Metalacquisition in 2007 offset by slower growth at our top five customers as theyreduced inventories and maintained smaller launch quantities.  Other revenues increased due to the inclusionof $5.7 million from our Clamonta Ltd acquisition in 2007.  Case revenues include $15.3 million for thesix month period ended June 30, 2007 compared to $3.4 million for thecomparable 2006 period from our Riley Medical acquisition offset by a continuedsoft market with large customers as they reduced their inventories andmaintained smaller launch quantities. These increases were partially offset by decreased instrument revenue of$8.9 million due to slower demand from our top five customers, particularly inthe first quarter of 2007.

*GrossProfit.*  Gross profit for the six month period ended June 30, 2007 decreased $6.8million, or 18.2%, to $30.4 million from $37.2 million for the comparable 2006period. This decrease in gross profit was driven primarily by a reduced grossprofit as a percentage of sales which was 22.2% for the six month period endedJune 30, 2007 compared to 27.7% for the comparable 2006 period. The decline ingross profit as a percentage of sales of 5.5% was driven by a temporarydisruption of production at our Sheffield, United Kingdom facility in the lastweek of June due to extreme flooding in the Sheffield and surrounding area,fewer large volume projects from our top five customers driving higher overheadcosts as a percentage of sales, less favorable product mix, other productioninefficiencies related to a limited number of new customer products and a chargerelated to the TNCO acquisition.  We viewour global infrastructure as a competitive strength, and we have 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.

*Selling,General and Administrative Expenses.*   Selling, general and administrative (SG&A) expenses forthe six month period ended June 30, 2007 increased $2.3 million, or 16.6%, to$16.2 million from $13.9 million for the comparable 2006 period. As apercentage of revenue, SG&A expenses increased to 11.8% of revenue for thesix month period ended June 30, 2007 from 10.4% of revenue for the comparable2006 period.  SG&A expenses from ourRiley Medical, Everest Metal, Clamonta Ltd and TNCO acquisitions totaled $3.2million for the six month period ended June 30, 2007 compared to $0.7 millionfor the comparable 2006 period.  The $2.5million increase from acquired companies and increases in expenses related to restrictedstock expenses were partially offset by initiatives to cut costs across ourglobal facilities.

*OtherExpense.*  Interest expense for the six month period ended June 30, 2007 increased $1.6million, or 101.4%, to $3.2 million from $1.6 million for the comparable 2006period. This increase primarily reflects the increase of interest from newsenior term and revolving debt related to our acquisitions in the past year.This increase was offset by reductions in outstanding capital lease obligationsand previously held senior term debt through normal amortization.

The derivatives valuation(gains) losses consist of interest rate swap valuations used to mitigate theeffect of changing interest rates on net income and foreign currency forwardcontracts used to mitigate the effect of changes in the foreign exchange rateson net income. The small gain for the six month period ended June 30, 2007versus the loss of $0.4 million in the comparable 2006 period is due to marketfluctuations in these contracts, which are not designated as hedges under SFAS133. During the six month period ended June 30, 2007, we settled three ofour foreign exchange rate contracts at a loss of $1.5 million.  Nocontracts were settled in the comparable 2006 period.

Also included in Other is a$0.4 million gain for the six month period ended June 30, 2007 for the sale ofsurplus land adjacent to our Sheffield, UK facility. The comparable 2006 alsohad a $1.2 million gain on the sale of surplus land adjacent to our Sheffield,UK facility.

*Provision for Income Taxes.*   Our effective tax rate was 30.8%for the six month period ended June 30, 2007 as compared to 31.9% for thecomparable 2006 period. This increase in rate was primarily due to a lower thanexpected foreign sales tax credit for fiscal 2006 that was realized in thesecond quarter of 2007.  The provisionfor income taxes decreased by $3.9 million, or 51.9%, to $3.6 million for thesix month period ended June 30, 2007 from $7.5 million for the comparable 2006period primarily due to lower pre-tax income.

**Liquidity and Capital Resources**

Our principal sources of cash in the six month period ended June 30,2007 were cash generated from operations, borrowings under our senior creditrevolving loan facility and U.K. revolving credit facility and proceeds fromthe exercise of common stock options.  Principal uses of cash in the sixmonth period ended June 30, 2007 included capital expenditures, the acquisitionof Clamonta Ltd and TNCO as well as debt service. We expect that our principaluses of cash in the future will be for working capital, capital expenditures,debt service and to fund mergers and acquisitions.

13

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We completed the acquisition of Clamonta Ltd on January 9, 2007 for$10.3 million, subject to adjustment, through the use of the existing cashbalances and our $40.0 million senior debt facility.   On April3, 2007, we completed the acquisition of TNCO for approximately $7.2 million,subject to adjustment, through the use of existing cash balances and our $40.0million senior debt facility.

*Operating Activities  * We generated cash from operations of $20.1million in the six month period ended June 30, 2007 compared to $14.6 millionfor the six month period ended July 1, 2006 an increase of $5.5 million. Net cash provided by working capital for the six month period ended June 30,2007 was $10.7 million higher than the comparable 2006 period.  This improvement in the net change in workingcapital was offset by a decrease in net income, adjusted for non-cash items, of$5.1 million.

Cash provided by working capital fluctuations was $3.7 million in thesix month period ended June 30, 2007 as compared to a use of $6.9 million inthe comparable 2006 period.  In the six month period ended June 30, 2007,the primary sources of cash for working capital came from an increase inaccounts payable, offset by increases in accounts receivable and otherassets.  In the six month period ended July 1, 2006, the primary uses ofcash for working capital came from an increase in inventory and decreases inaccounts payable and accrued expenses, offset by a decrease in accountreceivable and other assets.  Thesenearly opposite changes in working capital are a result of increasingproduction activity in the second quarter of 2007 compared to decreasingproduction activity in the second quarter of 2006.

*Investing Activities*  Capital expenditures of $7.0million were lower by $4.8 million, or 40.5%, in the six month period endedJune 30, 2007 compared to the six month period ended July 1, 2006. The acquisition of Clamonta Ltd and TNCO used $17.6 million of cash in the 2007period while acquisition activity in the 2006 period used $45.6 million forRiley Medical.

*Financing Activities  * Financing activities generated $2.2 million ofcash due primarily to the exercise of stock options and borrowings on therevolving credit facility, offset by payments on long-term debt and capitalleases.  Borrowings on the revolvingcredit facility partially funded the Clamonta Ltd and TNCO acquisitions.

***Capital Expenditures***

Capital expenditures totaled $7.0 million for the six months ended June30, 2007, compared to $11.8 million for the six month period ended July 1,2006. Expenditures were primarily used to complete our Sheffield, U.K. facilityfor increased forge capacity for the aerospace products and to maintainproduction capacity in all of our production facilities.

***Debt and Credit Facilities***

As of June 30, 2007, we had an aggregate of $79.3 million of outstandingindebtedness, which consisted of $62.3 million of term loan borrowingsoutstanding under our senior credit facility, $8.5 million of borrowingsoutstanding under our revolving credit facility, $1.1 million of borrowingsunder our U.K. short-term credit facility and $7.4 million of capital leaseobligations. We had no outstanding letters of credit as of June 30, 2007.

Our senior credit agreement contains various financial covenants,including covenants requiring a maximum total debt to EBITDA ratio, minimumEBITDA to interest ratio and a minimum EBITDA to fixed charges ratio. We werein compliance with our financial and other covenants under the senior creditfacility as of June 30, 2007.

We believe that cash flow from operating activities and borrowings underour senior credit facility will be sufficient to fund currently anticipatedworking capital, planned capital spending, debt service requirements for theforeseeable future, including at least the next twelve months. We also reviewtechnology, manufacturing and other strategic acquisition opportunitiesregularly, which may require additional debt or equity financing.

**Contractual Obligations and Commercial Commitments**

There have been no material changes from the information provided in ourAnnual Report on Form 10-K for fiscal year ended December 30, 2006.

**Off-Balance Sheet Arrangements**

Our off-balance sheet arrangements and contractual obligations includeour operating leases and letters of credit. There have been no material changesfrom the information provided in our Annual Report on Form 10-K for fiscalyear ended December 30, 2006.

**Environmental**

There have been no material changes from the information provided in ourAnnual Report on Form 10-K for fiscal year ended December 30, 2006.

**Critical Accounting Policies and Estimates**

The preparation of our financial statements requires management to makeestimates, judgments and assumptions that affect the reported amounts ofassets, liabilities, revenues and expenses during the periods presented. OurAnnual Report on Form 10-K for fiscal year ended December 30, 2006includes a summary of the critical accounting policies we believe are the mostimportant to aid in understanding its financial results. There have been nomaterial changes to these critical accounting policies that impacted our reportedamounts of assets, liabilities, revenues or expenses during the six monthsended June 30, 2007.

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**New Accounting Pronouncements**

*Accounting for Uncertainty in Income Taxes*

The Corporation adopted the provisions of FASBInterpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes,on December 31, 2006.  The implementation of FIN 48 did not have an impacton the Corporation’s financial position or results of operations.  As ofthe beginning of fiscal year 2007, the Corporation had unrecognized taxbenefits of $339.  There has been no significant change in theunrecognized tax benefits during the second quarter ending June 30, 2007.

The Corporation recognizes interest and penalties related tounrecognized tax benefits through income tax expense.  The Corporation hasnot accrued any interest or penalties as of June 30, 2007.

The Corporation is subject to periodic audits by domestic and foreigntax authorities.  Currently, the Corporation is undergoing routineperiodic audits in both domestic and foreign tax jurisdictions.  It isreasonably possible that the amounts of unrecognized tax benefits could changein the next 12 months as a result of the audits.  It is not possible toestimate the significance of such a potential change at this time.  For themajority of tax jurisdictions, the Corporation is no longer subject to U.S.federal, state and local, or non-U.S. income tax examinations by taxauthorities for fiscal years before 2003.

*The Fair Value Option for Financial Assets and FinancialLiabilities*

In February 2007, the FASB issued Statement of Financial AccountingStandard (SFAS) No. 159, The Fair Value Option for Financial Assets andFinancial Liabilities. This Statement permits entities to choose to measuremany financial instruments and certain other instruments at fair value. ThisStatement is effective for fiscal years beginning after November 15, 2007.The adoption of this Statement is not expected to have a material impact on theCorporation’s financial position, results of operations or cash flows.

**Cautionary Notice Regarding Forward-Looking Statements**

Certain statements contained in this Quarterly Report on Form 10-Qand other written and oral statements made from time to time by the Corporationdo not relate strictly to historical or current facts. As such they areconsidered “forward-looking statements” that provide current expectations orforecasts of future events. Forward-looking statements typically are identifiedby the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,”“could,” “estimate,” “intend” and similar words, although some forward-lookingstatements are expressed differently. Factors that could cause the Corporation’sactual results to differ materially from the expectations expressed in ourforward-looking statements include, but are not limited to, the following:changes in general economic conditions in the United States and Europe; ourability to retain existing customers, particularly our key customers, andattract new customers; the timing of significant orders and shipments,including the effects of changes in inventory management practices by ourcustomers; the competitive nature of the orthopedic device market; the pursuitof strategic acquisitions or encountering unforeseen difficulties inintegrating acquisitions; the degree to which we are leveraged and oursignificant debt service obligations; the impact of work stoppages andother labor matters; general economic or business conditions affecting theorthopedic device market being less favorable than expected; our ability toanticipate changes in technology and regulatory standards and to successfullydevelop and introduce new and enhanced products on a timely basis; theunpredictability of intellectual property protection and maintenance and otherintellectual property issues; any future changes in management or loss of keypersonnel; unforeseen problems associated with international revenue andoperations, including gains and losses from foreign currency exchange; productliability lawsuits brought against us or our customers; implementation of orchanges in laws, regulations or policies that could negatively affect theorthopedic device market; and other uncertainties and factors discussed in the “RiskFactors” section of the Corporation’s Annual Report on Form 10-K filed onMarch 13, 2007, elsewhere in this Quarterly Report on Form 10-Q and in theCorporation’s other filings with the Securities and Exchange Commission.

Forward-looking statements relate only to events as of the date on whichthe statements are made. Except as required by law, the Corporation’sundertakes no obligation to update any forward-looking statement to reflectevents or circumstances after the date on which the statement is made or toreflect the occurrence of unanticipated events, even if new information becomesavailable in the future.

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISKS**

For financial market risks related to changes in interest rates, foreigncurrency exchange rates, commodity prices and the effects 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 30, 2006. Ourexposure to these risks has not changed materially since December 30, 2006.

** ITEM 4.CONTROLS AND PROCEDURES**

(a)   Evaluation of disclosure controls and procedures.

Our Chief Executive Officer and Chief Financial Officer, afterevaluating the effectiveness of our “disclosure controls and procedures” (asdefined in Rule 13a-15(e) of the Securities Exchange Act of 1934),have concluded that, as of the end of the fiscal quarter covered by this reporton Form 10-Q, our disclosure controls and procedures were effective anddesigned to ensure that material information relating to the Corporation andits consolidated subsidiaries would be made known to them by others withinthose entities.

(b)   Changes in internal control over financial reporting.

During the quarter, there have been no changes in our “internal controlover financial reporting” (as defined in Rule 13a-15(f) of the SecuritiesExchange Act of 1934) that occurred during the fiscal quarter covered by thisreport on Form 10-Q that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting, exceptthat we are still in the process of integrating the Everest Metal, Clamonta Ltdand TNCO operations and will be incorporating these operations as part of ourinternal controls. For purposes of this evaluation, the impact of theseacquisitions on our internal controls over financial reporting has beenexcluded. See Note 10 to the condensed consolidated financial statementsincluded in Item 1 for a discussion of the Everest Metal, Clamonta Ltd and TNCOacquisitions.

**PART II OTHER INFORMATION**

**ITEM 1 LEGAL PROCEEDINGS**

None.

**ITEM 1A RISK FACTORS**

In addition to the other information set forth in this report, youshould carefully consider the factors discussed in Part I, Item 1A “RiskFactors” contained in our Annual Report on Form 10-K for the fiscal yearended December 30, 2006, which could materially affect our business,financial condition or future results. The Risk Factors included in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 30,2006 have not materially changed.

**ITEM 2 UNREGISTERED SALE OF EQUITY SECURITIES ANDUSE OF PROCEEDS**

None.

**ITEM 4****                      ****SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

Our Annual Meeting of Shareholders was held May 3,2007.  Proxies were solicited for the Annual Meeting in accordance withthe requirements of The Securities Exchange Act 1934.  At the AnnualMeeting, the following occurred:

·                  With respect to Item 1 in our Proxy Statement(Election of Directors), James S. Burns was elected to serve as the Class IIDirector.  The newly-elected Class IIDirector will serve a three-year term, expiring at the annual shareholdermeeting in 2010.  The Class IIIDirectors, Brian S. Moore and Francis T. Nusspickel are continuing Directorsserving three-year terms that expire at the annual shareholder meeting in2008.  The Class I Directors, Stephen B. Oresman and Frank Turner arecontinuing Directors serving three-year terms that expire at the annualshareholder meeting in 2009.  The votingresult for the Class II Director was as follows:

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

 

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·                  With respect to Item 2 in our Proxy Statement(Ratification of the Appointment of Ernst & Young LLP as Auditors for theYear 2007), Ernst & Young LLP was approved as our independent auditors forthe year 2007:
| Shares Voted For      |   | 33,225,667 |   |
|-----------------------|--------|------------|--------|
|                  |   | 99.59      | %      |
|                  |   |       |   |
| Shares Voted  Against |   | 127,235    |   |
|                  |   | .38        | %      |
|                  |   |       |   |
| Abstentions           |   | 9,365      |   |
|                  |   | .03        | %      |
|                  |   |       |   |
| Broker Non-Votes      |   | 0          |   |

 

**ITEM 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 March21, 2006.

**ITEM 6 EXHIBITS**
| 10.30  |   | Form of Restricted Stock Agreement (Key  Employees) issued under the 2004 Equity Incentive Plan (incorporated by  reference to Exhibit 10.1 to our Form 8-K filed May 8, 2007).             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                            |
| 31.1   |   | Certification of Chief  Executive Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                                                                            |
| 31.2   |   | Certification of Chief  Financial Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                                                                            |
| 32.1   |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                     |

 

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|     | 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)* |

 

August9, 2007

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