** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 1O-Q/A**

**(Amendment No. 1)**

 

**(MarkOne)**

 

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

 

**For thequarterly period ended March 31, 2007**

 

**or**

 

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

 

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

 

 

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

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the

Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.     o** **Yes   x No

 

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

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

 

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

o Yes   x No

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

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

o Yes   o No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 

The number of shares outstanding of the registrant’scommon stock as of April 3, 2008 was 35,466,654.

 

 

----

 

**TABLE OFCONTENTS**

 
| **PART I FINANCIAL INFORMATION** |
|---------------------------------------|
|                                  |   |
| Item 1                           | Financial Statements: |
|                                  |   |
|                                  | Condensed Consolidated  Balance Sheets: As of March 31, 2007 and December 30, 2006 |
|                                  |   |
|                                  | Condensed Consolidated  Statements of Operations: Three Months Ended March 31, 2007 and  April 1, 2006 |
|                                  |   |
|                                  | Condensed Consolidated  Statements of Cash Flows: Three Months Ended March 31, 2007 and  April 1, 2006 |
|                                  |   |
|                                  | Notes to  Condensed Consolidated Financial Statements |
|                                  |   |
| Item 2                           | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |
|                                  |   |
| Item 3                           | Quantitative  and Qualitative Disclosures about Market Risks |
|                                  |   |
| Item 4                           | Controls and Procedures |
|                                  |   |
| **PART II OTHER  INFORMATION**   |
|                                  |   |
| Item 1A                          | Risk Factors |
|                                  |   |
| Item 5                           | Other Information |
|                                  |   |
| Item 6                           | Exhibits |
|                                  |   |
| Signatures                            |

 

2

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**CautionaryNote Regarding Forward-Looking Statements**

 

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

 

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

 

We also refer you to andbelieve that you should carefully read the “Risk Factors” portion of our AnnualReport for fiscal 2007 on Form 10-K, filed contemporaneously with this Form 10-Q/A,to better understand the risks and uncertainties that are inherent in ourbusiness and in owning our securities.

 

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

 

**Explanatory Note Regarding OurRestatement**

 

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

 

This Form 10-Q/Areflects the restatement of: i) our previously issued consolidated financialstatements for the three months ended April 1, 2006, March 31, 2007and the year ended December 30, 2006; and ii) Management’s Discussion andAnalysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 tothe consolidated financial statements. Along with this report, we are filing our amended Quarterly Report on Form 10-Q/Afor the second quarter of fiscal 2007 and the delayed third quarter of fiscal2007 on Form 10-Q as well as our Annual Report for fiscal 2007 on Form 10-K.  We do not intend to amend our previouslyfiled Annual Reports on Form 10-K or Quarterly Reports on Form 10-Qfor the periods prior to fiscal 2007. The financial information that was presented in previous filings orotherwise reported for these periods is amended by the information in ourAnnual Report for fiscal 2007 on Form 10-K.  The financial statements and relatedfinancial information contained in such previously filed reports should nolonger be relied upon.

 

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

 

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

 

3

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** **

**PART IFINANCIAL INFORMATION**

**ITEM1. FINANCIAL STATEMENTS**

 

**SymmetryMedical Inc.**

 

**Condensed Consolidated Balance Sheets**

** **
| ** **                                                                                                                          | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                                          | ** ** | **(Restated)**     | ** ** | **(Restated)**        | ** ** |
| ** **                                                                                                                          | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **Assets:**                                                                                                                         |       |               |       |                  |       |
| Current Assets:                                                                                                                     |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                          |       | $                  | 6,094      |                  | $          | 11,721 |   |
| Accounts  receivables, net                                                                                                          |       | 38,909             |       | 32,909                |       |
| Inventories                                                                                                                         |       | 32,529             |       | 33,134                |       |
| Refundable  income taxes                                                                                                            |       | 4,635              |       | 4,374                 |       |
| Deferred income  taxes                                                                                                              |       | 3,534              |       | 2,826                 |       |
| Other current  assets                                                                                                               |       | 3,820              |       | 3,965                 |       |
|                                                                                                                                |       |               |       |                  |       |
| Total current  assets                                                                                                               |       | 89,521             |       | 88,929                |       |
| Property and  equipment, net                                                                                                        |       | 103,745            |       | 102,907               |       |
| Goodwill                                                                                                                            |       | 131,479            |       | 129,966               |       |
| Intangible  assets, net of accumulated amortization                                                                                 |       | 35,198             |       | 31,613                |       |
| Other assets                                                                                                                        |       | 922                |       | 981                   |       |
|                                                                                                                                |       |               |       |                  |       |
| Total Assets                                                                                                                        |       | $                  | 360,865    |                  | $          | 354,396 |   |
| ** **                                                                                                                          |       |               |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                     |       |               |       |                  |       |
| Current  Liabilities:                                                                                                               |       |               |       |                  |       |
| Accounts payable                                                                                                                    |       | $                  | 21,924     |                  | $          | 20,683 |   |
| Accrued wages  and benefits                                                                                                         |       | 10,168             |       | 7,816                 |       |
| Other accrued  expenses                                                                                                             |       | 4,723              |       | 4,104                 |       |
| Income tax payable                                                                                                                  |       | 751                |       | 970                   |       |
| Deferred income  taxes                                                                                                              |       | 775                |       | 249                   |       |
| Derivative  valuation liability                                                                                                     |       | 546                |       | 1,184                 |       |
| Revolving line  of credit                                                                                                           |       | 2,215              |       | —                |       |
| Current portion  of capital lease obligations                                                                                       |       | 2,956              |       | 3,500                 |       |
| Current portion  of long-term debt                                                                                                  |       | 7,837              |       | 5,550                 |       |
|                                                                                                                                |       |               |       |                  |       |
| Total current  liabilities                                                                                                          |       | 51,895             |       | 44,056                |       |
| Deferred income  taxes                                                                                                              |       | 7,599              |       | 8,392                 |       |
| Derivative  valuation liability                                                                                                     |       | 893                |       | 549                   |       |
| Capital lease  obligations, less current portion                                                                                    |       | 5,400              |       | 5,142                 |       |
| Long-term debt,  less current portion                                                                                               |       | 59,110             |       | 63,650                |       |
|                                                                                                                                |       |               |       |                  |       |
| Total  Liabilities                                                                                                                  |       | 124,897            |       | 121,789               |       |
|                                                                                                                                |       |               |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                                             |       |               |       |                  |       |
|                                                                                                                                |       |               |       |                  |       |
| Shareholders’  Equity:                                                                                                         |       |               |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued March 31, 2007—35,294;December 30,  2006—35,107) |       | 4                  |       | 4                     |       |
| Additional  paid-in capital                                                                                                         |       | 272,103            |       | 270,716               |       |
| Retained  earnings (deficit)                                                                                                        |       | (43,762            | )          | (45,377               | )          |
| Accumulated  other comprehensive income                                                                                             |       | 7,623              |       | 7,264                 |       |
|                                                                                                                                |       |               |       |                  |       |
| Total  Shareholders’ Equity                                                                                                    |       | 235,968            |       | 232,607               |       |
|                                                                                                                                |       |               |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                                    |       | $                  | 360,865    |                  | $          | 354,396 |   |

 

See accompanyingnotes to condensed consolidated financial statements*.*

 

4

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**SymmetryMedical Inc.**

 

**Condensed Consolidated Statements of Operations**

 
| ** **                                                          | ** ** | **Three Months Ended**          | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                          | ** ** | **March 31,**                        | ** ** | **April 1,** | ** ** |
| ** **                                                          | ** ** | **2007**                                  | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | **(Restated)**                            | ** ** | **(Restated)** | ** ** |
| ** **                                                          | ** ** | **(unaudited)**                           | ** ** | **(unaudited)** | ** ** |
| ** **                                                          | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| Revenue                                                             |       | $                                         | 64,724     |   | $ | 68,324 |   |
| Cost of Revenue                                                     |       | 53,010                                    |       | 49,669 |   |
|                                                                |       |                                      |       |   |   |
| Gross Profit                                                        |       | 11,714                                    |       | 18,655 |   |
| Selling, general  and administrative expenses                       |       | 7,651                                     |       | 7,035 |   |
|                                                                |       |                                      |       |   |   |
| Operating Income                                                    |       | 4,063                                     |       | 11,620 |   |
| Other expense:                                                      |       |                                      |       |   |   |
| Interest expense                                                    |       | 1,587                                     |       | 661 |   |
| Derivatives  valuation (gain)/loss                                  |       | (295                                      | )          | (1 | ) |
| Other  (income)/expense                                             |       | 659                                       |       | (384 | ) |
|                                                                |       |                                      |       |   |   |
| Income before  income taxes                                         |       | 2,112                                     |       | 11,344 |   |
| Income tax  expense                                                 |       | 497                                       |       | 3,376 |   |
|                                                                |       |                                      |       |   |   |   |   |
| Net income                                                          |       | $                                         | 1,615      |   | $ | 7,968 |   |
|                                                                |       |                                      |       |   |   |
| Net income per  share:                                              |       |                                      |       |   |   |
| Basic                                                               |       | $                                         | 0.05       |   | $ | 0.23 |   |
|                                                                |       |                                      |       |   |   |   |   |
| Diluted                                                             |       | $                                         | 0.05       |   | $ | 0.23 |   |
|                                                                |       |                                      |       |   |   |
| Weighted average  common shares and  equivalent shares outstanding: |       |                                      |       |   |   |
| Basic                                                               |       | 34,973                                    |       | 34,717 |   |
| Diluted                                                             |       | 35,194                                    |       | 35,137 |   |

 

See accompanyingnotes to condensed consolidated financial statements*.*

 

5

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**SymmetryMedical Inc.**

 

**Condensed Consolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**               | ** ** |
| **Operating  activities**                                                                    |       |                             |       |   |   |
| Net Income                                                                                   |       | $                                | 1,615      |   | $ | 7,968 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation                                                                                 |       | 4,179                            |       | 3,704 |   |
| Amortization                                                                                 |       | 474                              |       | 132 |   |
| Foreign currency  transaction (gain) loss                                                    |       | 102                              |       | (449 | ) |
| Net (gain) loss  on sale of assets                                                           |       | 2                                |       | 13 |   |
| Deferred income tax  provision                                                               |       | (2,473                           | )          | 335 |   |
| Excess tax  benefit from stock-based compensation                                            |       | (796                             | )          | (1,062 | ) |
| Stock-based  compensation                                                                    |       | 42                               |       | 108 |   |
| Derivative  valuation change                                                                 |       | (295                             | )          | (1 | ) |
| Change in  operating assets and liabilities:                                                 |       |                             |       |   |   |
| Accounts  receivable                                                                         |       | (3,906                           | )          | (4,840 | ) |
| Other assets                                                                                 |       | 102                              |       | 108 |   |
| Inventories                                                                                  |       | 2,195                            |       | 304 |   |
| Current income  taxes                                                                        |       | 615                              |       | (121 | ) |
| Accounts payable                                                                             |       | 523                              |       | (2,899 | ) |
| Accrued expenses  and other                                                                  |       | 2,906                            |       | (586 | ) |
|                                                                                         |       |                             |       |   |   |
| Net cash  provided by operating activities                                                   |       | 5,285                            |       | 2,714 |   |
|                                                                                         |       |                             |       |   |   |
| **Investing  activities**                                                                    |       |                             |       |   |   |
| Purchases of  property and equipment                                                         |       | (990                             | )          | (5,085 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 28                               |       | — |   |
| Acquisition, net  of cash received                                                           |       | (10,317                          | )          | — |   |
|                                                                                         |       |                             |       |   |   |
| Net cash used in  investing activities                                                       |       | (11,279                          | )          | (5,085 | ) |
|                                                                                         |       |                             |       |   |   |
| **Financing  activities**                                                                    |       |                             |       |   |   |
| Proceeds from  bank revolver                                                                 |       | 16,473                           |       | 4,641 |   |
| Payments on bank  revolver                                                                   |       | (16,502                          | )          | (3,028 | ) |
| Payments on  long-term debt and capital lease obligations                                    |       | (903                             | )          | (2,384 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                 |       | 549                              |       | 404 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 796                              |       | 1,062 |   |
|                                                                                         |       |                             |       |   |   |
| Net cash  provided by financing activities                                                   |       | 413                              |       | 695 |   |
| Effect of  exchange rate changes on cash                                                     |       | (46                              | )          | 121 |   |
|                                                                                         |       |                             |       |   |   |
| Net decrease in  cash and cash equivalents                                                   |       | (5,627                           | )          | (1,555 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 11,721                           |       | 12,471 |   |
|                                                                                         |       |                             |       |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                                | 6,094      |   | $ | 10,916 |   |
|                                                                                         |       |                             |       |   |   |
| Supplemental  disclosures:                                                                   |       |                             |       |   |   |
| Cash paid for  interest                                                                      |       | $                                | 1,606      |   | $ | 512 |   |
|                                                                                         |       |                             |       |   |   |
| Cash paid for  income taxes                                                                  |       | $                                | 812        |   | $ | 2,034 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

6

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**SymmetryMedical Inc.**

** **

**Notes to Condensed Consolidated FinancialStatements**

** **

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

**(Unaudited)**

 

**1. Basis of Presentation**

 

The condensedconsolidated financial statements include the accounts of Symmetry Medical, Inc.and its wholly-owned subsidiaries (collectively referred to as theCorporation), Symmetry Medical USA Inc., Jet Engineering, Inc., Ultrexx, Inc.,Riley Medical Inc., Symmetry Medical Switzerland SA (formerly known as RileyMedical Europe SA), Symmetry Medical Everest LLC, Everest Metal InternationalLimited, Symmetry Medical Cheltenham Limited, Symmetry Medical PolyVac, SAS,Thornton Precision Components Limited, Symmetry Medical Malaysia SDN andClamonta Limited.  The Corporation is a global supplier of integratedproducts consisting primarily of surgical implants, instruments and cases toorthopedic and other medical device companies.

 

The condensedconsolidated financial statements of the Corporation have been prepared withoutaudit, pursuant to the rules and regulations of the Securities andExchange Commission. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to such rules andregulations. In the opinion of management, the accompanying condensedconsolidated financial statements contain all adjustments of a normal recurringnature as well as all adjustments discussed in Note 2, “Restatement”considered  necessary to present fairly,the consolidated financial position of the Corporation, its results ofoperations 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 fiscal year 2006 restated consolidatedfinancial statements and the notes thereto included in the Corporation’s AnnualReport on Form 10-K for fiscal year 2007 filed contemporaneously with thisForm 10-Q/A.

 

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

 

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

 

On January 9, 2007,the Corporation acquired all of the stock of Whedon Limited, a privately ownedcompany based in Warwickshire, UK and the holding company of Clamonta Limited(collectively “Clamonta Ltd”), for $10,317 in cash, subject to certain postclosing adjustments.  Clamonta Ltd manufactures aerospace products for theglobal aerospace industry. The Corporation’s Annual Report on Form 10-Kfor fiscal year 2007, filed contemporaneously with this Form 10-Q/A, containsadditional information on these acquisitions.

 

**2.  Restatement**

 

**Background of the Investigation**

 

  On October 4, 2007, we issued a pressrelease and filed a Current Report on Form 8-K with the Securities andExchange Commission (the “SEC”) in which we announced that, due to the apparentoverstatement of revenues by our Sheffield, United Kingdom (“UK”) operatingunit, it may be necessary for us to restate our financial statements for theperiods subsequent to June 2003, and that as a result our historicalfinancial statements for those periods can no longer be relied upon.  On November 12, 2007, we filed a CurrentReport on Form 8-K with the SEC in which we announced that the potentialirregularities in the financial reporting by the Sheffield, UK operating unitalso includes the overstatement of inventory and other matters. The Sheffield,UK operating unit is part of the Thornton Precision Components Limitedsubsidiary.

 

This Form 10-Q/Areflects the restatement of our previously issued condensed consolidatedfinancial statements for the three months ended April 1, 2006 and March 31,2007 and the year ended December 30, 2006. Along with this report, we are filing our amended Quarterly Report on Form 10-Q/Afor the second quarter of fiscal 2007 and the delayed third quarter of fiscal2007 on Form 10-Q as well as our Annual Report for fiscal 2007 on Form 10-K.  We do not intend to amend our

 

7

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previously filed AnnualReports on Form 10-K or Quarterly Reports on Form 10-Q for theperiods prior to fiscal 2007.  Thefinancial information that was presented in previous filings or otherwisereported for these periods is amended by the information in our Annual Reportfor fiscal 2007 on Form 10-K.  Thefinancial statements and related financial information contained in suchpreviously filed reports should no longer be relied upon.

 

Upon discovery of the accounting irregularities, theAudit Committee engagedspecial legal counsel who in turn retained independent forensicaccountants, to investigate and report to the Audit Committee. That investigation has concluded that theirregularities were isolated to our Sheffield, UK operating unit.

 

Wehave quantified the impact of the irregularities identified at our Sheffield,UK operating unit, and are restating our financial statements to correct thoseirregularities.  The restatements correctmisstatements within accounts receivable, inventory, accounts payable,property, plant and equipment and the corresponding income tax and profit andloss impacts. Furthermore,once the restated financial performance was known, an impairment of goodwilland certain other intangibles at that subsidiary occurred in fiscal2005.  The cumulative impact to beginningretained earnings as of December 31, 2005 was $46.5 million.

 

**Restatement Adjustments**

 

The following tablerepresents the effect of the restatement on the condensed consolidatedstatements of operations for the three months ended March 31, 2007 and April 1,2006 and should be reviewed in conjunction with the descriptions of theadjustments following the condensed consolidated balance sheets:

 
| ** **                                                         | ** ** | **Three Months Ended**                                   | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                         | ** ** | **March 31,**                                                 | ** ** | **March 31,**               | ** ** | **March 31,** | ** ** | **April 1,** | ** ** | **April 1,** | ** ** | **April 1,** | ** ** |
| ** **                                                         | ** ** | **2007**                                                           | ** ** | **2007**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                                         | ** ** | **(Reported)**                                                     | ** ** | **(Adjustment)**                 | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                         | ** ** | **(unaudited)**                                                    | ** ** |
| ** **                                                         | ** ** | **(In Thousands, Except per Share Data)** | ** ** |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Revenue                                                            |       | $                                                                  | 67,519     |                             | $          | (2,795 | ) | $ | 64,724 |   | $ | 69,613 |   | $ | (1,289 | ) | $ | 68,324 |   |
| Cost of Revenue                                                    |       | 52,558                                                             |       | 452                              |       | 53,010 |   | 49,272 |   | 397 |   | 49,669 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Gross Profit                                                       |       | 14,961                                                             |       | (3,247                           | )          | 11,714 |   | 20,341 |   | (1,686 | ) | 18,655 |   |
| Selling,  general, and administrative expenses                     |       | 7,873                                                              |       | (222                             | )          | 7,651 |   | 7,040 |   | (5 | ) | 7,035 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Operating Income                                                   |       | 7,088                                                              |       | (3,025                           | )          | 4,063 |   | 13,301 |   | (1,681 | ) | 11,620 |   |
| Other (income)  expense:                                           |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Interest expense                                                   |       | 1,587                                                              |       | —                           |       | 1,587 |   | 661 |   | — |   | 661 |   |
| Derivatives  valuation (gain)/loss                                 |       | (295                                                               | )          | —                           |       | (295 | ) | (1 | ) | — |   | (1 | ) |
| Other                                                              |       | 546                                                                |       | 113                              |       | 659 |   | (219 | ) | (165 | ) | (384 | ) |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Income before  income taxes                                        |       | 5,250                                                              |       | (3,138                           | )          | 2,112 |   | 12,860 |   | (1,516 | ) | 11,344 |   |
| Income tax  expense                                                |       | 1,540                                                              |       | (1,043                           | )          | 497 |   | 4,483 |   | (1,107 | ) | 3,376 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                 |       | $                                                                  | 3,710      |                             | $          | (2,095 | ) | $ | 1,615 |   | $ | 8,377 |   | $ | (409 | ) | $ | 7,968 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Net income per  share                                              |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Basic                                                              |       | $                                                                  | 0.11       |                             | $          | (0.06 | ) | $ | 0.05 |   | $ | 0.24 |   | $ | (0.01 | ) | $ | 0.23 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Diluted                                                            |       | $                                                                  | 0.11       |                             | $          | (0.06 | ) | $ | 0.05 |   | $ | 0.24 |   | $ | (0.01 | ) | $ | 0.23 |   |
|                                                               |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Weighted average  common shares and equivalent shares outstanding: |       |                                                               |       |                             |       |   |   |   |   |   |   |   |   |
| Basic                                                              |       | 34,973                                                             |       | —                           |       | 34,973 |   | 34,717 |   | — |   | 34,717 |   |
| Diluted                                                            |       | 35,194                                                             |       | —                           |       | 35,194 |   | 35,137 |   | — |   | 35,137 |   |

 

8

----

 

The following tablerepresents the effect of the restatement on the condensed consolidated balancesheets as of March 31, 2007 and December 30, 2006 and should bereviewed in conjunction with the descriptions of the adjustments following thecondensed consolidated balance sheets:

 
| ** **                                                                                                                          | ** ** | **March 31,**                                                 | ** ** | **March 31,** | ** ** | **March 31,** | ** ** | **December 30,** | ** ** | **December 30,** | ** ** | **December 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2007**                                                           | ** ** | **2007**           | ** ** | **2007**           | ** ** | **2006**              | ** ** | **2006**              | ** ** | **2006**              | ** ** |
| ** **                                                                                                                          | ** ** | **(Reported)**                                                     | ** ** | **(Adjustment)**   | ** ** | **(Restated)**     | ** ** | **(Reported)**        | ** ** | **(Adjustment)**      | ** ** | **(Restated)**        | ** ** |
| ** **                                                                                                                          | ** ** | **(unaudited)**                                                    | ** ** | **(unaudited)**    | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** |
| ** **                                                                                                                          | ** ** | **(In Thousands, Except Per Share Data)** | ** ** |
| **Assets:**                                                                                                                         |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Current Assets:                                                                                                                     |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                                                          |       | $                                                                  | 6,094      |               | $          | —             |       | $                     | 6,094      |                  | $          | 11,721                |       | $ | — |   | $ | 11,721 |   |
| Accounts  receivables, net                                                                                                          |       | 55,267                                                             |       | (16,358            | )          | 38,909             |       | 47,506                |       | (14,597               | )          | 32,909                |       |
| Inventories                                                                                                                         |       | 49,253                                                             |       | (16,724            | )          | 32,529             |       | 47,392                |       | (14,258               | )          | 33,134                |       |
| Refundable  income taxes                                                                                                            |       | 112                                                                |       | 4,523              |       | 4,635              |       | 111                   |       | 4,263                 |       | 4,374                 |       |
| Deferred income  taxes                                                                                                              |       | 3,534                                                              |       | —             |       | 3,534              |       | 2,826                 |       | —                |       | 2,826                 |       |
| Other current  assets                                                                                                               |       | 3,820                                                              |       | —             |       | 3,820              |       | 3,965                 |       | —                |       | 3,965                 |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total current  assets                                                                                                               |       | 118,080                                                            |       | (28,559            | )          | 89,521             |       | 113,521               |       | (24,592               | )          | 88,929                |       |
| Property and  equipment, net                                                                                                        |       | 109,413                                                            |       | (5,668             | )          | 103,745            |       | 106,147               |       | (3,240                | )          | 102,907               |       |
| Goodwill                                                                                                                            |       | 157,885                                                            |       | (26,406            | )          | 131,479            |       | 156,241               |       | (26,275               | )          | 129,966               |       |
| Intangible  assets, net of accumulated amortization                                                                                 |       | 36,830                                                             |       | (1,632             | )          | 35,198             |       | 33,257                |       | (1,644                | )          | 31,613                |       |
| Other assets                                                                                                                        |       | 922                                                                |       | —             |       | 922                |       | 981                   |       | —                |       | 981                   |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total Assets                                                                                                                        |       | $                                                                  | 423,130    |               | $          | (62,265            | )          | $                     | 360,865    |                  | $          | 410,147               |       | $ | (55,751 | ) | $ | 354,396 |   |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                     |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Current  Liabilities:                                                                                                               |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Accounts payable                                                                                                                    |       | $                                                                  | 19,170     |               | $          | 2,754              |       | $                     | 21,924     |                  | $          | 14,860                |       | $ | 5,823 |   | $ | 20,683 |   |
| Accrued wages  and benefits                                                                                                         |       | 10,168                                                             |       | —             |       | 10,168             |       | 7,816                 |       | —                |       | 7,816                 |       |
| Other accrued  expenses                                                                                                             |       | 4,723                                                              |       | —             |       | 4,723              |       | 4,104                 |       | —                |       | 4,104                 |       |
| Income tax  payable                                                                                                                 |       | 1,281                                                              |       | (530               | )          | 751                |       | 850                   |       | 120                   |       | 970                   |       |
| Deferred income  taxes                                                                                                              |       | 337                                                                |       | 438                |       | 775                |       | 249                   |       | —                |       | 249                   |       |
| Derivative  valuation liability                                                                                                     |       | 546                                                                |       | —             |       | 546                |       | 1,184                 |       | —                |       | 1,184                 |       |
| Revolving line  of credit                                                                                                           |       | 2,215                                                              |       | —             |       | 2,215              |       | —                |       | —                |       | —                |       |
| Current portion  of capital lease obligations                                                                                       |       | 2,956                                                              |       | —             |       | 2,956              |       | 3,500                 |       | —                |       | 3,500                 |       |
| Current portion  of long-term debt                                                                                                  |       | 7,837                                                              |       | —             |       | 7,837              |       | 5,550                 |       | —                |       | 5,550                 |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total current  liabilities                                                                                                          |       | 49,233                                                             |       | 2,662              |       | 51,895             |       | 38,113                |       | 5,943                 |       | 44,056                |       |
| Deferred income  taxes                                                                                                              |       | 11,662                                                             |       | (4,063             | )          | 7,599              |       | 11,832                |       | (3,440                | )          | 8,392                 |       |
| Derivative  valuation liability                                                                                                     |       | 893                                                                |       | —             |       | 893                |       | 549                   |       | —                |       | 549                   |       |
| Capital lease  obligations, less current portion                                                                                    |       | 5,400                                                              |       | —             |       | 5,400              |       | 5,142                 |       | —                |       | 5,142                 |       |
| Long-term debt,  less current portion                                                                                               |       | 59,110                                                             |       | —             |       | 59,110             |       | 63,650                |       | —                |       | 63,650                |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total  Liabilities                                                                                                                  |       | 126,298                                                            |       | (1,401             | )          | 124,897            |       | 119,286               |       | 2,503                 |       | 121,789               |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Commitments and  contingencies (Note 9)                                                                                             |       | —                                                             |       | —             |       | —             |       | —                |       | —                |       | —                |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Shareholders’  Equity:                                                                                                         |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Common Stock,  $.0001 par value; 72,410 shares authorized; shares issued March 31, 2007—35,294; December 30, 2006—35,107) |       | 4                                                                  |       | —             |       | 4                  |       | 4                     |       | —                |       | 4                     |       |
| Additional  paid-in capital                                                                                                         |       | 272,977                                                            |       | (874               | )          | 272,103            |       | 271,388               |       | (672                  | )          | 270,716               |       |
| Retained  earnings (deficit)                                                                                                        |       | 10,481                                                             |       | (54,243            | )          | (43,762            | )          | 6,771                 |       | (52,148               | )          | (45,377               | )          |
| Accumulated  other comprehensive income (loss)                                                                                      |       | 13,370                                                             |       | (5,747             | )          | 7,623              |       | 12,698                |       | (5,434                | )          | 7,264                 |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total  Shareholders’ Equity                                                                                                    |       | 296,832                                                            |       | (60,864            | )          | 235,968            |       | 290,861               |       | (58,254               | )          | 232,607               |       |
|                                                                                                                                |       |                                                               |       |               |       |               |       |                  |       |                  |       |                  |       |
| Total Liabilities  and Shareholders’ Equity                                                                                    |       | $                                                                  | 423,130    |               | $          | (62,265            | )          | $                     | 360,865    |                  | $          | 410,147               |       | $ | (55,751 | ) | $ | 354,396 |   |

 

The adjustments resultingin the restatements are described as follows:

 

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

 

*Cost of Revenue, Inventory andAccounts Payable Adjustments* - Adjustments include thecorrection of cost of sales related to revenue adjustments discussed above inaddition to the eliminations of fictitious work in process inventory which hadbeen previously sold or scrapped and adjustments to properly reflect the timingof inventory receipts and related disbursements.

 

9

----

 

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

 

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

 

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

 

*Property & Equipment, Net**Adjustments –*Remove costs inconstruction in progress related to costs associated with tools and dies thatwere capitalized erroneously.

 

*Goodwill, Intangible Assets andRetained Earnings Adjustments* – Certain of the abovementioned errors and irregularities date back to prior periods including theopening balance sheet established at the time of the acquisition of theSheffield operation in 2003. The adjustments to the opening balance sheetresult in an increase to goodwill of approximately $8,242.  In addition, utilizing the restated operatingresults we determined that carrying value of the Sheffield reporting unit aswell as a customer related intangible were in excess of their fair value.  The impairment analysis resulted in thewrite-off of goodwill and intangibles of $33,580 in 2005.

 

10

----

 

The following tablerepresents the effect of the restatement on the condensed consolidatedstatements of cash flows for the three months ended March 31, 2007 and April 1,2006 and should be reviewed in conjunction with the descriptions of theadjustments following the condensed consolidated balance sheets:

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**               | ** ** | **March 31,**               | ** ** | **March 31,** | ** ** | **April 1,** | ** ** | **April 1,** | ** ** | **April 1,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                         | ** ** | **2007**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | **(Reported)**                   | ** ** | **(Adjustment)**                 | ** ** | **(Restated)** | ** ** | **(Reported)** | ** ** | **(Adjustment)** | ** ** | **(Restated)** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                  | ** ** |
| ** **                                                                                   | ** ** | **(In Thousands)**          | ** ** |
| **Operating  activities**                                                                    |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Net Income                                                                                   |       | $                                | 3,710      |                             | $          | (2,095 | ) | $ | 1,615 |   | $ | 8,377 |   | $ | (409 | ) | $ | 7,968 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                                 |       | 4,179                            |       | —                           |       | 4,179 |   | 3,704 |   | — |   | 3,704 |   |
| Amortization                                                                                 |       | 494                              |       | (20                              | )          | 474 |   | 151 |   | (19 | ) | 132 |   |
| Foreign currency  transaction (gain) loss                                                    |       | (11                              | )          | 113                              |       | 102 |   | (284 | ) | (165 | ) | (449 | ) |
| Net (gain) loss  on sale of assets                                                           |       | 2                                |       | —                           |       | 2 |   | 13 |   | — |   | 13 |   |
| Deferred income  tax provision                                                               |       | (890                             | )          | (1,583                           | )          | (2,473 | ) | (233 | ) | 568 |   | 335 |   |
| Excess tax  benefit from stock-based compensation                                            |       | (796                             | )          | —                           |       | (796 | ) | (1,062 | ) | — |   | (1,062 | ) |
| Stock-based  compensation                                                                    |       | 244                              |       | (202                             | )          | 42 |   | 108 |   | — |   | 108 |   |
| Derivative  valuation change                                                                 |       | (295                             | )          | —                           |       | (295 | ) | (1 | ) | — |   | (1 | ) |
| Change in  operating assets and liabilities:                                                 |       |                             |       | —                           |       | — |   | — |   | — |   | — |   |
| Accounts  receivable                                                                         |       | (5,462                           | )          | 1,556                            |       | (3,906 | ) | (4,406 | ) | (434 | ) | (4,840 | ) |
| Other assets                                                                                 |       | 190                              |       | (88                              | )          | 102 |   | 108 |   | - |   | 108 |   |
| Inventories                                                                                  |       | (175                             | )          | 2,370                            |       | 2,195 |   | (620 | ) | 924 |   | 304 |   |
| Current income  taxes                                                                        |       | 70                               |       | 545                              |       | 615 |   | 1,567 |   | (1,688 | ) | (121 | ) |
| Accounts payable                                                                             |       | 3,591                            |       | (3,068                           | )          | 523 |   | (4,109 | ) | 1,210 |   | (2,899 | ) |
| Accrued expenses  and other                                                                  |       | 2,906                            |       | —                           |       | 2,906 |   | (586 | ) | — |   | (586 | ) |
| Net cash  provided by (used in) operating activities                                         |       | 7,757                            |       | (2,472                           | )          | 5,285 |   | 2,727 |   | (13 | ) | 2,714 |   |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| **Investing  activities**                                                                    |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Purchases of  property and equipment                                                         |       | (3,473                           | )          | 2,483                            |       | (990 | ) | (5,085 | ) | — |   | (5,085 | ) |
| Proceeds from  the sale of fixed assets                                                      |       | 28                               |       | —                           |       | 28 |   | — |   | — |   | — |   |
| Acquisition, net  of cash received                                                           |       | (10,317                          | )          | —                           |       | (10,317 | ) | — |   | — |   | — |   |
| Net cash provided  by (used in) investing activities                                         |       | (13,762                          | )          | 2,483                            |       | (11,279 | ) | (5,085 | ) | — |   | (5,085 | ) |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| **Financing  activities**                                                                    |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Proceeds from  bank revolver                                                                 |       | 16,473                           |       | —                           |       | 16,473 |   | 4,641 |   | — |   | 4,641 |   |
| Payments on bank  revolver                                                                   |       | (16,502                          | )          | —                           |       | (16,502 | ) | (3,028 | ) | — |   | (3,028 | ) |
| Payments on  long-term debt and capital lease obligations                                    |       | (903                             | )          | —                           |       | (903 | ) | (2,384 | ) | — |   | (2,384 | ) |
| Proceeds from  the issuance of common stock, net of expenses                                 |       | 549                              |       | —                           |       | 549 |   | 404 |   | — |   | 404 |   |
| Excess tax  benefit from stock-based compensation                                            |       | 796                              |       | —                           |       | 796 |   | 1,062 |   | — |   | 1,062 |   |
| Net cash  provided by (used in) financing activities                                         |       | 413                              |       | —                           |       | 413 |   | 695 |   | — |   | 695 |   |
| Effect of  exchange rate changes on cash                                                     |       | (35                              | )          | (11                              | )          | (46 | ) | 108 |   | 13 |   | 121 |   |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | (5,627                           | )          | —                           |       | (5,627 | ) | (1,555 | ) | — |   | (1,555 | ) |
| Cash and cash  equivalents at beginning of period                                            |       | 11,721                           |       | —                           |       | 11,721 |   | 12,471 |   | — |   | 12,471 |   |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents at end of period                                                  |       | $                                | 6,094      |                             | $          | — |   | $ | 6,094 |   | $ | 10,916 |   | $ | — |   | $ | 10,916 |   |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Supplemental  disclosures:                                                                   |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Cash paid for  interest                                                                      |       | $                                | 1,606      |                             | $          | — |   | $ | 1,606 |   | $ | 512 |   | $ | — |   | $ | 512 |   |
|                                                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Cash paid for  income taxes                                                                  |       | $                                | 1,449      |                             | $          | (637 | ) | $ | 812 |   | $ | 2,034 |   | $ | — |   | $ | 2,034 |   |

 

*Consolidated Statement of Cash Flow Adjustments—*Forthe income statement and balance sheet adjustments described above,corresponding adjustments were made to the consolidated statements of cashflows.

 

11

----

 

**3. Inventories**

 

Inventories consist ofthe following:

 
| ** **                 | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|----------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                 | ** ** | **(Restated)**     | ** ** | **(Restated)**        | ** ** |
| ** **                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Raw material and  supplies |       | $                  | 8,234      |                  | $          | 10,661 |   |
| Work-in-process            |       | 13,275             |       | 10,561                |       |
| Finished goods             |       | 11,020             |       | 11,912                |       |
|                       |       |               |       |                  |       |
|                       |       | $                  | 32,529     |                  | $          | 33,134 |   |

 

**4. Property and Equipment**

 

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

 
| ** **                                   | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|----------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                   | ** ** | **(Restated)**     | ** ** | **(Restated)**        | ** ** |
| ** **                                   | ** ** | ** **         | ** ** | ** **            | ** ** |
| Land                                         |       | $                  | 7,552      |                  | $          | 6,735 |   |
| Buildings and  improvements (20 to 40 years) |       | 45,370             |       | 44,430                |       |
| Machinery and  equipment (5 to 15 years)     |       | 99,679             |       | 96,192                |       |
| Office equipment  (3 to 5 years)             |       | 7,978              |       | 7,895                 |       |
| Construction-in-progress                     |       | 785                |       | 1,560                 |       |
|                                         |       |               |       |                  |       |
|                                         |       | 161,364            |       | 156,812               |       |
| Less accumulated  depreciation               |       | (57,619            | )          | (53,905               | )          |
|                                         |       |               |       |                  |       |
|                                         |       | $                  | 103,745    |                  | $          | 102,907 |   |

 

**5. Intangible Assets**

 

Intangible assets wereacquired in connection with our various business acquisitions. The increase inintangibles is due to our acquisition of Clamonta Ltd. in January 2007.

 

As of March 31,2007, the balances of intangible assets, other than goodwill, were as follows:

 
| ** **                                               | ** ** | **Weighted-average** | ** ** | **Gross**      | ** ** | ** **       | ** ** | **Net**        | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                                               | ** ** | **Amortization**     | ** ** | **Intangible** | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                                               | ** ** | **Period**           | ** ** | **Assets**     | ** ** | **Amortization** | ** ** | **Assets**     | ** ** |
|                                                     |       | **(Restated)**       |       | **(Restated)** |       | **(Restated)**   |       | **(Restated)** |       |
| Acquired  technology and patents                         |       | 12 years             |       | $              | 1,575      |             | $          | (306           | )          | $ | 1,269 |   |
| Acquired  customers                                      |       | 19 years             |       | 29,582         |       | (2,670           | )          | 26,912         |       |
| Non-compete  agreements                                  |       | 5 years              |       | 402            |       | (47              | )          | 355            |       |
| Intangible  assets subject to amortization               |       |                 |       | 31,559         |       | (3,023           | )          | 28,536         |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Proprietary  processes                                   |       | Indefinite           |       |           |       |             |       | 3,891          |       |
| Trademarks                                               |       | Indefinite           |       |           |       |             |       | 2,771          |       |
| Indefinite-lived  intangible assets, other than goodwill |       |                 |       |           |       |             |       | 6,662          |       |
|                                                     |       |                 |       |           |       |             |       |           |       |
| Total                                                    |       |                 |       |           |       |             |       | $              | 35,198     |   |
|                                                          |            |                      |            |                |            |                  |            |                |            |  |  |  |

 

12

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

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

 

**6. New Accounting Pronouncements**

 

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

 

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

 

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

 

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

 

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

 

**7. Segment Reporting**

 

The Corporation primarilydesigns, develops and manufactures implants and related surgical instrumentsand cases for orthopedic device companies and companies in other medical devicemarkets such as dental, osteobiologic and endoscopy. The Corporation also sellsproducts to the aerospace industry. The Corporation manages its business inmultiple operating segments. Because of the similar economic characteristics ofthese operations, including the nature of the products, comparable level of FDAregulations, same or similar customers, those operations have been aggregatedfollowing the provisions of SFAS No. 131 for segment reportingpurposes. The results of one segment which sells exclusively to aerospacecustomers has not been disclosed separately as it does not meet thequantitative disclosure requirements.

 

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

 

13

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*Revenuefrom External Customers:*

 
| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **               | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **               | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| ** **               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| United States            |       | $                                | 38,659     |   | $ | 45,984 |   |
| United Kingdom           |       | 11,995                           |       | 7,070 |   |
| Ireland                  |       | 5,796                            |       | 7,530 |   |
| Other foreign  countries |       | 8,274                            |       | 7,740 |   |
|                     |       |                             |       |   |   |
| Total net  revenues      |       | $                                | 64,724     |   | $ | 68,324 |   |

 

*Concentrationof Credit Risk:*

 

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

 

Quarter ended March 31,2007—Four customers represented approximately 16.5%, 12.1%, 11.2% and 11.0% ofnet revenues, respectively.

 

Quarterended April 1, 2006—Two customers represented approximately 29.4% and16.8% of net revenues, respectively.

 

Following is a summary ofthe composition by product category of the Corporation’s net revenues toexternal customers. Revenues from aerospace products are included in the “other”category.

 
| ** **          | ** ** | **Three Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|
| ** **          | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **          | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **          | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| ** **          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Implants            |       | $                                | 22,673     |   | $ | 26,650 |   |
| Instruments         |       | 15,243                           |       | 21,578 |   |
| Cases               |       | 17,586                           |       | 14,671 |   |
| Other               |       | 9,222                            |       | 5,425 |   |
|                |       |                             |       |   |   |
| Total net  revenues |       | $                                | 64,724     |   | $ | 68,324 |   |

 

14

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**8. Net Income Per Share**

 

Thefollowing table sets forth the computation of earnings per share.

 
| ** **                                                          | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                          | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
|                                                                |       |                             |       |   |   |
| Net income                                                          |       | $                                | 1,615      |   | $ | 7,968 |   |
|                                                                |       |                             |       |   |   |
| Weighted-average  common shares outstanding basic                   |       | 34,973                           |       | 34,717 |   |
| Effect of stock  options, restricted stock and stock warrants       |       | 221                              |       | 420 |   |
|                                                                |       |                             |       |   |   |
| Weighted-average  common shares outstanding and assumed conversions |       | 35,194                           |       | 35,137 |   |
|                                                                |       |                             |       |   |   |
| Net income per  share:                                              |       |                             |       |   |   |
| Basic                                                               |       | $                                | 0.05       |   | $ | 0.23 |   |
|                                                                |       |                             |       |   |   |
| Diluted                                                             |       | $                                | 0.05       |   | $ | 0.23 |   |

 

During the three monthperiod ended March 31, 2007, the Corporation issued 178 shares of commonstock through the exercise of stock options.

 

**9. Commitments and Contingencies**

 

*Environmental and Legal*

 

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

 

*Unconditional PurchaseObligations*

 

The Corporation hascontracts to purchase minimum quantities of cobalt chrome through December 2007.  Based on contractual pricing at March 31,2007, the minimum purchase obligations totaled $9,046. Purchases under 2007contracts totaled approximately $3,003 as of March 31, 2007. Thesepurchases are not in excess of our forecasted requirements.

 

**10. Comprehensive Income**

 

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

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(unaudited)**                  | ** ** |
| ** **                                | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| Net Income                                |       | $                                | 1,615      |   | $ | 7,968 |   |
| Foreign currency  translation adjustments |       | 359                              |       | 415 |   |
|                                      |       |                             |       |   |   |
| Comprehensive  income                     |       | $                                | 1,974      |   | $ | 8,383 |   |

 

15

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**11. Acquisitions**

 

On January 9, 2007,the Corporation’s subsidiary Thornton Precision Components Limited (“Thornton”)acquired all of the stock of Whedon Limited, a privately owned company based inWarwickshire, UK and the holding company of Clamonta Limited (collectively “ClamontaLtd”), for $10,317 in cash, subject to certain post closing adjustments. The acquisition of Clamonta Ltd expands the Corporation’s Total Solutions®business model into the global aerospace industry and further strengthens ourrelationship with a key aerospace customer.  Results of Clamonta Ltd areincluded from the date of acquisition.

 

As of March 31,2007, the aggregate purchase price was allocated to the opening balance sheetas follows:

 
| Current assets                                   |   | $      | 3,596  |   |
|--------------------------------------------------|--------|--------|--------|--------|
| Property,  plant & equipment            |   | 3,695  |   |
| Acquired  customers (amortized over 15 years)    |   | 2,430  |   |
| Non-compete  agreements (amortized over 5 years) |   | 110    |   |
| Trademarks  (indefinite-lived)                   |   | 1,450  |   |
| Goodwill                                         |   | 1,397  |   |
| Current  liabilities                             |   | (1,811 | )      |
| Capital leases                                   |   | (550   | )      |
|                                             |   |   |   |
| Purchase price,  net                             |   | $      | 10,317 |   |

 

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

 

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

 

***UnauditedProforma Results***  The following table represents theproforma results of the Corporation’s operations had the acquisitions of RileyMedical, Everest Metal and Clamonta Ltd been completed as of the beginning ofthe periods presented:

 
| ** **                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                       | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(unaudited)**                  | ** ** |
| ** **                       | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| Revenue                          |       | $                                | 64,810     |   | $ | 77,176 |   |
| Net Income  (loss)               |       | 1,661                            |       | 8,180 |   |
| Earnings per  share—basic   |       | $                                | 0.05       |   | $ | 0.24 |   |
| Earnings per  share—diluted |       | $                                | 0.05       |   | $ | 0.23 |   |

 

**12. Subsequent Event**

 

Symmetry Medical USAInc., a wholly-owned subsidiary of Symmetry Medical Inc. (“Symmetry Medical”),entered into a definitive stock purchase agreement on April 2, 2007 andsubsequently closed on April 3, 2007 on the purchase of all the issued andoutstanding stock of TNCO, Inc. (“TNCO”), a privately owned company basedin Whitman, Massachusetts. The cash purchase price was approximately $7,262,subject to certain post closing adjustments. TNCO designs and suppliesprecision instruments for arthroscopic, laparoscopic, sinus, and otherminimally invasive procedures.

 

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

 

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

 

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

 

16

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

 

**Explanatory Note Regarding Our Restatement**

 

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

 

This Form 10-Q/Areflects the restatement of: i) our previously issued consolidated financialstatements for the three months ended April 1, 2006, March 31, 2007and the year ended December 30, 2006; and ii) Management’s Discussion andAnalysis, based on the restated quarterly financial information.  These adjustments are discussed in Note 2 tothe consolidated financial statements. Along with this report, we are filing our amended Quarterly Report on Form 10-Q/Afor the second quarter of fiscal 2007 and the delayed third quarter of fiscal2007 on Form 10-Q as well as our Annual Report for fiscal 2007 on Form 10-K.  We do not intend to amend our previouslyfiled Annual Reports on Form 10-K or Quarterly Reports on Form 10-Qfor the periods prior to fiscal 2007. The financial information that was presented in previous filings orotherwise reported for these periods is amended by the information in ourAnnual Report for fiscal 2007 on Form 10-K.  The financial statements and relatedfinancial information contained in such previously filed reports should nolonger be relied upon.

 

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

 

Wehave quantified the impact of the irregularities identified at our Sheffield,UK operating unit, and are restating our financial statements to correct thoseirregularities.  The restatements correctmisstatements within accounts receivable, inventory, accounts payable,property, plant and equipment and the corresponding income tax and profit andloss impact. Furthermore,once the restated financial performance was known, an impairment of goodwilland certain other intangibles at that subsidiary occurred in fiscal2005. The Audit Committee engaged Ernst & Young LLP to audit ourrestated consolidated financial statements for fiscal 2005 and 2006, while simultaneously completing itsaudit of our 2007 fiscal year. Ernst & Young LLP was also engaged tore-review our quarterly consolidated financial statements for fiscal 2006 and2007.  The adjustments made as a resultof the restatements are more fully discussed in Note 2 to the consolidatedfinancial statements.

 

**Business Overview**

 

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

 

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

 

Our Annual Report on Form 10-Kfor the fiscal year ended December 29, 2007, filed contemporaneously withthis Form 10-Q/A, provides additional information about our business,operations and financial condition.

 

During the first quarter 2007,our revenue growth of 14.1% over the fourth quarter of 2006 was driven by aslow ramp-up in our core orthopedics business, continued momentum from theintegration of our 2006 acquisitions and the acquisition of Clamonta. Revenue decreased 5.3% in the first quarter 2007 compared to first quarter 2006as revenue from our top five orthopedic customers was down 26% and represented55% of total revenues.  Quarterly revenue from all other customersincreased 43% compared to the same period last year.  Our long-termstrategy is to diversify our customer base and expand into other medical devicemarkets outside of our core hip and knee business.  While we continue tomake progress on these initiatives, it did not fully offset the reduced demandfrom our top five customers during the first quarter.

 

A significant part of ourbusiness strategy has been growth through acquisitions which have enhanced ourproduct offerings and our business model.  We acquired Riley Medical Inc.and Symmetry Medical Switzerland SA (formerly known as Riley Medical Europe SA)(collectively “Riley Medical”) on May 2, 2006 for $45.8 million. Riley Medical is a leading designer and manufacturer of specialty cases andtrays for the global medical market.  We also acquired certain assets ofEverest Metal Finishing, LLC and all of the issued and outstanding stock ofEverest Metal International Limited (collectively “Everest Metal”) on August 31,2006 for $9.2 million, subject to adjustment. Everest Metal specializes inimplant finishing.

 

17

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On January 9, 2007,our wholly-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.

 

Subsequent to the quarterend, our wholly-owned subsidiary, Symmetry Medical USA Inc. entered into a definitivestock purchase agreement on April 2, 2007 and subsequently closed on April 3,2007 on the purchase of all the issued and outstanding stock of TNCO, Inc.(“TNCO”), a privately owned company based in Whitman, Massachusetts. The cashpurchase price was $7.3 million, subject to certain post closing adjustments.TNCO designs and supplies precision instruments for arthroscopic, laparoscopic,sinus, and other minimally invasive procedures.

 

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

 

Our focus remains onbeing well positioned for a resurgence of growth in our core orthopedicbusiness, while capitalizing on our market leadership to extend our TotalSolutions® approach into other markets.  In particular, we continue toexpand our engineering resources that produce and provide closer and criticalcustomer relationships on the development of new products.  This localpresence in the global marketplace allows us to be closer to our customer base,provide quicker response times and increase our value added services.

 

**First Quarter Results of Operations**

 

*Revenue.*  Revenue for the period ended March 31, 2007 decreased $3.6 million, or5.3%, to $64.7 million from $68.3 million for the comparable 2006 period. Revenue for each of our principal product categories in these periods was asfollows:

 
| ** **                | ** ** | **Three Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| **Product Category** | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                | ** ** | **(unaudited)**                  | ** ** |
| ** **                | ** ** | **(Restated)**                   | ** ** | **(Restated)** | ** ** |
| ** **                | ** ** | **(in millions)**           | ** ** |
| Implants                  |       | $                                | 22.7       |   | $ | 26.6 |   |
| Instruments               |       | 15.2                             |       | 21.6 |   |
| Cases                     |       | 17.6                             |       | 14.7 |   |
| Other                     |       | 9.2                              |       | 5.4 |   |
|                      |       |                             |       |   |   |
| Total                     |       | $                                | 64.7       |   | $ | 68.3 |   |

 

The $3.6 millionreduction in revenue resulted from lower implant and instrument revenue of $4.0million and $6.3 million, respectively.  Implant revenues included anadditional $2.0 million from our Everest Metal acquisition in 2007.  Thesereductions were partially offset by increased case revenue of $2.9 million,including an additional $6.2 million of revenue from the Riley Medicalacquisition in 2007.  Overall, implant, instrument and case revenue fromour top five customers was down 26% as we faced a challenging quarterlycomparison due to the completion of several projects for our largest customersin the first quarter of 2006.  Other revenue increased $3.8 million drivenby the continued strength in the aerospace industry and included an additional $2.9million from the Clamonta Ltd acquisition in 2007.

 

*GrossProfit.*  Gross profit for the three month periodended March 31, 2007 decreased $6.9 million, or 37.2%, to $11.7 millionfrom $18.7 million for the comparable 2006 period.  The decrease in grossprofit was driven by the 5.3% decrease in revenue coupled with lower grossprofit as a percentage of revenue which declined to 18.1% for the three monthperiod ended March 31, 2007 compared to 27.3% for the comparable 2006period.  The decline in gross margin as a percentage of revenue wasprimarily driven by our Sheffield, UK operation which experienced significantlyhigher costs as a percentage of revenue driven by higher fixed costs fordepreciation and other increased costs of manufacturing related to pooroperational management.  We havecommenced a full and complete review of Sheffield’s operations and anticipatesignificant improvements in 2008. Gross margin was also impacted by fewer largevolume projects from our top five customers which resulted in increasedoverhead costs as a percentage of revenue as well as less favorable productmix.  We view our global infrastructure as a competitive strength, and wehave made a deliberate decision to keep 

 

18

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our infrastructure inplace, enabling us to respond quickly to our customers’ needs and produce highvolume orders on short notice.

 

*Selling,General and Administrative Expenses.*  Selling,general and administrative expenses for the three month period ended March 31,2007 increased $0.7 million, or 8.8%, to $7.7 million from $7.0 million for thecomparable 2006 period.  Costs related to Riley Medical, Everest Metal andClamonta Ltd accounted for $1.1 million of the increase which included $0.3million of additional intangible asset amortization.  As a percentage ofrevenue, selling, general and administrative expenses increased to 11.8% ofrevenue for the three month period ended March 31, 2007 from 10.3% ofrevenue for the comparable 2006 period primarily due to the reduction inrevenue.

 

*OtherExpense.*   Interest expense for the three monthperiod ended March 31, 2007 increased $0.9 million, or 140.1%, to $1.6million from $0.7 million for the comparable 2006 period. This increasereflects the cost of the additional $40.0 million senior term debt related tothe acquisition of Riley Medical.  This increase was partially offset bythe reduction in outstanding capital lease obligations and existing senior termdebt through normal amortization.  No additional borrowings were needed tocomplete the Everest Metal acquisition; however, approximately $5.0 million inrevolving senior term debt was initially drawn to facilitate the Clamonta Ltdacquisition.

 

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 increase in the gain of $0.3 million for the three monthperiod ended March 31, 2007 versus the comparable 2006 period is due tomarket fluctuations in these contracts, which are not designated as hedgesunder Statement of Financial Accounting Standards (SFAS) No. 133, *Accounting for Derivative Instruments and Hedging Activities*. Duringthe first quarter of 2007, we settled one of our foreign exchange ratecontracts at a loss of $0.6 million.  Realized losses are included in theOther Expense category.  No contracts were settled in the first quarter of2006.

 

*Provisionfor Income Taxes.*   Our effective tax rate was23.5% for the three month period ended March 31, 2007 as compared to 29.8%for the comparable 2006 period. Provision for income taxes decreased by $2.9 million, or 85.3%, to $0.5million for the three month period ended March 31, 2007 from $3.4 millionfor the comparable 2006 period. This decrease was primarily due to lower pre-taxincome.  We did not record a Federal research and development tax creditin the first quarter of 2006 since the United States government had not yetreinstated Section 41 of the U.S. tax code.

 

**Liquidity and Capital Resources**

 

Our principal sources ofcash in the three month period ended March 31, 2007 were cash generatedfrom operations and borrowings under our senior credit revolving loan facilityand UK revolving credit facility. Principal uses of cash in the three monthperiod ended March 31, 2007 included capital expenditures, the acquisitionof Clamonta Ltd and debt service. We expect that our principal uses of cash inthe future will be to finance working capital, to pay for capital expenditures,to service debt and to fund mergers and acquisitions.

 

We completed theacquisition of Clamonta Ltd on January 9, 2007 for $10.3 million, subjectto adjustment, through the use of the existing cash balances and our$40.0 million senior debt facility.   On April 3, 2007, wecompleted the acquisition of TNCO for approximately $7.3 million, subject toadjustment, through the use of existing cash balances and our $40.0 millionsenior debt facility.

 

*OperatingActivities  * We generated cash from operations of$5.3 million in the three month period ended March 31, 2007 compared to$2.7 million for the three month period ended April 1, 2006, an increaseof $2.6 million.  The increase in cash from operations is primarily aresult of cash provided by working capital offset by a decrease in net incomeof $6.4 million.

 

The primary uses of cashfor working capital came from an increase in accounts receivable of $3.9million.  Primary sources of cash due to changes in working capital wereincreases in accounts payable and accrued expenses of  $3.4 million and lower inventory of $2.2million.  Increases in accounts receivable, accounts payable and accruedexpenses are a result of increasing production activity in the first quarter of2007 compared to decreasing production activity in the first quarter of 2006.

 

*InvestingActivities*  Capital expenditures of $1.0 millionwere lower by $4.1 million, or 80.5%, in the three month period ended March 31,2007 compared to the three month period ended April 1, 2006.  Theacquisition of Clamonta Ltd used $10.3 million of cash in the 2007 period withno comparable acquisition activity in the 2006 period.

 

*FinancingActivities  * Financing activities generated $0.4million of cash due primarily to the exercise of stock options offset bypayments on long-term debt and capital leases.

 

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***Capital Expenditures***

 

Capital expenditurestotaled $1.0 million for the three months ended March 31, 2007, comparedto $5.1 million for the three month period ended April 1, 2006.Expenditures were primarily related to our Sheffield, UK facility’s increase toforging and machining capacity and to maintain capacity at our otherfacilities.

 

***Debt and Credit Facilities***

 

As of March 31,2007, we had an aggregate of $77.5 million of outstanding indebtedness, which consistedof $64.2 million of term loan borrowings outstanding under our senior creditfacility, $2.7 million of borrowings outstanding under our revolving creditfacility, $2.2 million of borrowings under our UK short-term credit facilityand $8.4 million of capital lease obligations. We had no outstanding letters ofcredit as of March 31, 2007.

 

Our senior creditagreement contains various financial covenants, including covenants requiring amaximum total debt to EBITDA ratio, minimum EBITDA to interest ratio and aminimum EBITDA to fixed charges ratio. We were in compliance with our financialand restrictive covenants under the senior credit facility as of March 31,2007. See Note 12 to the condensed consolidated financial statements.

 

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

 

**Contractual Obligations and Commercial Commitments**

** **
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | ** **                                | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | **More than** | ** ** |
| ** **                      | ** ** | **Total**                                 | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **5 years** | ** ** |
| ** **                      | ** ** | **(in millions)**                    | ** ** |
| Long-term debt  obligations (1) |       | $                                         | 66.9       |   | $ | 5.6 |   | $ | 20.0 |   | $ | 41.3 |   | $ | — |   |
| Capital lease  obligations      |       | 10.4                                      |       | 0.9 |   | 4.1 |   | 1.6 |   | 3.8 |   |
| Operating lease  obligations    |       | 3.6                                       |       | 0.4 |   | 2.0 |   | 1.2 |   | — |   |
| Purchase  obligations (2)       |       | 9.0                                       |       | 9.0 |   | — |   | — |   | — |   |
|                            |       |                                      |       |   |   |   |   |   |   |   |   |
| Total                           |       | $                                         | 89.9       |   | $ | 15.9 |   | $ | 26.1 |   | $ | 44.1 |   | $ | 3.8 |   |

 

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   * Lessthan 1 year is defined as the remainder of fiscal 2007. Following periods arewhole fiscal years.

 

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

 

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

 

**Off-BalanceSheet Arrangements**

 

Our off-balance sheetarrangements include our operating leases and letters of credit, which areavailable under the senior credit facility. We had no letters of creditoutstanding as of March 31, 2007.

 

**Environmental**

 

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

 

We incurred approximately$0.2 million and $0.2 million in capital expenditures for environmental, healthand safety in 2007 and 2006, respectively. During 2007, we upgraded our HVAC and dust collection system at multiplelocations.  Environmental laws tend tobecome more stringent over time, and we could incur material expenses in thefuture relating to compliance with future environmental laws. Our Sheffield, UKfacility is now required to obtain an Integrated Pollution Prevention Control(IPPC) permit.  An application for thispermit has been submitted and we do not expect to make material capitalexpenditures to obtain or comply with the IPPC permit.

 

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In connection with ouracquisitions of Riley Medical and Everest Metal, we completed Phase Iassessments and did not find any significant issues that need to beremediated.  We cannot be certain thanenvironmental issues will not be discovered or arise in the future related tothese acquisitions.

 

In 2000, we purchasedpollution legal liability insurance that covers certain environmentalliabilities that may arise at our Warsaw, Indiana facility, at a formerfacility located in Peru, Indiana, and at certain non-owned locations that weuse for the disposal of waste. The insurance has a $5.0 million aggregate limitand is subject to a deductible and certain exclusions. The policy periodexpires in 2010. While the insurance may mitigate the risk of certainenvironmental liabilities, we cannot guarantee that a particular liability willbe covered by this insurance.

 

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

 

**CriticalAccounting Policies and Estimates**

 

The preparation of ourfinancial statements requires management to make estimates, judgments andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses during the periods presented. Our Annual Report on Form 10-Kfor fiscal year ended December 29, 2007, filed contemporaneously with the Form 10-Q/A,includes a summary of the critical accounting policies we believe are the mostimportant to aid in understanding our financial results. There have been nomaterial changes to these critical accounting policies that impacted ourreported amounts of assets, liabilities, revenues or expenses during the threemonths ended March 31, 2007.

 

**NewAccounting Pronouncements**

 

In July 2006, theFASB issued FASB Interpretation No. 48 (“FIN 48”), *Accountingfor Uncertainty in Income Taxes*, on December 31, 2006. This statement prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This statement was adopted by the Corporation December 31,2006.   The implementation of FIN 48 hadno impact on the Corporation’s financial position or results ofoperations.  As of the beginning of fiscal year 2007, the Corporation hadunrecognized tax benefits of $0.3.  There has been no significant changein the unrecognized tax benefits during the first quarter ending March 31,2007

 

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

 

We are subject toperiodic audits by domestic and foreign tax authorities.  Currently, weare undergoing routine periodic audits in both domestic and foreign taxjurisdictions.  It is reasonably possible that the amounts of unrecognizedtax benefits could change in the next 12 months as a result of the audits. It is impossible to estimate the significance of such a potential change atthis time.  For the majority of tax jurisdictions, we are no longersubject to U.S. federal, state and local, or non-U.S. income tax examinationsby tax authorities for fiscal years before 2003.

 

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

 

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

 

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

 

For financial marketrisks related to changes in interest rates, foreign currency exchange rates,commodity prices and the effects of inflation, reference is made toItem 7a “Quantitative and Qualitative Disclosures About Market Risk”contained in Part II of our Annual Report on Form 10-K for the fiscalyear ended December 29, 2007 filed contemporaneously with this Form 10-Q/A.Our exposure to these risks, at the end of the first quarter covered by thisreport, had not changed materially since December 30, 2006.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

(a)  Evaluation of disclosure controls and procedures.

 

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

 

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(b)   Changesin internal control over financial reporting.

 

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

 

In addition, subsequentto the fiscal quarter covered by this report, but prior to the filing of this Form 10-Q/A,several remedial measures were identified and implemented in response to theconclusion reached by our Chief Executive and Chief Financial Officer as of December 29,2007, that our disclosure controls and procedures were not effective.  We did not maintain an effective controlenvironment including a tone of control consciousness that consistentlyemphasized strict adherence to accounting principles generally accepted in theUnited States of America at our Thornton Precision Components Limited (“TPC”)subsidiary.  This control deficiencyincluded inadequate operation of entity level controls including monitoringcontrols that were not sufficiently sensitive in scope and therefore failed todetect and prevent on a timely basis management override of controls at TPC andcollusion of TPC’s management team to achieve desired financial accountingresults.  In certain instances,information critical to an effective review of transactions and accountingentries was not disclosed to internal and external auditors.  See our Annual Report on Form 10-K forfiscal year ended December 29, 2007 filed contemporaneously with this Form 10-Q/A.

 

**PART IIOTHER INFORMATION**

 

**ITEM 1ARISK FACTORS**

 

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

 

**ITEM 5OTHER 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 March 21,2006.

 

**ITEM 6EXHIBITS**

** **
| 10.28  |   | Stock Purchase  Agreement, dated April 2, 2007, between Symmetry Medical USA Inc. and  Roger M. Burke (incorporated by reference to Exhibit 10.1 from our Form 8-K,  filed April 5, 2007).    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| 10.29  |   | Separation Letter,  dated April 12, 2007, between Andrew J. Miclot and Symmetry Medical Inc.  (incorporated by reference to Exhibit 10.29 from our Form 10-Q,  filed May 9, 2007).            |
|   |   |                                                                                                                                                                                                              |
| 31.1   |   | Certification of Chief  Executive Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.** |
|   |   |                                                                                                                                                                                                              |
| 31.2   |   | Certification of Chief  Financial Officer required by Item 307 of Regulation S-K as promulgated by  the Securities and Exchange Commission and pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.** |
|   |   |                                                                                                                                                                                                              |
| 32.1   |   | Certification of Chief  Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.**                     |

 

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** Filed or furnishedherewith

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|     | SYMMETRY MEDICAL INC. |
|----------|-----------------------|
|     |                  |   |
|     | By                    | /s/ Brian S. Moore |
|     |                  | Brian S. Moore, |
|     |                  | *President and Chief Executive  Officer* |
|     |                  | *(Principal Executive Officer)* |
| * * | * *              | * * |
|     | By                    | /s/ Fred L. Hite |
|     |                  | Fred L. Hite, |
|     |                  | *Senior Vice President and Chief  Financial Officer* |
|     |                  | *(Principal Financial and  Accounting Officer)* |
|     |                  |   |

 

April 23, 2008

 

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